The market for commercial laboratory space in the UK has come a long way in recent years, buoyed by unprecedented levels of occupier demand and investor interest. Creative Places managing partner John Sommerville has worked in the life sciences real estate sector for over 25 years. He takes a look at what has changed and provides insight as to how the sector will fare in the future.
A fundamental shift
The life sciences real estate industry has been an exciting sector to work in for the last few years. It was not that long ago that delivery of laboratory space for leasing to business in the UK was largely made up of public sector delivery of small scale fitted space and re-purposing of legacy big corporate space. New buildings designed specifically as labs were mainly only brought forward where larger corporates were able to sign up to 15 year plus leases and invest massively into fit out of spaces beyond the base build shell and core.
In the most successful regions this created a gap where businesses that had grown successfully from incubator stage were not large enough to have the covenant or capital to commit to longer leases and significant fit out costs. Occupiers were forced to accept sub-standard space that they converted or hoovered up the space designed to cater for start-up ventures.
The significant growth in business funding seen in the last few years and a growing understanding of market fundamentals by real estate investors has led to greater focus on delivery of this grow on space and of landlords fitting out space. Understanding has grown of what fit out can be re-used beyond the initial letting, although care has continued to be exercised around what to provide and when. Well advised landlords have become savvier about how to influence fit out either through direct delivery or controlled contributions.
All this is leading to significant growth in delivery of bespoke lab space. Major investors with years of experience including Kadans Science Partners, Biomed Realty, Oxford Properties, Cadillac Fairview and Longfellow, are making massive investments, alongside new players who have moved up the learning curve fast. Investors are working hard to deliver new space and to build a portfolio through re-purposing existing buildings. Retail warehouses and even shopping centres are being considered for conversion, with landlords prepared to invest in fit out of benching, extract systems and other generic fit out.
New space being delivered in the key markets in the UK’s golden triangle is ramping up, to the point of significant supply expected to catch up with unsatisfied demand from 2025. A potential 20m sq ft+ is being considered for development across London, Oxford and Cambridge alone, a staggering growth when you consider a key market like Cambridge has 3m sq ft currently - although in the context of the research strengths of this region compared to leading locations in the US you could argue the UK has a lot of catching up to do.
This matters, as the UK moves to create the industries of the future, building on our fantastic strengths in primary research and business innovation. The UK is home to four of the worlds top ten Universities and is rated 2nd in the world for the quality of those Universities on the Global Talent Competitiveness Index. Choking off that growth through lack of delivery is a genuine risk when businesses tell us that availability of property is one of the top five considerations for location choices.
What to look out for
My views having witnessed this evolution (is it a revolution?) is that there are a few areas to focus on: