Once seen as an alternative investment or the domain of specialists, interest in R&D facilities has heightened during the pandemic, reports Nicol Dynes.
Over the past year there has been increased focus from the investment market on life sciences, which has come into its own as an asset class. As more assets come to the market, interest from non-specialist investors continues to grow and the life sciences sector is now poised for take-off in the UK and Europe.
“I am sure this year will be the busiest yet for the sector,” says Chris Walters, investor & developer lead, life sciences, at JLL. “Life sciences came top of the list in our investor survey this year, which shows the direction of travel.”
The Covid-19 pandemic has highlighted the importance of research and innovation and focused minds on the importance of creating innovation clusters where science and technology can produce life-saving and
“Life sciences used to be the alternative alternative and very few players were interested, but that’s all changed,” agrees James Sheppard, head of commercial UK & Ireland, at Kadans Science Partner. “Now these new eco-systems are seen as a long-term, sustainable asset class, so the smart money is investing in the sector.”
An example of the sector’s growing appeal is the acquisition of Kadans by AXA IM – Real Assets last November for a reported €500 million in a move to enter the European life science property market. Kadans is a Dutch developer, owner and operator of science parks and lab offices with a large portfolio in the UK and Europe. “We see opportunities from Aberdeen to Southampton and across Europe, but we need capital and now we have found an incredible partner in AXA IM,” says Sheppard.
‘Life sciences used to be the alternative alternative and very few players were interested. Now these new eco-systems are seen as a long-term, sustainable asset class.’
James Sheppard, Kadans Science Partner
As interest grows in this emerging but high-growth asset class, more financing is becoming available. “The growth of venture capital funding alongside public sector funding is a great combination, which ensures life sciences will go from strength to strength,” says Walters. “I am really excited for the year ahead, because I know it will be an important one for the sector.”
US capital keen to invest
US capital is also keen to invest in the UK’s life sciences sector. “The UK is really ripe for a life sciences explosion, it’s a sector primed for serious growth,” says Doug Cuff, vice-president of UK real estate at IQHQ. “In the US there’s a real race for talent and a collision between tech and life sciences, so the UK can be a release valve. Brexit and Covid have halted the process, but in future we’ll see more and more US occupiers looking over here.”
In the past 18 months IQHQ, a US-based life science real estate specialist, has raised $2.4 billion for their platform and it is keen to invest in the UK and Europe.
“There’s a great appetite to come over and we’re looking for opportunities, but we need scale,” explains Cuff. “Not just the UK, but also Germany, Netherlands, France and Spain are potential hotbeds of innovation and academic excellence.”
‘We’ve always been at the forefront of innovation and new thinking. Now international capital can see a future in these hubs that offer solutions to humanity’s problems.’
Adam McVey, City of Edinburgh
To deliver great centres of innovation, the public sector must bring the private sector on board. “The NHS and the universities are among the biggest landowners in the UK, in the locations where our tenants want to be based,” says Sheppard. “I’d like to see a more considered approach to unlock those huge plots of land to reinvigorate campuses and give them a commercial focus.”
It will take some time for Europe to catch up with the US, where appetite for the sector is such that IQHQ’s 4 million sq ft portfolio is all speculative. The real estate fundamentals are strong, with high demand, low supply and rising rents, says Cuff: “We look for high-quality locations that are unique and build high-quality green buildings.”
He adds that another important thing is “listening and responding to local concerns”, which tend to be about the sustainable credentials of the building and the green spaces around it.
While life sciences might be a booming sector, investors need to understand the special real estate requirements of the asset class. Variety of uses is one characteristic, says Sheppard. “It is a business with very unique real estate requirements. It needs very different buildings, from shiny high-tech offices to industrial spaces, so you need to find locations that can accommodate all that.”
There can be an R&D space, quality control and manufacturing, which traditionally would be done in three different places or even countries, but now there’s a trend to bring them all together, he says: “Clearly a factory cannot be in the centre of Edinburgh, which is why I still believe there’s a need for out-of-town science parks.”
