Blackstone, BioMed And Cambridge Uni On The 7 Things You Must Know For Your Life Sciences Scheme To Succeed
Life sciences real estate is a hot sector right now, in both the U.S. and, more recently, the UK. Governments and the private sector are investing record amounts in science and technology research and development, the companies in the sector are growing fast, and thus their need for real estate is expanding.
But what does it take to create buildings and wider schemes that can successfully tap in to this growing demand?
Attendees at Bisnow’s UK Life Sciences Under The Microscope digital summit heard from speakers from Blackstone, BioMed Realty, Cambridge University and more on what it takes to succeed in the sector. Here are some key lessons.
Get Your Head Around The Speed Of Growth
Advances in knowledge and the speed of new scientific discovery are happening so quickly that companies in the life sciences sector can change space requirements incredibly quickly and frequently. That is especially so given the increased investment in the sector. The real estate you create for these companies needs to be able to adapt as well.
“Real estate has to respond to the speed that these industries are bringing, and it is hard to move bricks-and-mortar,” said Bill Kane, BioMed Realty executive vice president of the East Coast and UK markets.
“We’ve got to provide optionality for them, particularly in a mechanical and engineering sense and the systems they use, to ensure that our schemes are as sustainable as possible. Our facilities team are working with tenants every step of the way, we’re not just developing space and leasing it out.”
“We refer to the ABC: academics, businesses, clinicians,” Cambridge University Health Partners Interim Executive Director Araminta Ledger said, pointing out that access to companies like venture capital firms is important if startup firms are going to grow. “Those networks are key.”
Speed Has To Equal Flexibility
There is a fine balance among that speed of growth in life sciences real estate. Companies in the sector often have very specific requirements for the type of lab, research and office space they need. But they also need to move fast to carry out their research, and for landlords, you don’t want to be too bespoke when creating space for a tenant.
“What’s changed in this business is maybe 10 years ago, tenants would come in and build out what they wanted to a very bespoke level, and landlords learned a hard lesson that when they ended up leaving at the end of that term you had to rip all of that out and start over,” said Blackstone Managing Director Ron Bernstein, who runs the private equity giant’s life sciences fund.
“What we’ve learned, we really now control what is built, we don’t let our tenants go crazy, and we make sure they create very efficient and very reusable space. If you were to go through our buildings you would see very similar types of build-out.”
Bernstein pointed out that it takes more investment from a landlord to build and fit-out life sciences space than your typical office. But he added that tenants make major co-investments alongside them, which make them more “sticky.” But on the whole, this design shift is about creating space that could be reused by a new tenant without needing a major investment from the landlord.
Flexibility Equals A Different Business Model
The thing about all that flexibility is that it runs counter to how real estate has been leased and funded until very recently. Operating with shorter leases, unique tenants and a tenant mix that needs to be curated means a different business model than the usual build it, lease it, forget it.
“One of the potential barriers is creating the flexible space that life sciences companies need to scale up,” Ledger said. “It can be difficult to find funding because building in that flexibility makes it harder to build a business case.”
In terms of solutions, she pointed to a joint venture between the local authority and a private developer in Cambridge, where funds accessed through the council’s local industrial strategy allowed for the building of flexible space. It is something that Ledger said had been done several times in Cambridge, in this case creating a building with suites of 5K SF to 20K SF, ideal for companies that are scaling up quickly.
“That’s good for the companies, the developer and the local authority.”
Think How To Attract Life Sciences Talent
The idea of the cluster of like-minded businesses is common throughout real estate, but perhaps nowhere is it more important than in life sciences.
“There is a remarkable demand for talent, and that means we have to help our partners develop really interesting places to work,” BioMed’s Kane said. “For a consumer like this, an interesting place to work isn’t foosball and free beer. These are highly intellectual people that like to partner with their peers in the business, they like to share ideas and collaborate with them.”
Creating schemes with lots of interesting companies that might want to work together means other companies want to be there, stimulating demand.
“You are creating a subscription to a portfolio; it is social engineering as well as physical,” Kane added.
Talent Doesn’t Just Mean Graduates
In terms of the locations that will appeal to life sciences occupiers, much is always made of proximity to top research universities like Oxford, Cambridge and Imperial In London to tap into the stream of clever graduates they are churning out. That is clearly important, but appealing to talent is about more than just graduates.
“It’s not just science graduates, but where are growing companies going to get the support services they need, the C-suite executives, and also the manufacturing expertise,” Cambridge’s Ledger said.
“Local authorities get it wrong a lot of the time,” said James Sheppard, head of commercial UK and Ireland for Kadans Science Partner. “They all tell you how many graduates they have in their area. But what is the hardest thing to do in life sciences in Europe? Recruit senior and midlevel talent, because the sector is still so nascent.”
Life Sciences Is A Broad Church
“There are a lot of different types of company in this sector, with different growth trajectories and different real estate needs,” JLL Head of Life Sciences Glenn Crocker said, emphasising the range of occupier in the sector, something which those investing or developing in it need to understand if they are going to meet their real estate needs. Health tech and pharma tech are using AI and machine learning to discover new therapies, essentially acting as tech companies that need data-led offices in the right location to access talent. Medical technology firms have more of a manufacturing focus that need “dry labs,” like engineering facilities. Chemistry or biotech firms need “wet labs” to research and create therapeutic medicines.
“To get the building right, you have to go right back to understanding the market,” Sheppard said. “What you build in Stevenage is not what you would build in Cambridge, or Edinburgh or London. You have to really understand the sort and scale of company you are going for. Some landlords will really want to go for that startup company and will create a product and a business model that is appropriate for that. Some will want to target those bigger companies, your GSKs or AstraZenecas, who will take a 10- or 15-year lease.”
As Always, Housing Is Crucial
Urban Land Institute European Chief Executive Lisette van Doorn said there is a trap that's easy to fall into with life sciences: not all of the staff are on huge wages, especially at the small and midsized companies. If you’re trying to attract young staff who won’t be making big bucks, then those networks of like-minded people Kane mentioned are key, but so is residential. The amenities offered by an urban, vibrant city could help in attracting people, but these staff also need access to good quality and affordable housing while they are slogging away trying to find the next scientific breakthrough.