The UK life sciences sector demands attention. In 2018 it encompassed 5,600 companies, £63.5bn of annual turnover and 246,000 employees according to Government data. Occupier are spread throughout the UK but concentrated in the south and east. The sector is primed for growth given the UK’s ageing population, technological change and rising quality of life expectations. Life sciences occupiers are knowledge-based and add significant value to local economies. Growing demand will benefit life sciences occupiers directly and it will indirectly support a wide array of symbiotic business and services that rely on them.
From a real estate investment perspective, the tendency of life sciences occupiers to seek out particular locational drivers means there are leading indicators of where clusters have the potential to emerge and grow. This creates opportunities to identify and access markets which are likely to benefit positively from these changes and which have low levels of supply. Suitable stock in these locations should experience shorter voids, above average rental growth and resilient capital values.
The sector is experiencing shifting locational patterns which are focusing demand on city locations rather than the out-of-centre campuses that these occupiers have traditionally favoured. This shifting demand has three main drivers.
Firstly, life sciences occupiers rely on skilled talent. That talent increasingly wants to work in modern, well specified workplaces in accessible, mixed-use locations like city centres.
Secondly, occupiers are conducting more primary research using technology which means that human workers spend less time in the lab and more in the office. Indeed medical technology (medtech) companies account for over half of all jobs in the sector. Greater reliance on data and tech increases the attraction of better digitally connected locations. This makes occupying central buildings with a higher office content and lesser lab space more appealing.
Thirdly, 82% of UK life sciences companies are small and medium-sized enterprises. These companies have similar location preferences to start-ups – flexible office space in central locations where they can cluster with like-minded firms. More life sciences accelerators and incubators are being set up all the time and there is growing availability of on-demand lab space too. Central office space is better able to cater for this type of demand rather than out-of-centre locations
Our research indicates that life-sciences could be the next big thing for the UK occupational market. Demand for space is growing and it is changing. This will lead to the emergence of new life sciences clusters in certain regional city centre locations and consolidation on selected established clusters.
Real estate investors need a multi-dimensional investment approach in order to capitalise on the opportunity this presents. This should apply different acquisition, management and repositioning strategies in different locations according to the maturity of the cluster and the nature of the life sciences occupiers that will be most active there. With an appropriate strategy, the growth of UK life sciences could deliver strong upside to informed investors, such as Mayfair Capital.
Senior Analyst – Investment Strategy and Risk