Life Support

Can the life sciences sector continue to underpin demand for office space?

Just as build-to-rent (BTR) has been the boom market within the residential sector in recent years, so too, has life sciences underpinned growth potential within key US, UK and European office markets.

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Backed by a wave of institutional, private equity and venture capital, businesses from cleantech to healthcare have swallowed up space from repurposed office buildings to bespoke lab spaces on business parks and university campuses.

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Real estate investors, such as Brookfield and Blackstone have bet heavily on this market – often working with universities to create superclusters – and have worked hard to deliver the bespoke accommodation often required by life sciences occupiers.

But there is growing evidence pointing towards a slow-down in demand from this characteristically acquisitive sector. A recent?Emerging Real Estates Trends Report from ULI and PwC?shows life sciences dropping down the hierarchy of trends and even went as far as to dismiss the sector as “weird offices” that amount to “a square root of nothing.

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Given that in the past week alone, we have seen planning permission granted for a?1m sq ft life sciences supercluster in London’s Whitechapel?and a?150,000 sq ft extension at Cambridge Science Park, this can perhaps be interpreted as a statement intended to provoke rather than inform.

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However, in his?weekly column in Green Street News, Sunday Times’ associate editor, Oliver Shah, highlights some worrying trends emerging from the US life sciences heartlands of Boston. A slow-down in VC funding activity (from a height of $13,7bn in 2021 to $7.7bn in 2023) has subdued demand for expansion space. The real estate implications for this are smaller players staying in incubators for longer, and bigger operators, such as Takeda and Ginkgo Bioworks, cutting hundreds of jobs.

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He goes on to explain that this won’t necessarily correlate to a corresponding slow-down in UK activity, where demand for the best-in-class space in and around Oxford and Cambridge Universities remains. But with CBRE forecasting around 2m sq ft of UK life sciences supply coming on board by the end of this year, it is inevitable that much of the existing demand will soon be fulfilled.

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Life sciences occupy a complex ecosystem which is reliant upon a mix of factors including government support to drive innovation, proximity to ‘smart capital’ and access to a highly skilled workforce. Any negative change to this essential alchemy can have dramatic consequences for real estate requirements, which could quickly tip the scales in favour – or against – leading locations in the US, UK or Switzerland.

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Rapid advances in science, technology and healthcare mean the life sciences sector is likely to remain highly influential for decades to come but, just like any other category, it will be subject to cyclical variations. Cities with world-class universities with access to global talent will likely remain in high demand and, elsewhere, investors will realise the reality that not every asset or location can be appropriated just to exploit demand from a high growth sector.

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Have a good weekend.