The headlines are clear, the UK’s life sciences sector is growing significantly. Q1 investment more than doubled in 2023 when compared with the same period last year and a glance over the pond indicates the growth potential; the US market is currently valued over four times that of the UK.
With all that growth, the availability of labs and floor space will be essential for life science tenants to carry out their often varied and specialised activities. But in order to provide the thriving real estate sector life science needs, developers and tenants must be aware of the challenges and opportunities facing them in the market.
The significant elephant in the room is the lack of available space for new tenants. This is not helped by the huge popularity of the life science golden triangle: Cambridge, Oxford and London, where demand can outstrip supply by more than five times. The situation is exacerbated by the fact life science tenants usually need LOTS of space (think labs and clinical trial sites). Developers/landlords may simply not be in a position to provide enough space or space in the desired areas to service tenant needs. Even where space is available, the increase in demand has pushed some rents to unaffordable levels, especially for start-ups/small JVs where significant funding may not come until later in their lifecycles.
Life science tenants may have bespoke requirements so landlords/developers may feel pressured to negotiate or concede on lease provisions and other aspects of a transaction. For example, life science tenants often require extensive and bespoke fit outs, beyond that of a retail or office tenant which may lead to uncomfortable conversations over significant rent-free periods and even capital contributions to attract the most promising start-ups/JVs. Conflicts may also arise over alterations or reinstatement obligations in leases where tenants may want scope to carry out works as they grow, or limit yield up requirements for costly extensive fit outs. Landlords/developers will need to consider whether they are prepared to make such commitments and may want to push back on such requests to ensure they retain flexibility on the lay out of their properties so they can more easily let out to other sector tenants down the line.
Developers, investors and tenants should not be discouraged from looking outside the golden triangle for space. Savvy developers have already recognised there are potential life science hot beds to be found all over the UK. From life science campuses near established university cities in Bristol and Manchester, to science and technology parks in well-connected areas such as Stevenage and Peterborough, recent announcements have indicated there is enough space and potential returns for developers and investors to commit to significant projects, while allowing tenants to exploit cheaper rents.
Developers and landlords should also look to use the land they have to greater effect. Some developers have considered modular structures which can be purpose built off-site quickly using cheap but practical materials. These structures are also more easily deconstructed, freeing up future space for a wider variety of tenant. Landlords can also open up their portfolio to life science tenants by converting current office or retail space for life science purposes. The introduction of Use Class E in September 2020 has helped here as it merged lab/light industrial activity into the same class as shops/restaurants, reducing planning requirements and therefore time and costs on change of use.
The Greenwoods Real Estate Team is proud to be helping life science tenants, landowners and developers exploit the industry’s potential and overcome its challenges. If you are landlord or tenant looking to lease lab space but not sure where to start, get in touch and we would be happy to see how we might be able to assist.
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