Last Friday’s news from Life Science REIT that it would start the piecemeal sale of its properties marked the latest piece of grim news for an asset class once expected to deliver outsized returns this year.

Lem Bingley, PW editor

The update arrived on the heels of humbling decisions by pharma giants to pause or abandon £1.5bn of investments in the UK.

In the space of a few days in the middle of the month, three major setbacks came to light, leading to speculation that the moves had been co-ordinated for maximum impact in Whitehall.

First, US pharmaceutical giant Merck said it had scrapped its £1bn UK expansion plan, turning away from a research centre already under construction in London’s King’s Cross. Then US-based Eli Lilly said it had paused development of its £279m London Gateway Labs scheme, a biotech incubator also planned for King’s Cross. And finally, UK-based AstraZeneca said it had paused plans to invest £200m in Cambridge, a setback that followed its January decision to scrap a £450m expansion in Merseyside.

There are, of course, political factors at play. Merck cited a lack of UK government investment and NHS pricing policies as it switched investments to the US. President Donald Trump’s pledge to impose steep tariffs on imported drugs is another big factor. The two ‘paused’ projects might also be seen as begging bowls held out for bigger sweeteners.

Cushman & Wakefield reported sharp rises in vacancy rates in the UK’s ‘golden triangle’

Unfortunately, these are not the only signs of bubbles bursting. A September update on the life sciences sector from Cushman & Wakefield shows sharp rises in vacancy rates in the UK’s ‘golden triangle’. Following near-zero availability in 2023, the agency found 9% of lab space vacant in Cambridge, 11.8% in Oxford and a whopping 35.2% standing empty in London.

Cushman & Wakefield’s report adds: “The vacancy rate in London continues to rise, a trend expected to persist through 2025 due to the completion of new developments and subdued demand for these spaces.”

The decision by Life Science REIT’s board marked the end of its attempts to find a buyer for the whole portfolio, valued in June at £360.6m, 6.7% down on January. That assessment was clearly the sticking point in talks with potential suitors. Announcing its managed wind-down, the firm said it hoped to realise significantly more than the tabled offers, “which represented material discounts to the company’s latest net asset value”.

The REIT’s own vacancy rate, calculated on a rental value basis, had crept up to 16% at the end of June, while only 49.6% of available space – split roughly 40:40:20 across London, Oxford and Cambridge – was actually let to life sciences occupiers. Four of the top 10 firms on its rent roll hail from other sectors, with a banking technology firm accounting for almost a quarter of the REIT’s income, and Premier Inn and Regus also prominent in the list.

Even as it seeks sales, Life Science REIT is rejigging partially built space to suit smaller occupiers; a pair of new buildings under construction in Oxford will switch from two big labs to seven small ones, reflecting the reality of demand.

Those lowered ambitions underscore how expectations have tumbled across a sector that was predicted to soar not so long ago.