How Chronic Shortage Is In The DNA Of UK Life Sciences Property
Life sciences is about reactions of polymeric molecules, proteins and acids. But increasingly, it is also about the reaction of developers and investors to a surge in unmet demand for laboratory floorspace.
Data from Cushmam & Wakefield has laid bare the extent to which chronic shortage has become far more than the background to a sector struggling to find real estate.
Demand outstrips supply by as much as a factor of 10 in the prime Golden Triangle, with no sign of take-up easing, Cushman said. But there is no sign of any change soon to a problem of persistent undersupply.
Whilst some investors and developers are busy, others are waiting until the appraisal mathematics looks more certain.
Among those seizing the day, Kadans Science Partner has added the 60K SF Windrush Innovation Centre in Oxford to its Pan-European portfolio in a deal announced Monday.
The Dutch-based life sciences property business, recently acquired by AXA IM Alts, is in the midst of an aggressive UK expansion and will demolish the existing building and create more than 60K SF of new high-specification laboratory and office space in partnership with the tenant, Oxford Biomedica. The site is part of the south Oxford life sciences cluster.
Others, however, watch rising interest rates and construction inflation and decide to sit on their hands until the situation becomes clear. This is why, despite high demand, the market remains hard-wired for undersupply.
Here are the four big takeaways from the latest research.
1. Demand Is 10 Times Supply
A total of 221K SF of purpose-built lab space transacted across the Golden Triangle of Oxford, Cambridge and London in the first quarter of 2023. Just 21K SF of new space was delivered. The Q1 figures were 34K SF in Cambridge, 25K SF in London, and Oxford scoring 162K SF with Moderna taking 145K SF at Harwell Campus, Oxford.
The Q1 figures are unusually good — 42% above the five-year average, thanks to Moderna — but they indicate a new normal as demand spirals. Cushman & Wakefield said a further 180K SF is under offer, ensuring that Q2 will be every bit as strong.
2. Active Requirements Approach 3M SF
Active requirements total 2.86M SF of lab space in the Golden Triangle, equivalent to a staggering 221% of the supply due to complete in the next 18 months. Put another way, more than half of those requirements can't be satisfied. But if you take into account pre-lets it's much worse because ...
3. The Development Pipeline Is Leaking
At the end of Q1 2023, a total of 1.56M SF of laboratory space was under construction. But 32% of this won't reach the market because 504K SF is pre-let.
The longer-range pipeline is 3.7M SF, all of which has planning consent. But if demand continues at anything like the current rate, this is nowhere near enough. Of course, developers and investors could speed up development, but too often they can't because ...
4. The Maths Looks Tricky
Construction inflation has gone through the roof, whilst interest rates continue to rise. Nobody is quite sure what tomorrow will bring, which makes developer and investor calculations unusually vulnerable. Not vulnerable enough to stop everyone, but enough to make a pause for thought a wise move for many players.
That is why in Q1 just five investment transactions were recorded in the Golden Triangle life sciences market, with £339M. This was an uptick compared to the £197.7M recorded in the unusually dire Q4 2022, but it was broadly in line with the five-year quarterly average.