Investor and occupier demand remain strong
Carter Jonas recently reported that around 50% of Oxfordshire’s total office and lab take up in 2022 was from life sciences companies alone. This strong showing continued in the first quarter of 2023, with Cushman & Wakefield’s Golden Triangle Life Sciences Report highlighting that Oxford was responsible for a staggering 73% (161,389 sq. ft) of the total lab take up across the Golden Triangle (220,990 sq. ft) during that period.
A separate report by Knight Frank pointed to a record 283 new life sciences companies being formed in the UK during the first three months of 2023, the highest ever recorded for a quarter. Knight Frank said it expects many of these new companies to target the office and lab markets across the Golden Triangle.
This presents opportunities for investors and developers to capitalise on growing demand and build on office/lab investment volumes in Oxford, which Carter Jonas reported as reaching a total of £440 million in 2022, far exceeding the regions previous record of £360 million.
Consistently strong levels of occupier demand mean rent levels have remained robust, with evidence that rent for fitted lab space now exceeds £100 per sq. ft.
Several notable transactions
There has been a flurry of transactions announced already this year which demonstrates that key players in the sector are going from strength to strength in Oxford. A few examples include:
Kadans purchase Windrush Innovation centre
Building on its £60 million sale and leaseback deal of Windrush Court last year, Kadans Science Partner (Kadans) has continued to flex its muscles in the Oxford market by acquiring the freehold of Windrush Innovation Centre (WIC) from Tozi. The property will be demolished to make way for the construction of a 60,000 sq. ft campus. James Sheppard, Managing Director for UK & Ireland at Kadans, said: “The development of WIC will provide much needed, high specification, laboratory space in the Oxford market.”
Harwell Campus
With the UK government having committed to buy its vaccines for the next decade, Moderna has chosen to build its new technology centre at Harwell Science and Innovation Campus (Campus), which is operated by Brookfield’s life sciences arm. The plans entail the construction of two buildings, which will bring forward a facility for research and the manufacturing of mRNA vaccines for respiratory conditions and diseases. It adds to the three million sq. ft of development already planned at the Campus.
In further encouraging news, the Campus recently secured £300 million in financing to facilitate a 440,000 sq. ft expansion, which will sit within Brookfield’s 5 million sq. ft overall masterplan. The financing facility, provided by a consortium comprising Deutsche Bank, BNP Paribas and AXA, will support the delivery of new laboratory and research and development buildings on the Campus over the next two years.
Jim Stretton, Chief Financial and Operating Officer at the Campus, commented: “There is a chronic shortage of lab and R&D space across Oxfordshire which is holding incredible companies back. The new developments this facility will fund will accelerate our ability to effectively support our thriving innovation ecosystem.”
Oxford Technology Park
Works have started on the Innovation Quarter (IQ), which forms the third phase of development on Oxford Technology Park. The IQ will comprise 11 self-contained two-storey buildings ranging from 5,000 to 7,000 sq. ft, with the space scheduled for completion in Autumn of this year.
The IQ aims to accommodate the rapid growth of Oxford's technology companies and science-based occupiers. Along with the latest facilities, the IQ will provide communal space where a business community can form and where collaboration can be cultivated and thrive.
Milton Park
New England Biolabs, a US life sciences firm specialising in the discovery and production of enzymes for molecular biology applications, signed for a 30,000 sq. ft manufacturing and product development facility at Milton Park to facilitate its future growth and expand its service offering. The space is in the process of being fitted out with completion scheduled for the end of 2023.
Government action
Chancellor of the Exchequer, Jeremy Hunt, recently unveiled a £650 million funding package to drive further growth in the UK’s life sciences sector, with the aim of turning the UK into a “science superpower.”
The funding will be put towards a raft of different measures including:
- New clinical trials to help bring new medicines to patients as rapidly as possible.
- Awarding of innovation grants focused on preparing the UK for any future health emergencies.
- Changing incentives for UK pension fund to encourage more backing for life science start-ups and mid-cap companies.
- Increasing the capacity of the UK’s biological data bank at Burntwood’s Sci-tech Manchester Science Park to further aid scientific discoveries.
