UK life sciences sector sets records

Covid-19 has accelerated investor appetite for UK life sciences, with equity investment into high-growth UK life sciences companies reaching £967mn in Q1 2021, more than any other quarter on record and 25% more than was raised across the whole of H1 2020. It was also a banner year for the number of deals, with 159 fund raisings.*

At the same time, Government - at both a national and regional level – has doubled down on its ambitions to raise the intensity of R&D based activities within the UK economy, with life sciences very much to the fore.

Announcements included the creation of the Advanced Research and Innovation Agency, backed with £800mn by 2024/25 and £37 million of funding for genomics and data projects to support the life sciences sector. As a result, UK Government R&D spending is now at its highest level in four decades.

This investment is fuelling the growth of the life sciences sector. Q1 2021 saw an additional 300 life sciences companies incorporated in the UK, whilst a number of existing companies announced expansion plans off the back of funding. Oxford-based AI drug developer Exscientia, for example, raised up to $525mn in funding in April 2021. This additional funding will help them to double in size again this year. It is worth noting that this is a company that was only incorporated in 2012, illustrating the high-growth trajectory that many in the sector experience.

This poses some key questions for the real estate sector, notably is there a marked upturn in take-up from the life sciences sector off the back of this dynamic?

Closer inspection of the London market shows that investment is indeed translating into activity and growth from a real estate perspective. In London, it has been widely reported that there are extensive waiting lists for space at existing incubators, such as the London Bioscience Innovation Centre.

The past six months has also witnessed some substantial life sciences transactions such as the SYNLAB Group - a medical diagnostics provider - who have taken 103,000 sq ft at Friars Bridge Court. In particular, life sciences occupiers are gravitating towards those London sub-markets with concentrations of knowledge and research institutions and major teaching hospitals.

Whilst acknowledging that the success of King’s Cross has been driven by the presence of the global tech giants, it is also London’s established Knowledge Quarter, with an established life sciences cluster of over 143 life sciences occupiers, attracted to the ecosystem around the British Library, The Crick Institute, Alan Turing Institute, Wellcome Trust, UCL and UCLH. As at Q4 2020, the office vacancy rate in the King’s Cross submarket stood at 1.5%, the lowest of all the London sub-markets, while the market has seen rental growth of 54% over the last 10 years.

In our view, expansion-led demand driven by funding is only one side of the growth story for the life sciences sector, as we explain in our UK Life Sciences Sector report. This is a sector that is transforming at pace, which we believe will also generate significant disruption led demand. For example, one of the major shifts we identify in the report is the growing influence of technology and in particular AI.

Evidence of this trend during Q1 2021 included fresh analysis from Global Data showing that 90% of large biopharma companies have initiated AI projects last year and almost 100 partnerships have been struck between AI specialists and large biopharma companies for drug discovery since 2015. NVIDIA, for example is partnering with AstraZeneca on a transformer-based generative AI model for chemical structures used in drug discovery that will be among the very first projects to run on Cambridge-1, the UK’s largest supercomputer.

Funding into UK life sciences reached record levels in Q1 2021 and we are starting to see this reflected in growing demand for life sciences real estate in prime locations. This should supply the real estate sector with great confidence that the high-growth companies operating at the cutting edge of technology and fuelled by significant public and private interest and investment will generate a strong volume of demand across UK commercial markets. Now is the time to start capturing this opportunity.

*Beauhurst