Blog post
May 7, 2024

Investing in UK Life Sciences Real Estate

We are living in an era of unprecedented scientific and technological change, which in the life science sector is fueled by ageing populations and increasing consumer reliance on medicine and medical devices. The recent COVID-19 pandemic exposed weakness in global preparedness for infectious diseases and vaccine development and highlighted the need for ongoing advancements in healthcare and biotech.

This has become a key focus for government and private investment and, as a result, the UK’s life sciences sector has experienced unprecedented growth in the last 10 years. A consequence of this has been a significant and widening supply/demand mismatch in suitable real estate such as labs, offices and R&D facilities. As the industry expands, the need for purpose-built real estate has become increasingly apparent. In this article, we will explore the reasons why eligible professional investors may wish to turn their attention towards UK life sciences real estate. 

Golden Triangle 

The epicentre of the UK life sciences and technology industry is located in Oxford, London and Cambridge, commonly known as the ‘Golden Triangle’. The Golden Triangle benefits from several key attributes that allow it to be at the forefront of growth in life sciences and technology in the UK. Primarily, it is home to four of the top ten universities in the world for healthcare: University of Oxford, University of Cambridge, Imperial College London and University College London. These institutions breed an exceptional talent pool that feeds into the life sciences industry. The Golden Triangle is also home to a large percentage of the UK’s biotech industry and an existing ecosystem of corporations, including leading medical research institutes such as the Wellcome Trust and Cancer Research UK as well as global pharmaceutical companies such as AstraZeneca and GSK. Scientific clusters deliver high-impact science, rapid innovation and technological advancements, driving growth and attracting investment.  

Historically, academics have typically followed a conventional path of entering further academia and contributing to research publications. However, recently, there has been a consensus that leveraging intellectual capital is most effectively achieved by establishing innovative healthcare or R&D startups, thereby directly influencing societal progress. This has led to a boom in life sciences start-ups and spin-outs fuelled by venture capital and government funding. Life science graduates in the golden triangle typically follow a trajectory that involves initially nurturing their startups within university incubators, with the ultimate goal of being acquired by larger institutions upon achieving success. However, an apparent void exists between these two phases, particularly for startups that outgrow the incubator environment but remain smaller than what is considered suitable for institutional backing. This also translates into the lab size requirements and need for suitable real estate during this transitional phase. There is a lack of suitable property that meets the size requirements for these life science ventures, as they navigate the space between early-stage development and the resources required for sustained growth. Addressing this gap in the entrepreneurial ecosystem is essential to facilitate the continued success of these startups, ensuring they have the necessary resources and opportunities to thrive beyond the confines of university incubators.

 

Undersupply

The life sciences sector in the UK is facing a unique challenge — the surge in demand for purpose-built infrastructure has outpaced the available supply. To conceptualise this, in Cambridge, there is a current lab shortfall of 850,000 sqft (Bidwells 2024) This has resulted in strong rental growth prospects, expected to reach £100 per sq ft (psf) by 2026 (currently £70 psf) (Bidwells 2023). The majority of incoming supply of life science real estate has been pre-let, further intensifying this supply and demand mismatch. In addition, rapid developments in life science space requirements and the increasing need for net-zero carbon buildings have driven rejection of tenancies in real estate that can’t meet sustainability criteria. This has made older buildings fall short of meeting modern requirements. This supply and demand imbalance has driven up pricing and compressed yields and has created an urgent need for new, specialised infrastructure that caters to the specific needs of the sector. 

Investing in life sciences real estate offers a dual advantage. Firstly, it addresses the shortage by producing new, purpose-built facilities that meet the stringent requirements of modern research and development. Secondly, it provides an opportunity to repurpose existing structures, breathing new life into old buildings that may otherwise remain underutilised. Therefore, by strategically aligning real estate development with the evolving needs of the life sciences sector, investors can not only capitalise on the current demand but also contribute to the long-term sustainability and growth of the industry.

Private and Government Investment 

The ‘Golden Triangle’, stands as the focal point of the UK’s life science and technology sector. As a result, the region has become a magnet for global inward investment seeking to capitalise on research and innovation. In the first ten months of 2021, UK life sciences companies raised a record-breaking total of £6.6 billion. In 2023, venture capital investment in UK life sciences and biotech continued to outperform the rest of Europe, accounting for 41% of the total region and securing £1.8 billion in equity investment. This highlights the strength of UK science and showcases the international community’s confidence in the sector’s growth potential. It is not only private capital that is aware of the potential of this burgeoning UK sector. 

The UK government has recognized the strategic importance of the life sciences sector and has made significant commitments to support its growth. This is evidenced by the launch of the UK Government’s Life Sciences Vision in 2021. The vision sets out a ten year strategy to stimulate the thriving sector and address some of the UK’s most significant healthcare challenges. A year later, the UK government announced plans for the largest ever R&D budget, with £39.6 billion committed between 2022- 2025 (2.4% of GDP by 2027) to cement the UK’s position as a science superpower and innovation nation. With the industry already valued at £94 billion, the government has demonstrated its dedication to furthering the sector’s potential. In 2023 alone, over £1 billion in funding packages were announced to drive further private investment into the sector. In the recent Spring Budget, Chancellor Jeremy Hunt reaffirmed his commitment to sectoral growth with a £360 million package to encourage start-up and scale of UK life science businesses. 

 

Conclusion

Investing in UK life sciences real estate presents an opportunity for eligible professional investors seeking to capitalise on the industry’s growth and the evolving landscape of scientific research and technology. The significant undersupply of demand creates a real opportunity to create supply in a market where no one is selling. This, combined with the UK’s leading position in inward investment, and substantial government support, positions life sciences real estate as a strategic potential investment choice. As the sector continues to expand and supply becomes increasingly compressed, those who act to secure such opportunities may gain not just financial returns but also a contribution to the advancement of life-changing innovations.

 

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