Spotlight: Life Sciences – Trends & Outlook 2021

Global and UK trends

It would not be an understatement to say a lot has happened in this space since the previous report from last March. Even before the global pandemic, the level of interest in life science-related real estate was rising significantly. The global pandemic has increased this level and focussed attention on the role of life science companies and real estate investors have been asking many more questions and requiring more data points and understanding during the past nine months. Our clients want to understand who is doing what. Our 'company list' of 2,134 life science-related capital raises, above £10m, across the globe in 2020, gives us the answers. Additionally, the 444 transactions we've seen above the £100m level provides a fascinating insight for us in terms of the key future 'major players'.

2020 saw just over US$620 billion of life science-related corporate deals, including M&A, IPOs, Venture Capital (VC) and private equity injections. 63% of the 2020 total was for US-headquartered companies, which is in-line with the five-year average. Any change in past share by country is being driven by China, which accounted for a 7% share in 2020, up from 4% during the past five years. Biotechnology IPOs in Hong Kong surged in 2020, and the city has the aspiration to be the world's largest biotech fundraising centre by 2025.

The message from Savills to all of the developers, investors and landlords during the past nine months is that the real estate impact is not just laboratories. In the US during the past five years, for example, inward foreign-direct investment in the biotechnology sector is around a third 'sales, marketing & support', a quarter R&D and a fifth for both manufacturing and corporate headquarters. In terms of location, the Greater Boston Area dominates inward investment driven by the strength of its life science cluster. This strength is perpetuated by the need to be close to like-minded companies and the potential for collaboration and also being home to "the most innovative square mile on the planet". The West Coast is also dominant and as covered in this report (Southern California strengthening), San Diego is growing even faster supported by Southern California's Biotech Beach area.

There remain clear opportunities in Europe for investors. It is very difficult, in any real estate market, to have an exact idea of the size of the whole market in terms of physical space and also value. However, Savills have created a view for both the size and value of the life science (including technology parks) real estate market in the UK and Europe. In terms of physical size, there is approximately 425 million sq ft (39.5m sq m) of floorspace. In terms of value, using a blended rental level and capitalisation rate, Savills would estimate that the relevant real estate, to this sector, is worth £287bn (US$386bn; €319bn). The life science real estate sector has certainly appeared on investors’ ‘radar screens’ as the importance of life sciences came to the fore, but also the attraction of the ability for the life sciences-related occupiers to continue working during the pandemic, the need for laboratory floorspace and the higher security of rental income.

Assuming that the just 1% of this total market value trades each year, there is an annual investment volume of £2.9bn (US$3.9bn, €3.2bn) in the UK and Europe. This would be equivalent to three-quarters of recorded annual average transaction volumes, for the same type of real estate, in the United States during the past five years.

Away from offices and laboratories, the manufacturing sector is also providing some food for thought. As a global example, one life science developer in the US is starting work on a US$500 million biomanufacturing complex with five buildings across 45 acres. Most drug manufacturing plants are custom-built by drug makers themselves; however, this facility is being designed so that it can be leased and occupied by almost any company, giving small- and mid-sized drug makers quicker access to manufacturing they might not be able to finance themselves. It is estimated that 95 percent of users could walk in the door and save 20 to 24 months on the process of getting up and running, something that is financially unviable for many small- and medium-sized companies. Such a facility could become more mainstream as an offering in life science ecosystems across the globe.

The UK is also seeing growth in the manufacturing sector with the VMIC at Harwell well underway, as covered in the previous paper, but also the Manufacturing Medicines Innovation Centre (MMIC) in Glasgow, which will complete this year and allow academia, healthcare and corporates to work together collaboratively and create new opportunities.

On the ground, in terms of rents, key centres around the UK saw rents move higher in 2020. Cambridge prime rents are now high-£40s per sq ft per annum, with Oxford very close to this level. This shows the highest rents levels outside of London. Also within the two historic cities, laboratory rents in their out-of-town markets are between £40–£45 per sq ft per annum and are forecast to grow up to 4% during the next five years, per annum. The vacancy rate of laboratories remains exceptionally low at 4% in Oxford and 1% in Cambridge.

_{Read the articles within Spotlight: Life Sciences – Trends & Outlook below.}