Lab rental premiums soar across the UK life sciences markets

The most recent data from Savills has signalled the clear emergence of “lab premiums” across the UK’s established life sciences markets. The research has found that the rental premium for fully fitted lab space above standard offices now averages 76%. Across the whole of the UK, the highest lab premiums were recorded in Stevenage, in Hertfordshire, at 138% for fully fitted facilities, equating to rents hitting the high £40s per sq ft. This is followed by Cambridge, where occupiers are asked to pay almost double for fully fitted labs compared with offices, with prices in the region quoted in the mid £60s per sq ft. In Oxford, lab premiums stood just below 70%, with rental prices for fully fitted facilities averaging in the mid £70s per sq ft. Turning to lab-enabled workspaces, Savills observed rents in the low £30s per sq ft in Stevenage, high £40s per sq ft in Cambridge and low £60s per sq ft in Oxford. The emergence of rental premiums comes amid higher base-build construction costs, coupled with the fact that lab and specialist manufacturing spaces remain complex to develop owing to the technical specification required. As such, Savills noted that the achieved rent must be higher than that of offices in order to provide a suitable yield-on-cost for developers and investors to render a scheme viable. George Coleman, associate director in the European capital markets team at Savills, said: “While this rental premium might seem attractive in today’s market, investors and developers need to fully understand the capital expenditure outlay in delivering this space and the potential absorption risk given the bespoke requirements of target occupiers.” Supply and demand are also playing a role, according to Savills, with many key clusters across Europe suffering from a chronic undersupply of suitable real estate, which hurts both large corporates and small scale-ups which are looking to secure space to carry out research and innovation. Tom Mellows, head of UK science at Savills, explained: “Over the past 12 months we have seen occupiers having to navigate a tougher funding market; however, the level of demand is still far outstripping supply. “With venture capital likely to remain harder to come by in the short term, it is all the more important that landlords deliver the right space for occupiers, particularly fitted and enabled lab spaces that allow them to focus their capital on research and development rather than real estate.” To send feedback, e-mail evelina.grecenko@eg.co.uk or tweet @Gre_Eve or @EGPropertyNews Photo © Louis Reed/Unsplash