COMMENT The life sciences industry is worth over £94bn to the UK economy and, with the UK home to many of the world’s leading academic and scientific institutions, the opportunity to capitalise on these assets is huge. There is real momentum to do just that.
Last September, the government announced the UK would rejoin Horizon Europe, the world’s largest international research collaboration scheme, and in his Autumn Statement the chancellor committed £520m to support life sciences manufacturing.
We were also delighted to see the government has accepted the recommendations of the Spin-out review – this was established with a view to turning university research into a commercial success.
On the private side, big pharmaceutical companies have stepped up M&A, complementing their in-house R&D activities, while private equity and sovereign wealth funds have also been more active.
While venture capital funding has eased off since 2021, when a record £2.5bn was invested in the UK, it remains at elevated levels to the historical norm. In Q3 last year, Cushman & Wakefield reported that VC investment into UK life sciences was up by 24% to £784m, despite economic headwinds.
However, with demand focused on a few key locations, there is a supply-demand imbalance in life sciences real estate. How can the supply side respond?
Genius loci
Location is the top priority – we call this “genius loci”. Occupiers are focused on urbanised hubs in well-connected locations. The Golden Triangle of London’s Knowledge Quarter, Oxford and Cambridge is a world-leading cluster and attracts the highest demand for life sciences space in the UK owing to its proximity to academic and scientific institutions, as well as transport hubs.
Clustering is key. The co-location of individuals and businesses with similar and complementary skill sets creates an ecosystem of talented professionals, academic institutions and infrastructure. Therefore, buildings in the Golden Triangle are extremely sought after.
Life sciences occupiers need high-tech, high-spec spaces to operate, as well as the high-quality amenities commonplace in modern offices. They typically require wet labs (for chemicals and drugs testing using liquids), dry labs (for computational science and mathematics) and write-up space (for desk-based analysis and report writing). While some former office spaces can be repurposed, there are a number of basic requirements that need to be met for this to happen successfully.
Building suitability
First, there are structural factors, such as larger than average floor-to-ceiling heights to cater for large pieces of equipment. Second, power: this is particularly important for life sciences occupiers, who often use specialised computing equipment. It is a real issue in the UK, where several development schemes have had to be postponed because developers cannot guarantee sufficient power.
Access requirements must be considered, as often large pieces of equipment need to be installed. Landlords also have to run a vibration analysis to assess the suitability of the building for sensitive equipment and install anti-vibration measures.
Being above the London Underground, as many London offices are, can be great for connectivity but does not always make for a great life sciences building. Even in the perfect location, not all buildings are suitable for life sciences occupiers.
Flexible space
Generally, life sciences occupiers are stickier in nature compared with other tenants as it takes time, effort and money to move. Therefore, once a company has found a building and location that meets its requirements and offers the flexibility to expand, it tends to remain there for the long term.
The complicated, and often costly, nature of moving into and adapting a life sciences building also means getting deals done can take time and require expert knowledge to execute.
In the start-up phase, a more flexible type of accommodation can work well, particularly for companies that do not have funding in place or have aggressive expansion plans but cannot yet justify a larger space. But location remains key, and occupiers still want to be in the Golden Triangle.
The life sciences industry is not only driving medical advancements but is key to making progress in a wide range of other fields, such as agri-tech, genetics, quantum computing, robotics and AI.
Strong sector fundamentals are set to drive sustained occupier demand over the long term, and while supply will respond, it’s the supply of the right type of space that we believe will remain constrained. That is our key focus.
Simon Farnsworth is managing director of Ironstone Asset Management