Whilst this commitment has been broadly welcomed by all those operating in the sector, Professor Andrew Morris, Director of Health Data Research UK, has highlighted one area of concern:
“The one missing thing that would transform life science research in the UK is a positive conclusion to the talks for the UK to access the EU’s Horizon research programme. Research today is built on team science with collaborations across the globe. Working alongside other top scientists in Europe benefits everyone and keeps all our research at the cutting edge, speeding benefits for patients and the public.”
Therefore, it is arguable that the government should be going even further and quicker.
Part of the funding package is also dedicated to progressing the East-West Rail project, which seeks to improve connectivity between key life science hubs in Oxford, Cambridge and Milton Keynes and ultimately bring more investment into the regions. Bidwells estimates that, if the Arc’s growth potential can be sufficiently harnessed, the Arc’s economy has the capacity to deliver £235 billion by 2030 (currently £125 billion).
Dr Andy Williams, Chair of the Oxford-Cambridge Supercluster Board, said:
“Connectivity between Oxford, Cambridge and the towns in between is vital to opening up the flow of talented people, innovation and investment needed to secure the UK’s position as a global science supercluster.”
Lack of supply continuing to frustrate
Availability in the Oxford market has been limited to a small number of schemes, with grade A office and lab space nearly absent in all but The Oxford Science Park.
Data from Savills suggests lab-related development across the Golden Triangle will still not be able to satisfy the heightened demand levels, which are predicted to top 2 million sq. ft. Currently, there is approximately 1.3 million sq. ft of lab space expected to be delivered in 2024, with planning consent secured for just short of 500,000 sq. ft of that space and the remainder subject to planning.
The limited amount of stock due for completion in the short term coupled with the anticipated future growth of the sector will only add further pressure to an already constrained supply.
Emma Goodford, Head of Life Sciences and Innovation at Knight Frank commented that:
“The sheer scale of growth of the life sciences occupier market in Oxford continues to outstrip the delivery of new schemes. While it is encouraging to see the government prioritise the UK’s potential as a leading global hub for life sciences, it is critical that more is done to incentivise the development and repositioning of life sciences lab and office space if the sector is to capitalise on, and keep pace with, record levels of demand”.
Insight from Tom Mellows, Head of UK science at Savills is also telling:
“The fact we are seeing pre-lets on space that is yet to reach practical completion is testament to the increasing demand we are seeing from science-related occupiers who are desperate to secure the right type of real estate in the best location.”
Planning delays
After attending EG and Bidwells’ recent “Creating a Scientific Superpower” conference, it was unsurprising to see “reforming the planning system” coming top in a poll which had asked attendees to select the issue that would be most likely to unlock the sector’s full potential.
Cushman & Wakefield’s Golden Triangle Life Sciences Report highlighted that only 22,000 sq. ft of new space was delivered in the Golden Triangle during the first quarter of this year, just a tenth of the space actually transacted. There is no doubt that the slowness and archaic nature of the UK planning system is playing a role here.
For example, The Vale of White Horse District Council (Council) is struggling to meet the 70% threshold of planning applications processed within 13 weeks. To try and incentivise change, Michael Gove (levelling up and housing secretary), has written to the Council warning that he will take over their planning functions and was “minded to designate”. If designation were to take place, planning applications would be sent directly to the Planning Inspectorate, avoiding the local authority.
Whilst the Council had been given until June to improve performance, Gove had signalled that merely meeting the bare minimum would not be sufficient to qualify as improvement.
Jamie Renison, Head of Life Sciences Agency UK at Cushman & Wakefield, aptly summaries:
“The value of planning consent has never been greater as we anticipate delivery of schemes being delayed whilst the planning system takes time to process applications. If the UK is going to become a science and tech superpower, we need the real estate to facilitate that.”
Conclusion
For all the noise and positive headlines that the Oxford life sciences sector continues to generate, it does feel like we are only just scratching the surface of its potential. Targeted policy reform is clearly needed to unlock growth and there is increasing concern that support for the Oxford supercluster could be neglected at the expense of the government’s ‘levelling up’ agenda. With the lack of supply forcing occupiers to look elsewhere, it’s evident that the stakes couldn’t be higher.