Navigating turbulence in the life sciences sector

COMMENT Some £80bn of research and development funding has been pledged for the UK life sciences sector over the next decade. In July, the government launched its Life Sciences Vision, a £200m, 10-year programme of strategic investment, as a more positive perception of the life sciences industry takes hold and interest in the sector ramps up, spurred not least by the focus on fighting the Covid-19 pandemic. The resulting need for new life sciences facilities is creating opportunities in the property and construction industries, and it is not surprising to see so many developers and investors now very interested. Investors are comparing the sector with other options – there is a lot of uncertainty facing the traditional retail and office property markets; people are increasingly shopping and working from home, whereas you can’t work from home if you are a laboratory scientist. However, working with life sciences won’t be plain sailing, because the sector is entering one of its most complex, agile and dynamic phases yet. The boom times Life sciences is going through a significant boom period right now. Britain is home to a quarter of the 2020 Global Digital Health 100 companies. In excess of 6,300 life sciences companies in the UK employ more than a quarter of a million highly skilled staff, with nearly 13,000 working in artificial intelligence and digital health. At the same time, life sciences is a turbulent business at present. Occupiers are expected to see a phase of mergers and acquisitions, just as regulatory pressures are stepping up. The UK’s Medicines and Healthcare Products Regulatory Agency is consulting on the future regulation of medical devices, which could lead to an industry shake-up. Innovation is continuing at an unprecedented pace, with cell and gene therapies poised to revolutionise treatments that were previously based on medicine, while artificial intelligence is opening up exciting new ways of working. Companies are simultaneously looking to bolster product pipelines, acquire much-needed expertise in areas such as biotechnology, and unlock new revenue streams, such as cell and gene-based therapies, all while battling global supply chain issues. Servicing this market requires being up to speed with fast-moving trends and rapidly changing real estate needs. Beyond the Golden Triangle Getting facilities built will mean expert management of the construction industry’s own well-documented supply chain pressures. Limited availability of land will also acutely affect the specific skills, materials and locations required for many life sciences development and construction projects. As a result, new facilities, which often combine office and laboratory space, may need to be built outside the areas where they have traditionally been concentrated, expanding beyond the “Golden Triangle” of London, Oxford and Cambridge. An additional challenge is meeting the growing demand from life sciences institutions and business for city-centre campuses where they can attract top talent and fuel innovation by mixing disciplines, along the lines of the Francis Crick Institute in King’s Cross, NW1. As the race ramps up to build life sciences facilities, there is an increasing shift towards repurposing office and retail space no longer in demand into life sciences buildings. These conversions are not simple, however: life science laboratories need highly specialised building services, and sites intended to be at the cutting edge of innovation need to have significant built-in adaptability to support new ways of working that can’t be foreseen. In addition, the pressure to build life sciences real estate is being countered by planning system delays, adding further impetus to the repurposing of existing buildings. Specialist expertise While these are not insurmountable challenges, any real estate firms going into the market need specialised advice. This is particularly key to anyone considering speculative developments. Not knowing who wants to occupy the building – and what such an occupier wants to do in such a space – could lead to trouble for speculative developers. Areas of expertise which developers should be considering taking on board will include project and cost management, along with cost assurance, review of estimates and scheduling, and the full utilisation of benchmark data. This subject matter expertise needs to be coupled with a detailed understanding of both life sciences and commercial development, particularly because the trend towards repurposing office and retail space for life sciences requires insight into both the uses. Ultimately, the UK life sciences market is a sound one for investors and developers. Once the current economic fundamentals have stabilised, and as the pandemic impacts wear off and the market adapts to the new relationship with the EU post-Brexit, this market has every opportunity to remain a world leader. As exciting as the sector may be for real estate, though, a considerable level of tenacity and expertise will be required to stay ahead of its trends and succeed in what is becoming an increasingly competitive real estate market. Priya Shah is associate director – life sciences, UK & Europe at Linesight