After sparking massive interest during the pandemic, the life sciences market is entering a new phase, according to JLL’s Chris Walters, Head of UK Life Sciences, and Brad Greenway, Co-Head of Debt and Structured Finance.

Equity investors and lenders are both becoming more comfortable with and educated about the life sciences sector and are more confident in backing it, explains Greenway. “When lenders see equity players like GIC, Blackstone, BGO and Oxford Properties thematically investing in the space and picking different clusters and the micro-locations within these, they tend to follow.”

Chris Walters: Our ageing population is a key growth driver. New diseases are being identified, and there is a rising need for breakthroughs in cures and medication as well as innovative modalities for undertaking research and development. Investors recognise that the number of companies in this sector is increasing.

In the UK, we have seen a lot of public-sector funding being committed to the sector, particularly in the established markets, which has driven occupier activity, investor appetite, and transactions. Occupier activity is what investors are looking at, and they are now able to support and justify their investment decisions.

Brad Greenway: It has been a journey for the lending market, but investors have come aboard relatively quickly. Three years ago, we had just one lender quote for a U.K. life science financing for a top-tier Sponsor, but for a recent debt deal this summer, we were oversubscribed by 15x. There is much more comfort around the liquidity of the debt market for life sciences, whether it is for core, value-add or opportunistic financings.

CW: An investor, whether that is an allocator of equity or debt, really needs to understand how these companies are being formed and how they are growing. When a business forms with an initial idea they will typically seek seed funding before systematically working through l funding rounds that align with their business plan, moving from an R&D stage to clinical trials, commercialization, and production. All of this means that the life sciences real estate sector is very operational in nature with property needs typically being aligned to the types of company and its growth.

In the UK, a significant proportion of occupational demand that we are seeing is from private venture capital backed companies, and their head count can jump quite substantially in a short period dependent on the success of their business growth. The average lease length is around five years for a mid-sized company, but a firm in a pre-seed funding phase will probably want to have a 12-month agreement. At the other end of the spectrum, for big corporates lease lengths can move the other direction with commitments of 10 to 15-plus years.

CW: Yes, in the most advanced markets there is an undersupply of purpose-built laboratory space. A recent article I read described the UK as having a significant amount of space being delivered in the next 12 months but the data we are seeing tells a different story with only 700,000 sq ft of new space coming forward in 2024 in the Golden Triangle. With challenges on securing timely planning and commitment of funding to deliver speculative development, the balance of demand to supply remains much more favourable to the landlord when compared to the challenges being experienced some of the US markets. Despite this market dynamic, we are however clear with our investor clients on the importance of being forward thinking, providing high quality buildings and environments to attract tenants. Delivering space as a speed to market play is simply not enough in what is a highly competitive and talent driven industry. 

CW: The UK has been a leader in the European context, closely followed by the Netherlands, Germany, and France. However, the real estate offer in those markets has been mostly publicly owned rather than privately developed for commercial companies to use.

We are starting to see investors that have committed capital into the UK life science sector begin looking at the next opportunity in Europe. The European market has started to shift, and some of those clusters which were previously established are now being classified as advanced, while those which were emerging are maturing. Cambridge, Oxford, and London were the only three advanced markets that we identified out of 39 last year in our European Cluster Report , but this year Paris, Berlin and Amsterdam have been added to the list. I have no doubt that we will see more investment activity in Europe over the next three to five years.

CW: Transactions will come back as the market increasingly stabilizes and pricing is proven. We have already started to see existing clients looking at how they can bring in capital partners on the equity side to help them execute their in-place business plans. Given scale and type of capital seeking exposure to the sector, I think we will also see consolidation between larger and smaller groups as existing portfolios develop and evolve.

Another type of transaction we expect to be more common relates to strategic landowners, like academic institutions, NHS Trusts, and local governments, that have fantastic land holdings and are now thinking about how they can create value by partnering with private-sector developers and investors to help them develop commercial office or laboratory space.

At a macro level New scientific discoveries, supply-demand dynamics, sustainable innovations, and strategic partnerships are creating opportunities for life sciences companies, investors, and developers. We think the future outlook for the sector is therefore strong, particularly in the UK and wider European market.