Press Releases 05.04.2021

Life Sciences Innovation: Building the Fourth Industrial Revolution

Booming £287 billion European life sciences real estate market offers pension funds and insurers chance to reallocate commercial real estate exposure, says major new report
  • Record levels of fundraising among life sciences firms set to increase demand for purpose-built laboratory space 
  • European and UK real estate market already equivalent to 163 Westfield London shopping centres 
  • £20 billion raised by UK life sciences companies in 2020; fourth highest globally 

Pension funds, insurers and other investors looking to cut their exposure to retail and offices—two markets that have been hard hit by changing consumer behaviours and Covid-19—have an opportunity to diversify into the European and UK life sciences real estate market, which is already worth £287 billion, according to a new report.

The Oxford Science Park
Oxford, UK

According to the report, Life Sciences Innovation: Building the Fourth Industrial Revolution, co-authored by global architects Perkins&Will, Savills and policy advisory firm Blackstock Consulting, there is currently 425 million sq ft of life science floor space in Europe, equivalent to 163 Westfield London shopping centres. 

Investment into European and UK life sciences real estate is expected to grow over the next half a decade, with the report predicting that investment in European life sciences real estate will hit £800 million in 2021, while in the UK it will reach £550 million.  

That is a substantial increase compared to the amount invested previously, given that between 2016-2020, average annual investment into European life sciences real estate was £685 million, while in the UK it was £247 million. 

If this pace continues, then over the next five years (2021-2025), investment into the European and UK life sciences real estate markets could reach £4.8 – £5 billion,  and £1.8 – £2 billion respectively. 

Buoyant capital raising for life sciences firms is creating a huge opportunity for real estate investors and developers to create workspaces for them from labs and research centres to education facilities, manufacturing plants, and offices. 

In 2020, UK life sciences firms raised £20 billion—the fourth highest globally. The first quarter of 2021 is approaching £11 billion, with £9 billion of this Q1 total accounted for by the specific pharmaceutical or biotechnology sub-sectors. 

While the pandemic has hit traditional commercial real estate sectors, such as offices and retail, life sciences stands apart. Much of the work conducted by life sciences companies, pharmaceutical, biotech and other medical research fields, is simply impossible to conduct remotely.  

Furthermore, the sector offers institutional investors such as pension funds long-term leases as due to the complexity and expense of fitting out a laboratory, companies tend to take longer leases on space in order to realise a return on investment. Comparatively, long leases in retail and offices are proving a thing of the past thanks to the pandemic.  

Plus, these businesses are expanding, driven by increasing government spending and exuberant public markets. 

Biomed Building Lobby
Northwestern University Louis A. Simpson and Kimberly K. Querrey Biomedical Research Center
Chicago, Illinois
i3 Illumina east facing building suspend over lush green landscape
i3 Illumina Campus
San Diego, California

Life sciences are a major component of the UK economy. In 2019 the sector contributed over £70 billion in turnover, and employed an estimated 240,900 people across the country. 

Delivering more space for the life sciences’ sector will be vital in helping the UK retain its title as a global exporter of medical innovation, research and discovery. In 2019, the UK life sciences sector generated almost £81 billion in annual turnover and employed over a quarter of a million people across the country. It is predicted that by 2025, the sector will contribute an extra £8.5 billion to the economy, helping to create 31,400 more jobs. 

High levels of investment from the private sector are already supporting the Government’s innovation agenda. Rishi Sunak announced last March that research and development spending will increase from 1.7 percent to 2.4 percent of GDP by 2027, while in this year’s Budget, the chancellor announced the creation of a £375 million fund that will invest government money in fast-growing UK science and technology companies. 

Steven Lang, Director, Commercial Research at Savills, says: 

“The scale of capital raising by UK life sciences companies during the past year is staggering and shows that the adage of ‘follow the money’ is particularly true when it comes to the life sciences sector. An analysis of the flow of capital raising provides a clear indication of the potential scale of corporate and sector growth in the UK, illustrates the geographical distribution of ‘hotspots’, and shows where strengthening markets exist or are strongly emerging, including the development of the ‘Northern Arc’ in the UK.” 

Matt Soules, science lead at Savills, says: 

“With demand for life sciences space increasing, buildings are playing a more significant role in providing an environment that enables innovation and helps drive research forward. Delivering what these occupiers need can mean more investment is required upfront to provide the correct structure and services, which often makes the business case for development more unappealing. However, providing a flexible building will present greater opportunities to let floor space, while also allowing the asset to better respond to changes in market demand.” 

Steven Charlton, managing director at Perkins&Willsays:  

“Demand for space from life sciences businesses is rapidly outpacing supply, and with investor interest growing, demand will continue to rise. However, laboratories are complex workspaces with unique requirements and so architects have a crucial role to play in creating spaces that can house future innovators and attract and retain the highly-skilled talent that scientific progress depends on. By putting flexibility at the heart of the design process, we can create places which will meet the needs of both current and future life sciences tenants.” 

Jeff Zynda, principal, Science and Technology at Perkins&Will, says:  

“The past year has supercharged the life sciences sector, putting a much needed spotlight on the extraordinary innovation happening globally. With science and scientific needs evolving rapidly, we continued to evolve our design approach, always focused on improving environments for discovery and development and the outcomes for our clients. We have collectively moved beyond the concept of flexibility and have embraced the concept of adaptability – considering how buildings can be designed in a way that means you can easily add additional systems or infrastructure when the need arises, while avoiding overdesign and cost for flexibility that will likely be un-used.” 

Ed Cordes, principal, Science and Technology at Perkins&Will, says: 

“The potential scale of the life sciences real estate market is huge, and while the market is relatively mature in North America, with a number of world-leading science and tech clusters, the UK’s mature markets are relatively confined to the Golden Triangle. It’s exciting to see so many early stage clusters developing across the UK. There is a real opportunity to bring our learnings from, and experience in, the US to encourage the development of appropriate laboratory space in the UK which can drive the growth of the life sciences sector.