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Life Sciences ‘Build It And They Will Come’ Strategy Is Tested Ahead Of VC Recovery

The UK’s life science real estate leasing market remains in good shape, with venture capital investment in companies on the rise and not enough supply to meet demand. But the idiosyncrasies of the UK science and technology sector could mean some developers have a tougher time than others leasing up schemes. 

Demand across the Golden Triangle is running at about 1.7M SF, and there is about 400K SF available. That is even after stripping out companies that purport to have an active requirement but have been waiting for more than 12 months for investment, Knight Frank Head of Life Science and Innovation Emma Goodford told a sold-out audience of 200 at Bisnow’s Life Sciences Spring Social, held at The Shard in London.

“But the markets are being tested at the moment, particularly Oxford. It's got a couple of schemes that have been finished,” Goodford said. “That agent ‘build it and they will come’ thing is really being tested. Tenants are thinking about things and do need to step up.”

Bisnow's Mike Phillips, Knight Frank's Emma Goodford and Barts Life Sciences' Grant Bourhill

Life sciences lab takeup in the first quarter was 169K SF in the Golden Triangle, according to data from Cushman & Wakefield. That is well short of the 364K SF leased in Q4 but 5% above the Q1 average. 

The quandary for the real estate industry is what type of building best meets demand. If a developer builds a 200K SF building, it is not going to lease it to 100 startups needing 2K SF, Goodford said, nor is it likely to find a single occupier. 

It takes a few midsized companies to fill that space. But those companies are being overlooked as VC money becomes more selective. VC money invested in UK life sciences companies totaled £650M in Q1 — higher than the £450M invested in the first quarter of 2023, but far less than the pandemic-era high of £1.1B in Q1 2021.

“VC firms are telling me they have dry powder, but they also want really high returns,” Goodford said. “So what excites them is the really small, fast-growing companies. The midsized companies, who in real estate terms want 20K SF or 30K SF, are actually finding it really hard to attract money at the moment. It will come, but it will probably come towards the last part of this year.”

The UK needs to do more to aid the creation of successful and profitable life sciences companies given the country's proliferation of top-tier academic institutions and the advantage a large health provider like the NHS can confer, Barts Life Sciences Managing Director Grant Bourhill said. 

Barts Life Sciences is a partnership between Barts Health NHS Trust and Queen Mary University of London aimed at accelerating healthcare innovation and building a life sciences cluster in north-east London. The partnership is working with a number of developers on a 3.5-acre site in Whitechapel offering a series of buildings, but Bourhill said schemes in London and beyond need to work together for the UK to meet its life sciences potential. 

Real estate companies that want to partner with academic or government institutions need to think about the long term, Bourhill said. 

“If you look Guy’s and Thomas’ [NHS trusts located near The Shard], they have been there for hundreds of years, and universities have also often been around for centuries,” he said. “They see themselves as long-term stewards. That is part of their identity. It’s a long-term relationship, rather than a transactional one.”