Leading from the front
Everyone has a role: the public sector must continue to facilitate growth and investors and developers must understand occupiers’ needs and find the geographies that can accommodate them.
“To have a positive impact on environmental sustainability, investors and developers must lead by example,” says Walters. “They must lead from the front in a really crucial sector.”
The Plus Ultra II building, completed in 2020, brings together entrepreneurial companies, start-ups and students. It is located on Wageningen Campus in the Netherlands and is a showcase for Kadans Science Partner’s approach to life sciences
Another idiosyncrasy of the life sciences sector is that sustainability is not as straightforward as it might be for other asset classes. “It is difficult to be green because you need a lot of energy to power these buildings,” admits Cuff.
“We pay a lot of attention to the environmental impact of our buildings and put in solar panels and charging points for electric vehicles,” adds Sheppard. “But it’s not easy, as science and lab buildings use a lot of energy.”
Another important factor to take into account is cost. “There are big rewards in this asset class but also big risks,” warns Cuff. “It’s expensive to build a life sciences building, roughly 40% more compared to offices, but it could be double depending on the type and use.”
It is crucial, therefore, to find the right partner to execute these projects and turn to the experts. “If you are building a biology lab, you want to get it right first time,” says Cuff. “If you get it wrong, it can be very painful.”
JLL’s advice is to take time to understand the local market and try to mitigate the risks, says Walters: “The scope of life sciences is very broad, and building the wrong stuff can be extremely costly and damaging.”
Scotland’s goal to ‘create world without limits’
Long-term investment in innovation and life sciences ramped up across the country
Scotland is well placed to benefit from growing investor interest in the life sciences sector.
“We’ve always been at the forefront of innovation and new thinking,” says Adam McVey, council leader for the City of Edinburgh. “Now international capital can see a future in these hubs that offer solutions to humanity’s problems. We’ve mapped out 50 years of growth ahead.”
Several ongoing projects – the Edinburgh BioQuarter innovation centre, the Life Sciences Innovation Centre in Inverness and the Glasgow City Innovation District – offer investors opportunities and scale.
“We’ve been doing life sciences and innovation for a very long time, but now we are ramping it up,” says Margaret Davidson, council leader at Highland Council. “There’s a new sense of urgency because of the pandemic, but it’s a long-term project to create a world without limits for our young and our old in the Highlands.”
The Life Sciences Innovation Centre in Inverness, located really close to the airport, has just gone through the planning process and now “it is ready to fly”, says Davidson. “There are massive opportunities here and we haven’t even scratched the surface. I’ve never seen a better time to make this happen.”
The projects in Scotland are also examples of cooperation and collaboration between the NHS, local authorities, universities and the private sector to create innovation and develop new products.
“I’ve been really impressed by the commitment to make it happen, the political will, the funding in place,” says Graham Ross, CEO of architectural practice Austin-Smith:Lord. “It takes leadership and partnership to deliver results, to attract and retain talent, to improve quality of life for everyone. It is very exciting for Scotland.”
The community aspect is crucial, because these innovation hubs are built to be an integral part of the city, with excellent transport links and a focus on maintaining a sense of community.
‘We’ve been doing life sciences and innovation for a very long time, but now we are ramping it up.’
Margaret Davidson, Highland Council
“They are an opportunity for placemaking, creating ecosystems that allow the collaborative research environment and bring broader benefits to the communities around them,”
This can be achieved in many different ways, with a huge spectrum of activities and interventions. As science can have such a huge impact on the next generation, there are mentoring schemes with local schools.
It all begins with the building itself, according to James Sheppard, head of commercial UK & Ireland at Kadans Science Partner: “We real estate professionals have a real responsibility. We design buildings with ground floors that are open to the public, bringing them in, and everyone responds really well to that.”
The idea is to bring everyone on board, public sector and private companies, academia and health service, scientists and residents.