UK Real Estate Market Outlook 2023
The sector continues to expand, in part driven by companies seeking to de-risk supply chains following the experience over COVID. The Golden Triangle remains a particular focus, with a majority of funding allocated to these areas. Still, its reach is broadening into other regional locations.
- The life sciences sector will continue its growth trajectory and employment is also expected to grow at double the rate of wider employment, as outlined in CBRE’s Trends That Transcend the US Life Sciences report. The current demand/supply imbalance of available lab space is likely to continue into 2023, particularly in the Golden Triangle of Cambridge, London and Oxford. Laboratory rents are therefore expected to increase in these locations.
- The Golden Triangle remains the focus of life sciences activity from both an employment and funding point of view; 80% of all venture capital is directed to these three cities. However, other locations are also attracting investment including Stevenage, Manchester, Edinburgh, and Birmingham. The Government's proposals to promote investment in low growth university towns, as announced in the Autumn Statement, could help other aspiring hubs.
- The Government has ambitions to make the UK a “Science Superpower” by 2030 and the sector will benefit from continued Government R&D funding as part of a package to deliver this. There is also a review of EU regulations to identify if changes are needed to help boost the sector’s overall competitiveness on a regional and global scale.
The life sciences sector continues to evolve
The UK has made big advancements in the life science sector, with the amount of Venture Capital (VC) investment more than doubling, and a 20% increase in the number of firms over the past five years. The demand for lab space to house start-ups and mid-size companies has been growing as a result.
Incubators provide affordable space for start-up companies to grow and are often founded or linked to academia. In the UK, these are expanding, and we are now also witnessing a healthy blend of other incubator types emerging, including private/public JVs, and more recently real estate investor backed facilities.
Even prior to the pandemic, there were concerns around supply chain resilience and the over-reliance on overseas markets for the manufacturing of many drugs. Recent supply chain issues have exposed the UK; currently only 25% of our medicines are produced at home. With the current trend moving away from global supply chains to more regionalised and localised operations, the UK should benefit from onshoring, reshoring and nearshoring movements. With its highly skilled workforce, the UK remains well placed to attract Advanced Therapies Manufacturing, for vaccines and Cell and Gene Therapies.
The Government has ambitions to make the UK a “Science Superpower” by 2030. Despite the current economic climate, the sector will benefit from continued Government R&D funding as part of a package to deliver this. There is also a review of EU regulations to identify if changes are needed to help boost the sector’s overall competitiveness both regionally and globally.
Figure 25: Employment growth
Source: ONS, Oxford Economics
Employment will continue to grow
There are around 268,000 people employed in the life sciences industry. Over the last five years, participation has grown by c10%. This is double the rate of growth of total employment. We expect this trend to continue, and forecasts suggest employment in the life science sector will increase by around 8% between now and 2027. This compares with total employment growth of about 3.5%.
Still employment levels and growth are not uniform across the UK, with the established clusters in Cambridge, London, and Oxford having the biggest concentration of scientists and entrepreneurs. This mirrors the VC distribution trend, where over 80% of funding is allocated to the Golden Triangle. These cities now have about 10.2m sq ft of space in the five year delivery pipeline, but until that starts to deliver, a demand and supply imbalance of lab space will continue. Other life sciences hubs, existing and emerging, like Stevenage, Manchester, Edinburgh, and Birmingham, are attracting VC investment, which is feeding through to employment prospects.
Energy costs at the forefront
Labs are intensive energy users and the National Renewable Energy Laboratory estimates the annual energy costs in a lab can be between £6-£14 per sq ft. So, even prior to the current energy crisis, occupiers were increasingly demanding energy efficient labs. But the recent focus on costs has amplified this trend, as Harvard University shows, an energy efficient lab can reduce costs by 70%. Energy use is also increasing due to the intensification of technology adoption including lasers, robotics and image analysis. The supporting infrastructure is also energy intensive, for example, a single fume ventilation hood can consume as much energy as up to three homes per year. The push towards net zero carbon further increases the appetite for energy efficient accommodation.