U.S. Developers Swoop In To Help Build Europe's Budding Life Sciences Industry
The life sciences industry in the UK and Europe is flush with cash but lacking in developers to capitalize.
Since last January, £2.7B (or $3.4B) has been invested in British biotech as new deals and development pop up in the Golden Triangle of key markets: Oxford, Cambridge and London, according to Savills. That money isn't going to established players — 52% of developers involved in these projects are classified as new entrants who never used to do life sciences work or are new to the region, Savills Research Director Steven Lang said.
In a challenging sector where experience matters and talent can be hard to come by, the recent boom in funding in the UK and Europe has pushed the industry to keep pace with skyrocketing growth. It is a big hurdle, just as new overseas investments threaten to supercharge growing markets while also providing a catalyst for inexperienced developers who see an opportunity.
“There’s a hell of a lot of smoke and mirrors from landlords who say they can do something or consultants who say they have experience who clearly don’t have it,” Savills Life Science Director Tom Mellows said. “We spend most of our time with occupiers, at least the early stages, analyzing landlords and making sure they have skills to do the job and devising strategies around it if they don’t.”
The United States, which has a much more developed and mature life sciences market, has also seen frenzied expansion and investment put a strain on talent and attract new entrants to the market trying to make a play without extensive experience in the challenging sector.
But UK and European life sciences now face the additional accelerant, and challenge, of a new round of capital, especially from American investors entering the market.
Harrison Street, IQHQ and BioMed Realty have been active in Europe, as well as new initiatives such as Breakthrough Properties, the $3B Tishman Speyer/Bellco Capital joint venture to develop a global life sciences real estate portfolio, and Oxford Property Group’s $1.4B partnership with French urban developer Novaxia to develop lab space in France.
Novaxia President Joachim Azan said in a statement that the effort will “recycle obsolete buildings into places of innovation in the life sciences” and will focus on sites for “the entire life sciences value chain,” from incubators to production plants.
“The challenge is the same as the U.S. — acquiring assets is hard enough; finding the expertise to operate them is even harder,” said Joanne Henderson, CBRE executive director and head of life sciences for the UK and Europe. “There are some established and experienced operators, such as Kadans Science Partners, Bruntwood SciTech and BioMed. However, the lack of operational experience is an entry barrier for many aspiring investors, resulting in new partnerships emerging between institutional investors and specialized asset managers.”
The Golden Triangle markets received 3.4% of worldwide funding between 2017 and 2021, less than the investment in New York City alone, which isn’t even a top 3 U.S. market. Europe produces three times more life sciences journal articles than the U.S., Lang said, but the U.S. will “go out and commercialize with even half an idea.”
Mellows estimated the UK is 15 to 20 years behind the U.S. — even Cambridge, the nation’s largest market, which still suffers from “restrictive zoning” and can’t grow fast enough to outpace the rapidly growing demand for new labs, which Savills pegs at 1.5M SF. There is demand for 2M SF in Oxford and 800K SF in London, all of which are well ahead of markets in France, Germany and the rest of Europe. But those markets are poised to catch up
“Now we’re seeing geographical breakage, with companies and investors becoming more comfortable outside of the Golden Triangle,” Lang said.
There’s also big demand for biomanufacturing plants, especially with the growth of cell and gene therapy.
“All these investors, and the heat in these markets, are waiting for the occupational demand to emerge at any significant level, and it’s only been happening in the last few years,” Mellows said.
R.J. Panzo, a principal at T3 Advisors in the U.S. who helps life sciences companies find space, recently traveled to Europe and observed lab space overseas. He said companies like Breakthrough have the experience, but many UK developers don’t.
They don’t know how to conceptualize, maintain and run incubators, and too much industry talent comes from academic, not industry, backgrounds. The real challenge is creating the entire ecosystem, from incubators to research to servicers, with key talent in short supply. And Europe is well behind. A LaSalle report said European continental markets were "in their infancy” compared to the U.S.
“The real key challenge will be looking at what currently exists and being able to predict what kind of building a likely tenant will occupy,” Panzo said. “It’s easy to do that in Massachusetts. I just don’t know if we can do that in the UK yet.”
Firms across the industry are looking to recruit — the construction industry is having huge challenges to labor supply, and massive inflation is pushing up the price of materials. Professional teams, consultants, planners and landlords all need to upskill and recruit.
“We can build the product for the party, but who’s actually going to run the party and make this successful?” Lang said.
CBRE’s Henderson said existing professional expertise is “at capacity” in Golden Triangle markets and that recruitment challenges are slowing down platform build and scalability. A recent Urban Land Institute report suggests the talent just isn’t quite there in Europe.
Matthew Hopkinson, co-author of the ULI report, said life sciences “isn’t like McDonald’s,” and firms can’t pick up developers and talent from Boston and drop them in Birmingham. The UK and Europe have a number of unique aspects when it comes to government funding, land use and construction, which also differ country to country. Homegrown talent is necessary.
Mellows points to Longfellow, which hired private equity veteran Alex Wright to head its UK team. Wright told Bisnow of plans to complement homegrown talent “with the experience and DNA the U.S. team has in labs and life science,” as well as some U.S. staff, but Mallows said that, like its competitors, Longfellow will ultimately have to train and upskill significant UK staff.
European and UK development policies and regulations are also stricter in terms of sustainability, which can present challenges for energy-heavy lab buildings.
“There will have to be more education of a larger group of people over time,” Mellows said. “It’s a challenge, but a challenge for a good reason because the sector is expanding.”
Breakthrough CEO Dan Belldegrun told Bisnow that while Europe is still lacking capital, opportunistic money is flooding in, and he sees opportunities in Amsterdam, Germany, France and Switzerland, in addition to markets with existing investments, such as Cambridge and Oxford.
Hopkinson said European markets will get an additional bump as governments look to grow their own biotech clusters. The recent experience of vaccine distribution during the coronavirus has made every country keen to develop its own potential and talent, which Belldegrun said will add development support in coming years for lab space and biomanufacturing capacity.
“There will be continued and sustained growth in the primary European markets,” he said. “And similarly, there's very limited infrastructure to support those companies. So the combination of long-term growth and limited supply creates a great opportunity in certain markets.”