Exploring Life Sciences

Why are labs now looking at town centres?

Even before the global pandemic, the level of investor and developer interest in the life science commercial property sector had increased. It has been an ‘alternative’ commercial property sub-sector, in most cases, developed by specialist investors/developers, but now there is interest from all types of investors and/or developers looking to review the opportunities. Of course, the need for the global scientific community to deliver a vaccine for Covid-19 has also intensified the focus and interest in the science-related property sector even further with the past six months seeing an explosion of interest from investors looking to diversify their portfolios to capture the expected increase in demand from life science companies.

So what does this mean for the retail commercial property markets in the UK? There are three key driving factors, which are worth reviewing in turn.

Firstly, the fact is, demand from life sciences companies for additional floorspace will increase in the medium-term. The scale of capital raising, including venture capital, private equity, Initial Public Offerings amounts to £1.8 trillion in the past five years. Why should we care? This capital raising results in companies enacting the next stage of their business. It often requires additional headcount and therefore increasing real estate demand, including laboratory space.

Secondly, in the UK, the life science sector grows from the trinity of academia, corporates and medical institutions, including hospitals. Coupled with this, in the UK, there has also been a trinity of core locations for life sciences namely Oxford, Cambridge and London. However, for Oxford and Cambridge, determined by their historic nature, size and strength of competing uses, means that available sites are not easy to obtain by developers and occupiers.

In London, there are competing uses and the quantum of commercially-let laboratory floorspace is still relatively small for a city of London’s size and reputation. There has been stronger demand for these key locations, but the demand outstrips the supply. Thirdly, there has been a shifting locational preference of life science companies that enables them to compete for the required talent, against technology companies, but also have a higher degree of corporate activity transparency and visibility within the city communities.

So how does this impact on the retail market? Vacant retail units and department stores offer relatively larger units in prominent locations, which provides the opportunity of being

repurposed for laboratory uses. The generous floor-to-ceiling heights provides the ability to accommodate the necessary air handling plant to service laboratory space. As well as the larger units, a retail unit and associated floorspace above, which may include offices, is also worth considering. Savills Research, for a life science ‘hotspot’ in London has identified approximately 100 units amounting to 1.8 million sq ft – a deeper review of these opportunities has been completed for our clients. Our retail teams are currently in negotiation with several operators on large prime retail units in key markets.

For key life science locations in and around London, but also the more space constrained markets of Oxford and Cambridge, now is the opportunity for investors and developers to acquire and develop retail property, of all sizes, to cater for the burgeoning life science market. The very nature of the retail markets, with good visibility and being embedded in high footfall locations, also offers the characteristics to deliver the higher degree of visibility, therefore, transparency.