20 Sep 2024 | by Simon Glenn, Matt Smith
Problems of oversupply are not an issue in the UK
Matt Smith and Simon Glenn at DTRE respond to Green Street News columnist Oliver Shah’s recent warning that the sharp jump in US lab vacancy rates should give UK developers pause for thought.
Oversupply, rising vacancies and funding challenges: there’s no doubt that the US life sciences real estate market is spluttering. Naturally, given our unhealthy tendency to compare ourselves to the US, some argue that the UK’s own sector should brace for a downturn.
However, though we may be biased, we have reason to believe that a sickly Boston need not raise red flags – the UK has been shaped by very different market dynamics, and possesses unique strengths. The Golden Triangle is positioned to thrive, bolstered by world-class academic institutions, growing demand for healthcare solutions and an industrial growth strategy with life sciences at its heart.
Limited supply
It is true, particularly in key hubs like Boston and San Francisco, that oversupply has driven up vacancy rates and created concerns about the sustainability of demand. This is a consequence of rapid, unchecked investment and expansion in those markets. In typical American fashion, they wanted bigger and better, yesterday.
While some investors also got overexcited about UK life sciences, the market over here operates on different fundamentals, maintaining a more measured approach to growth. After all, Brits to tend to show more reserve.
As in classic development cycles, supply – by virtue of the time taken to build – has lagged demand. And, while there was no doubt a glut during the Covid-19 pandemic, the UK’s planning system, archaic or not, has limited speculative overdevelopment. By filtering planning permissions, only viable projects have progressed, while others have been paused – effectively turning off the tap.
For occupiers, the VC funding challenges seen in the US should also be less of a concern on this side of the pond, where private investment has been matched with successive governments strongly committed to the industry.
Life sciences sits at the heart of Labour’s growth plans, offering many an incentive for companies developing next-gen healthcare solutions. Moreover, despite a year-long clinical trial decline, a new £400m public-private collaboration, VPAG, is set to reinvigorate pharmaceutical testing.
Perhaps most crucially, though, the UK life sciences sector is not solely profit-driven. The NHS is the crown jewel of socialised healthcare: it’s our sacred cow. Life sciences, and its ability to reduce costs through preventative medicines, is a critical part of the government’s mission for an NHS fit for the future. This altruistic foundation – where public health needs outweigh short-term financial gain – fosters a more resilient market, less prone to the boom-and-bust cycles seen in the US.
Life sciences sits at the heart of Labour’s growth plans
A further compelling driver of UK life sciences is demographic shift. In the past 40 years, the number of people in England aged 50 and over has increased 47% to more than 21 million – almost 40% of the population.
It’s not rocket science: this will continue to create unprecedented demand for healthcare services. Many a top doctor has warned of the impact a lack of medical innovation could have on the NHS and society at large.
For example, we can expect a sharp rise in chronic diseases, fuelling demand for pharmaceutical developments, biotechnology and medical research – all of which must be facilitated by physical infrastructure.
Strong foundations
While Boston has MIT and Harvard, the core of the UK’s life sciences market is its unmatched access to multiple top-tier institutions.
When it comes to research and discovery, the Golden Triangle boasts four universities in the global top 10, and 26% of UK graduates come from STEM courses, compared with 19.6% in the U.S. This academic strength sets the Golden Triangle apart from many US markets.These top universities also provide access to funding, both public and private, ensuring that companies in the UK are well capitalised and can grow without facing the liquidity crises seen in the US.
Life sciences, like AI, is here to stay, poised for steady and sustainable growth
Only recently, Nvidia’s share price plunged almost 10%, dragging a basket of chip stocks with it. The drop reflected broader economic caution, not a lack of belief – AI has already been integrated into everyday life, cementing its long-term potential.
The same could be said for life sciences which, like AI, is here to stay, poised for steady and sustainable growth. According to Oxford Economics, the sector outperforms many others, with demand resilient to economic fluctuations. This demand, led by the NHS, is why UK pharmaceutical output is projected to grow by an average of 1.3% annually from 2024 to 2026.
We also can’t forget that lab space is not only critical for life sciences – it’s essential for battery tech, green energy, planetary health, plastic alternatives, and many other cutting-edge industries. These all require specialised spaces to thrive, and will continue to need more of it.
While the US market may be facing challenges, structural weaknesses are not necessarily mirrored in the UK. Our market is built on different dynamics, driven by long-term demand for healthcare solutions, world-class research institutions and strong government support.
Comparing ourselves to our American friends is an easy, but cheap, argument to make. Look more closely and you’ll see it’s a different sport entirely.
