Investment volumes recorded across both Oxford and Cambridge softened in 2023, with volumes reaching £72 million and £143 million respectively. Overall, this represented as much as a 90% fall when compared to the average investment volumes for the previous two years.

With this in mind, does this significant drop suggest that investor interest in the science sector was, in fact, a short term trend and a possible knee-jerk reaction to the pandemic?

In short, no. Already, the transactional activity that has taken place in 2024 would indicate otherwise. There is currently £190 million under offer across the golden triangle and a further £589 million of assets available, which all points towards greater investment activity this year.

At present, there is as much as £1.7 billion of dry powder actively targeting the market across 59 different investors, demonstrating the depth of interest. Notably, the buyer pool is expanding from predominantly north American and European investors to Middle Eastern buyers also seeking exposure to the sector.

Science remains an attractive asset class

What’s clear, is that despite its popularity, the sector was not insulated from the challenging macro-economic environment witnessed over the past year. Rising finance costs resulted in outward prime yield movement, which now stands at 5%, representing a 100 basis point movement from the 4% seen in 2021/22 making pricing attractive to investors.

What goes up must come down

After the boom of investment activity over the pandemic, where turnover surpassed £1.6 billion, a fall in volumes was to be expected. Other reasons for this drop include delays in the planning system, which has stalled some schemes that were due to be delivered resulting in a lack of stabilised science stock coming to the market.

The majority of investments acquired in this period have been development opportunities, with many of these assets expected to be traded once let. There is currently 11 million sq ft in both the Oxford and Cambridge development pipeline, which is set to provide future investment opportunities and subsequently drive volumes.

Strong fundamentals

It is also important to note that the property fundamentals for the sector remain strong. The region has experienced significant rental growth in recent years, with prime laboratory rents increasing by 36% and 15% year-on-year in Cambridge and Oxford respectively by Q4 2023.

While it is unlikely we will see rental uplift of this scale in the long-term, the ongoing shortage of immediately available lab space will still support rental growth. This is particularly notable in Cambridge where the vacancy rate is below 3%, and although there is a significant development pipeline, this is not expected to be delivered anytime soon, or perhaps at all. This is being further bolstered by positive occupational data, with Q1 2024 take-up across the golden triangle 64% above the Q1 average.

Ultimately, the rental growth that the market is experiencing will provide reversionary potential in the majority of assets that are currently being developed, which will help support further investment into the sector.

Structural factors

It is also important to consider long-term structural factors. The ageing population and an increasing life expectancy will no doubt present challenges and will require the need for greater disease prevention and accelerate drug discovery. The use of AI in clinical trials will also enable the expansion of biotechnology and pharmaceutical occupiers by speeding up the process of bringing products to market. This will broaden the demand pool and support leasing velocities for new developments.

Overall, the outlook for the science investment market remains robust and there is a lot to be positive about.

Further information

Contact James Emans or Simon Preece

Life Sciences: Trends & Outlook