Why real estate investors are focusing on life sciences
MIPIM is the world’s leading real estate market event bringing together nearly 30,000 international property professionals in Cannes every year. As our CEO Colin Sinclair and Head of Marketing Sally Bloor head out to MIPIM, they reflect on why the spotlight will be on the life sciences sector in particular.
From testing to vaccines, it’s fair to say that the COVID-19 pandemic galvanised global interest and action in the health and life sciences sector. The subsequent “boom” saw demand for life sciences and specialist real estate skyrocket, with unprecedented investment into those companies developing solutions to help combat the virus.
Whilst the days of lockdown and social distancing seem to be behind us, the growth trajectory of the UK life sciences sector will remain strong, says CBRE. They point to the significant increase in Venture Capital investment into the life sciences real estate sector, which has more than doubled over the last five years, leaving the UK with a healthy development pipeline.
JLL similarly calculate that there is around £20bn worth of capital looking to invest in the life sciences real estate sector, with much of the space being developed speculatively for “imagined tenants” and a build it and they will come mentality.
So, why then does interest remain strong in the life sciences sector post-pandemic?
Demand Versus Supply
The lack of supply and high demand for lab space in the UK is well documented. This is particularly true in Liverpool City Region where lab demand outstrips supply by four times. A good example of this being Liverpool Science Park’s labs here in the Knowledge Quarter Liverpool (KQ Liverpool) innovation district which have been full with a wait list since the beginning of the pandemic.
The stark imbalance between demand and supply means that real estate capital allocators, investors and developers alike are looking to capitalise on these opportunities. In an uncertain and choppy economic climate, investment remains fairly stable in this sector since it is perceived as having greater resistance to recessions than the consumer economy with tenants more likely to be funded by long-term research trials.
The Government’s ambition to become a “life sciences superpower” is also making the UK an extremely attractive market for life sciences real estate investors.
The Government’s commitment to the sector was recently reinforced by the creation of a dedicated Department for Science, Innovation and Technology as part of the reorganisation of the Department for Business, Energy & Industrial Strategy. The Department is tasked with making sure “the UK is the country where the next generation of scientific discoveries are made – and where the brightest minds and the most ambitious entrepreneurs will turn those ideas into companies, products, and services that can change the world.”
One of the priority areas of the new Department is to optimise public Research and Development (R&D) investment to support areas of expertise and to increase the level of private sector R&D. This continued commitment to building the knowledge economy, if reinforced with a high level of public funding in R&D, will see interest in the life sciences real estate market remain firm.
Expertise and Ecosystems
Investment in the sector is also driven by the genuine expertise of the UK in the life sciences space. Interest is particularly strong where real estate is clustered around research-intensive Universities, other life science businesses and the NHS.
The UK has a strong scientific talent pipeline, as well being home to the NHS – an incredibly valuable source of data offering companies the opportunity to undertake clinical trials. In terms of attracting international businesses to the UK, access to the NHS and the ability to deliver clinical trials is seen as a key driver of setting up a UK operation.
KQ Liverpool has an established life sciences innovation ecosystem with key sectoral strengths in infectious disease, civic data and AI. To name but a few recent developments, a specialist unit has been opened at the new Royal Liverpool University Hospital which will perform clinical trials aimed at tackling some of the region’s most common diseases and Liverpool School of Tropical Medicine has recently been awarded £4.7m to establish a new Human Challenge Facility in KQ Liverpool for infectious disease research.
Ultimately, as long as the UK Government’s commitment to becoming a “life sciences superpower” remains and public investment into life sciences R&D continues, interest from the private sector and investors in this space will remain strong and the life sciences real estate development pipeline will remain healthy.