£4B Oxford University Real Estate JV Highlights Obstacles And Opportunity For UK’s Life Sciences Push
How to produce penicillin at scale, the theory of how antibodies work, a Covid vaccine administered more than 2 billion times globally — research at Oxford University has been responsible for some of humanity’s most important scientific discoveries.
But that's the past, and the 927-year-old university is worried about remaining at the forefront of the scientific world and helping the UK in its drive to become a 21st-century sciences superpower.
If any city can achieve this aim, it should be the city with one of the most famous universities in the world. But despite the advantages conferred by history and prestige, Oxford epitomises the problems the UK faces in growing its £94B life sciences industry.
“Oxford is at the vanguard of what we’re facing in the UK,” Oxford University Development Chief Executive Anna Strongman told Bisnow. “It’s a world-leading city and university that competes with MIT when it comes to spinouts [of companies set up based on research undertaken at the university].
“But there’s a lack of real estate to help expand that R&D capability. And there’s a lack of infrastructure like housing, power and transport, everything that supports the development of a broader ecosystem.”
A shortage of real estate is a common refrain in a UK property sector that in the last two years has pivoted hard toward life sciences where demand outstrips supply, in stark contrast to traditional sectors like office and retail.
But on a tour of OUD’s assets and sites, dotted around the town 60 miles to the west of London, Strongman talked through the nuanced challenges and opportunities for the UK, towns like Oxford and the real estate industry in developing the space that the science sector needs.
Local populations wary of growth and its benefits, the need to provide housing for both workers and labs and the infrastructure development required by new developments are the problems facing Oxford and nearly every major UK city. The stakes are high and the spoils are great — if these challenges can be overcome.
OUD is a joint venture between Oxford University and UK pension fund L&G that was formed in 2019 and has about £4B in investment capital. By 2035, it aims to have delivered 1.6M SF of university space; 3,000 new homes for graduate students, researchers, university and college staff and the wider Oxford community; millions of square feet of commercially leased lab and R&D space; a host of new parks, squares, schools, playgrounds, cafes, community spaces and other amenities; and a net-zero carbon estate.
Its first schemes include the £200M Life & Mind building, 268K SF of innovation space that will be completed at the end of 2024. Set to be leased by the university, the building will bring together the departments of psychological and biological sciences for the first time. In addition, OUD will roll out Phase 1 of the £55M Begbrook Science Park redevelopment to the north of the city. That project comprises two lab-enabled buildings, one at 54K SF, providing academic facilities, and the second at 81K SF, providing commercial space.
The buildings are part of a wider masterplan for the existing science park and surrounding land that will see 1.5M SF of research and development space delivered alongside 1,800 homes, three schools and other social amenities, and links to surrounding woodlands.
In terms of the R&D space, Strongman said that, over time, the scheme could house not just wet lab space, but “mid-tech” space, a kind of quasi-warehousing space desired by companies that need manufacturing facilities, as well as computing labs sought by artificial intelligence and quantum computing firms.
The university contributes land and sites it owns to the joint venture at no cost, and L&G provides the capital to undertake developments.
“The university isn’t looking to make a profit on the land, it is looking for long-term, stable returns, and to create an ecosystem that allows it to attract global talent and continue to undertake world-class research,” Strongman said.
For L&G’s part, it gains access to a pipeline of assets in sectors it is focusing on housing and life sciences, both providing stable, long-term returns. Academic buildings are leased to the university, which has an AA credit rating.
The JV has opened doors for its wider businesses. Even though a company might have assets under management of £1.2T, people won’t necessarily know it outside of the UK. But everyone has heard of Oxford University, Strongman said.
OUD is intensely focused on an aspect that is often left out of the debate when it comes to real estate and life sciences — housing.
The life sciences sector generally has been a major destination for venture capital investment and talk abounds of researchers starting companies that are bought by bigger rivals for hundreds of millions of pounds. Yet the average annual wage for a life sciences worker in the UK is £40K, according to salary website Glassdoor.
Grad students, researchers and lab technicians are the key workers for the university research ecosystem and are needed if valuable spinout companies are going to be created. OUD is acutely aware that they are not fantastically well paid, and need housing commensurate to their salaries.
“The university wants to attract global talent, but they can’t if people can’t afford to live here,” Strongman said.
The university is again providing land and sites for housing redevelopment at no cost, with OUD looking to build housing as efficiently as possible. At Court Place Gardens, its first site, 70 homes are being built for less than £270K a unit, Strongman said. Rents are then set at a discount to prevailing local levels, but still at a price point allowing L&G to make a return.
OUD is alive to the fact that it does not exist in isolation, which is why housing is a priority, Strongman said.
“We have to be a bridge between the university and the city,” she said.
While the university is one of the city’s most famous and economically valuable assets, Oxford is also a city of 160,000 people, many of whom don’t see the point of expanding the university’s research capability and its ability to create new companies.
For some in Oxford, the university is the city. But for many more, Oxford is a historic market town in need of investment for transport, power, schools and roads. The city is not well provided for in terms of public transport, and new jobs mean more congested roads and more competition for school places, which is why new schools will be built at Begbrook. If house prices rise as the economy grows, some will benefit, but others will be priced out of ownership.
“It is no good saying you are going to add X to the UK’s GDP if people don’t see the benefits, Strongman said. “You have to bring people with you.”
Local residents aren't necessarily openly antagonistic. At a recent open day to showcase plans for Begbrook, OUD was expecting 300 people to turn up. About 1,500 people arrived, keen to learn what would be happening at the site, both in terms of the science undertaken and what the new scheme would mean for them.
“You have to be outward facing, you can’t close your doors,” Strongman said.
Oxford has an ageing population, Strongman said, and a less mixed economy than rival Cambridge, with fewer large international companies. In that sense, Oxford would benefit from an expansion of the knowledge sector, fuelled as it is by younger workers. But the wider benefits must be demonstrated, she said.
As for how the knowledge sector translates into a real estate investment opportunity, investors have been “desperate” to enter the city’s life sciences market for the past two years, Strongman said. International investors like GIC and Brookfield have made significant investments in the city alongside domestic players like Brockton and, of course, L&G.
Though rising interest rates have caused investment into Oxford life sciences to drop by around 70% this year, in line with a decline in overall UK investment, rents are up 3% in the same period, according to data from Bidwells. Lab take-up in the first half of the year was 196K SF compared to 250K SF in the whole of 2022, and there are around 500K SF of requirements.
The test for the Oxford market is whether it can help companies scale up and attract more large companies to the city, as Cambridge has done with AstraZeneca and Google, Strongman said. Currently, much of the demand comes from spinouts and startups.
With that in mind, one site that is complex yet potentially hugely important in the OUD portfolio is Osney Mead, a 44-acre industrial estate about a 10-minute walk from the city centre. Oxford University is one of several owners, and OUD could attempt to unify the ownership to develop the sort of large-scale and close-to-city-centre facilities desired by companies big and small over several years.
If the challenge can be overcome, Oxford could be in the vanguard of the UK’s future.
“It could be a site of national significance,” Strongman said.