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James Sheppard, Managing Director (UK&I) at Kadans.
Since the pandemic, the life sciences industry has experienced highs and lows. From a boom in demand to waning investment, organisations have had to constantly adapt to macro-pressures. With squeezed budgets thanks to the cost-of-living crisis and the way that we all work changing for good, life sciences companies need to rethink their priorities — or risk the future of their organisation.
With the rise in digital health, continuous development of preventative and personalised treatments, and the challenges of ageing populations, the life sciences real estate sector continues to evolve. Demand for specialised office and laboratory facilities is soaring to satisfy innovation needs, with life sciences companies now reassessing their priorities for the year ahead. From evolving employee needs to increasing financial and ESG pressures from the board and investors to a focus on planning for the future, the year ahead will see new demands soaring to the top of real estate managers’ to-do lists.
As we move into 2024, life sciences real estate managers will need to consider sustainability, funding, investor consolidation, and planning regulations as top priorities.
A Focus on Sustainability and the CSRD
As sustainability becomes a top priority for every sector, 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.
As we move into 2024, the development of an industry standard for sustainable life science developments will be vital. Although the UK has largely been at the forefront of building sustainability, the life science sector has been somewhat left behind. 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.
Cost-Efficient Spaces
Over the past few years, we 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, the challenge comes from asset and property management. Currently, it is very rare in the UK and European markets that spaces are leased and operated by the same provider— a skill that is not readily available. This means that life science companies can rack up unnecessary expenses on building management. 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.
Investment Springs Forward into 2024
It has been a difficult year for finances across 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 more 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.
Working in Tandem with Planning Departments
Planning can be a challenge for every sector. However, the unique requirements of the life sciences sector make it a trickier situation than most. Up and down the country and across the continent this affects landlords of all sizes and ages. 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.
Science and innovation are core to the success of the UK economy, and 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.