The long-term outlook for the life sciences sector remains strong thanks to the UK’s fundamental strengths, despite a worrying short-term picture, industry commentators say.

On the move: the UK Health Security Agency is relocating its HQ to Harlow in Essex

The sector has been rocked in recent weeks by a number of pharmaceutical giants cancelling or pausing their expansion plans, including Merck scrapping plans to move into the 10-storey Belgrove House building in London’s King’s Cross.

AstraZeneca also paused a £200m expansion in Cambridge that has not yet been started, Eli Lilly made a similar move and GSK announced it would expand – but in the US. Their decisions come amid a dispute with the NHS over the amount big drug companies are paid for medicines.

One insider tells Property Week they expect “one or two” more negative headlines about similar announcements in the near future.

Meanwhile, Life Science REIT has decided to wind down its business after failing to find a good-value buyer, following a search that began in March.

“There is going to be a challenge in the short term,” says Tony Morrice, director of life sciences UK and Ireland at construction consultancy Gleeds.

It’s not the end-of-days scenario that people have been painting it as
Matt Smith, DTRE

Amid the post-Covid boom in life sciences, there may be too much laboratory space now available, he adds. “There’s still over 3m sq ft of R&D [research and development] space to come to the market and there are several developers struggling to let the space that they’ve got.”

However, Morrice believes the challenges will last only one or two more years, with better times set to follow. He says schemes such as the UK Health Security Agency’s multi-billion-pound relocation to Harlow, Essex, and activity by The Crown Estate and the Wellcome Foundation will help.

Backing up this point, medical products and technologies company Convatec Group last week committed to invest £500m in the UK, including a major R&D hub in Manchester, demonstrating its “unwavering commitment to advancing healthcare innovation”.

Even if big companies pull out of expansion plans, previously committed space that has not yet been fitted out is relatively easy to convert into use for multiple occupants, Morrice adds.

Supply and demand

Michael Wiseman, British Land’s head of campuses, says the UK has not seen the same scale of over-development in the life sciences sector compared with regions such as Boston in the US, where construction has far outstripped demand.

Schemes focused on or incorporating life sciences labs, including British Land and Royal London Asset Management’s 1 Triton Square in north London, set to open in the coming weeks, are not examples of oversupply, says Wiseman.

“It doesn’t feel like too much to me and I think [these schemes] should be able to be absorbed by the levels of demand we’re seeing in the market,” he says.

“It’s not going to let as quickly as, for example, our [mixed-use] 2 Finsbury Avenue building at the heart of Broadgate, which is very prime, where there’s 10m sq ft to 12m sq ft of demand. “It’s not going to see that sort of acceleration, but I think the demand is there to fill what’s being delivered.”

London lab: British Land and Royal London Asset Management’s 1 Triton Square is set to open soon

Several commentators say it is still not known to what extent the drug companies’ announcements signal genuine moves away from the UK, rather than an attempt to shift the UK government’s position on NHS pricing, but their intentions should become clearer soon.

Experts say a reduction in funding for life sciences start-ups is also a factor fuelling the slowdown. Higher interest rates have had a knock-on impact on the availability of venture capital, as well as the expected returns. This lack of capital for expansion has cut demand for space.

Matt Smith, head of science and technology at property adviser DTRE, says the slowdown can be seen as part of a typical cycle.

“We were beginning to see signs of the market having passed its nadir,” he says. “As we were beginning to see some more positive sentiment in the market, Merck, GSK and AstraZeneca all made their announcements, which is obviously not good news, but it’s also not the end-of-days scenario that a lot of people have been painting it as.”

Deals are still being struck, says Smith, and the strength of the UK’s universities and talent pool means that the market remains fundamentally strong.

Liam Nicholls, chief executive of agency Creative Places, echoes this view. “The market across the board has effectively been relatively poor, given the lack of funding and the macroeconomic environment. That said, that’s how cycles go – you would expect to see it go up and down.”

Backing innovation

Nicholls says he has spoken to professionals working on “absolutely mind-blowing” work, such as mapping the history of cancer mutation. “Are these companies, entrepreneurs and venture capital funds really going to turn their back on that? If you’re a betting person, you’d probably say no,” he adds.

“You’ve got to ask yourself the question: can companies really afford to say ‘no, we’re not going to do anything with these scientists and institutes’?

We should be pessimistic about the outlook in the short term because of the economic cycle, but optimistic that in the long term it will come back.”

Nicholls adds that the government should connect its approaches to securing foreign direct investment and NHS procurement.

Orestis Tzortzoglou, vice-president and head of UK market at BioMed Realty, says the UK is “uniquely positioned” in the global life sciences market due to its universities and research opportunities.

“The UK’s emerging biopharma companies can help to shape the sector’s future, but scaling this innovation requires sustained investment in modern infrastructure to turn talent and ideas into global impact,” he says.

British Land’s Wiseman adds that a more supportive environment is needed from both a policy and a cultural point of view for small businesses to grow. He would also like to see greater promotion of London as a globally competitive city, as it is one of the fundamental strengths of the UK that has not changed.

“This is a great place to live,” says Wiseman. “It’s easy to recruit people here; it makes sense as a location for big business to move to and for businesses to grow.

“The mature tech ecosystem – the proximity of science and tech – is huge, and that makes us globally competitive.”