James Sheppard, Managing Director (UK&I) at Kadans
Maintaining the pace of innovation required during the pandemic was never going to be easy. From the boom in demand in 2020, to the inflationary and market pressures in 2023, it has been a turbulent few years for the life sciences industry.
As companies continue to adapt to soaring energy bills, tighter budgets, and a new way of working, they are still expected to keep pace with innovation and deliver outstanding results for the industry. In turn, demand for specialised office and laboratory facilities is soaring to satisfy these needs, and life sciences companies must now look to what they will need for the year ahead.
From increasing financial and ESG pressures to a focus on planning and collaboration, 2024 will be a year to recalibrate and reassess what is truly important for life science real estate success. Trends for the year to come will be categorised by the spaces companies work in and how they are designed, how we prioritise sustainability, and deal with new investment challenges.
- Balancing the cost of rent and operations
The past few years have seen a huge number of new entrants into the life science real estate market — some good, some bad. However, a lot of people are quickly realising that this sector isn’t as easy to get into as the headlines suggest.
Now, real estate managers are struggling with the operational realit of asset and property management. Currently, it is very rare in Europe that spaces are leased and operated by the same provider — a skill that is not readily available. In 2024, many newer investors in the life science real estate space will turn their capital in new directions which are less risky and less operationally intensive. For those who remain, we will see them support start-ups and smaller organisations with shared spaces that allow them to get on with their work while their landlord takes care of the building burden.
- Working with planning, not against it
When it comes to creating the right space for life sciences companies to thrive, planning can be a major challenge. The unique requirements of the life sciences sector make it a trickier situation than most, however, in 2024 we want to see more engagement between the private sector and the planning system to better articulate what a lab building is and how it functions. The onus shouldn’t always be on planning officers or councillors to research the sector and give their recommendations — life sciences real estate providers must play their role too.
With the success of the UK economy hinging on science and innovation, we need a planning system that is fully integrated with the sector. Rather than working to beat the planning system, the private sector should open the conversation and bring the planners on the journey. From laboratory space and cleanrooms to office space and collaborative communal areas, working together to create planning that works with life science real estate and not against it will mean that we can create spaces that spark innovation and enrich the communities they are situated in.
- Sustainability moves up the priority list
Sustainability continues to rise up the list of priorities for every sector, and life sciences is no exception. From January 2024, the Corporate Sustainability Reporting Directive (CSRD) requires large businesses and SMEs that trade in the EU to conduct sustainability reporting to stricter standards. This will affect any life science organisation that operates across or trades in Europe — including those based in the UK. This Directive, coupled with societal and investor pressure, will bring a heightened focus on the sustainability of laboratory buildings and the recognition that these buildings are different from standard office spaces.
Although the UK has largely been at the forefront of building sustainability, the life science sector has been somewhat lagge behind. In 2024, the development of an industry standard for sustainable life science developments will be vital. Closer collaboration between developers and tenants will ensure buildings are designed with the end-user in mind, optimising operational efficiency and reducing the burden on day-to-day operations. For instance, enhancing how laboratory waste is dealt with or the energy efficiency of HVAC systems could result in great sustainability gains — and cost reductions.
- Investment as a springboard for 2024
2023 has been a year of squeezed budgets and difficult financial decisions for businesses of every size. Budgets were squeezed across the board, regardless of sector, with soaring energy prices, inflationary pressures, and cost-of-living challenges hitting all of us. As such, tenants have been scaling back and focusing on optimising how they operate in 2023 — making the leasing market more challenging.
Regardless, there is still significant money for the life sciences and we will continue to see confidence returning to the sector in the year to come. For instance, this year is finishing with significant funding success, such as Quotient Therapeutics, which should act as a springboard for 2024. What’s more, UK biotech fundraising has now achieved its best quarterly total since 2021, rising 48% from earlier this year. As companies can now afford to look forward with increasing confidence, we will see more deals being completed and landlords co-investing with their tenants in their physical infrastructure to allow companies to optimise their cash position. 2024 will surely be a year of opportunity for the life sciences sector.
Rosie Blackett rosie.blackett@teamlewis.com