This edition of Trends & Outlook looks at various aspects that have an impact on commercial real estate, ranging from policy and planning through to the consideration for residential for scientists
Global & UK trends
Patents, M&A, R&D spending, clinical trials
For all sectors across the world, it has been more difficult and, at least, uncertain since the beginning of April this year. The largest pharmaceutical and biotechnology companies will be thinking what is next and what is the plan going forward. On the real estate side, the focus for all owners of science-related real estate remains on the occupational demand and what encouraging trends are emerging.
The chart below presents the differing potential fortunes of some of the largest pharmaceutical companies. Some of the biggest names in pharma could do with more patent success. This aligns with companies like AstraZeneca, which has grown R&D spend significantly and has one of the highest levels of research intensity at 23% (intensity calculated by R&D spend as a share of net sales). It has been estimated that US$183 billion in revenues is at risk through to 2030 (Morgan Stanley) for the largest pharmaceutical companies. This risk will come from generics and biosimilar offerings. Mergers & Acquisitions (M&A) will be a preferred growth strategy for the largest companies, and both biopharmaceutical and MedTech companies were signing big deals last year. Novo, J&J, Vertex Pharmaceuticals, DB, Lilly and Boston Scientific are all in the top 10 of mega deals completed in 2024.
There is an anticipation of increased M&A this year as the big companies and private equity have historically high levels of ’dry powder’ to spend (estimated at US$2 trillion). The big biopharma are looking forward for innovative assets that will plug the patent cliff – this has been the trend for many years, and it is not stopping anytime soon. The cloud on the horizon, with a fair wind, is the geopolitical outlook and tariffs. McKinsey’s December 2024 survey of 2,000 executives shows that 35% place geopolitics at the top in terms of risk to economic growth. Trade policies are a close second – we would suspect that such policies would dominate the next survey results.
From reviewing the top 2,000 companies, in terms of research and development (R&D), spending shows that the intensity for pharmaceutical and biotechnology companies remains high. The sector accounts for 18% of the £1.1 trillion spent by the top 2,000 companies annually, whilst only employing 5% of the total number of employees. The Top 20 pharmaceutical and biotechnology companies employ around 2.8 million people globally. There are certainly pressures on the top 20 companies to ensure cost control is maintained, and the latest data shows that employment growth was just over 1%; this is lower than the 5% average for the rest of the companies in the top 100. Therefore, growth and occupier demand must be focused on the mid-range pharmaceutical and biotechnology companies. Within the analysis, 33 companies have been identified that have seen 50%+ growth in R&D spending, with nine seeing a doubling of R&D spend – these are not necessarily small companies, they employ 4,000 people between them and have a market capitalisation of around US$6 billion. The reasonable hypothesis is that higher growth in R&D is likely to create additional commercial real estate demand in the short term. It is these companies that require further investigation.
As shown in the chart below, there are comparatively differing potential fortunes for some of the largest pharmaceutical companies. This chart illustrates why, for some, the need to acquire companies that are at the clinical trial phase is important. Of course, this is positive news, as smaller companies get the injection of capital that is required to push forward the discovery. Clinical trials are key, and the environment in the UK to maintain a strong global position is critical for the future prospects of biopharma in the UK. The first-ever analysis of the UK clinical trial landscape by the Medicines and Healthcare products Regulatory Agency (MHRA) and the University of Liverpool confirms that the UK is a global leader in clinical research. The UK is a hub for pioneering research, with one in eight trials testing treatments in humans for the first time. There is strong commercial investment in UK trials, with 85% industry-sponsored. A smaller share (15%) comes from universities, hospitals, and charities.
Throughout 2025, AI will remain the buzzword of the sector, with a focus on clinical trials. 90% of clinical trials end in failure, but companies like Ignota Labs, based in Cambridge, UK, see an opportunity to sift through vast amounts of data to discover the connection between trial data and bring new life to abandoned projects. Only a small company at present, but one to watch and has successfully raised capital in Q1 this year.
Overall, it must be remembered that the science sector is incredibly broad, and whilst the pharmaceutical sector is important to watch, there are hundreds of sub-sectors and ’emerging spaces’ that will create demand for real estate in the short-to-medium term.
A view from Head of UK Science
As we know, venture capital (VC) funding challenges have made some companies more cautious over the last 18–24 months. Although it is too early to predict the impact of the recent US tariff policy, this could well disrupt global supply chains for more mature companies unless resolved quickly. However, we are seeing more VC-backed businesses able to access new investment and reactivate space requirements. Whilst space take-up in the first quarter of 2025 was relatively subdued, there are signs of recovery, and we anticipate growing momentum throughout the rest of the year.
The biggest pharma companies were already making plans in the US well before the tariffs issue arose. For example, Novartis plans to spend US$23 billion on building or expanding ten facilities in the US, touting the creation of up to 1,000 skilled jobs, directly, including scientists and engineers. The new facilities will include a biomedical research hub in California (San Diego) and four new manufacturing sites. Lilly and J&J committed to manufacturing investments earlier this year. There is a chance 'big pharma' may have already sidestepped some of the disruption from the tariffs as they have already had plans in place before early April. Some have made more recent announcements, including Roche. Towards the end of April, they announced committing US$50 billion over the next five years, creating 12,000 jobs (half of which will be the construction sector for developing the facilities).
Whilst space take-up in the first quarter of 2025 was relatively subdued, there are signs of recovery, and we anticipate growing momentum throughout the rest of the year
Tom Mellows, Head of UK Science, Leasing, Development & Occupier Representation
We look to the US for indications of what a successful and market-leading market looks like, both in terms of R&D, scientific discovery and commercial success. However, some commentators have said that there are opportunities for global growth coming from the current US government policies around departmental funding and tariffs. Such policies may create enough disruption, or the threat of disruption, that the discovery aspect may be better placed elsewhere, outside of the US. The early-stage biotech startups are likely to be the ones that are impacted more by tariffs, with rising R&D costs and disrupted supply chains.
The big question for the UK will be, "Are the unknowns enough for earlier-stage companies to head to the UK?" Time will tell, but arguably, the outlook looks like it could be a positive. The environment in the UK is as strong as anywhere in the world. The talent is here, the academic underwrite is world-class, we have a transforming NHS and an incredibly strong (and therefore potentially strengthening) clinical trials environment. All factors that would still be attractive to science companies at all stages of their growth phase.
For more information on Savills Science and the research capability, in the first instance, please contact:
Tom Mellows, Director, Head of UK Science. Leasing, Development & Occupier Representation.
Steven Lang, Director, Offices, Sciences & Emerging Trends
