Oxford2Cambridge Arc could hook £5 billion in fresh capital
New research reveals that spending on office and laboratory space in the Oxford2Cambridge Arc is set to hit more than £1 billion by the end of the year – more than twice the 2020 figure when investment levels hit £452 million.
And Bidwells which authored the research, estimates that there is £5 billion of fresh capital seeking a home in the Arc's science and tech clusters.
Bidwells says £970 million has been spent on office and lab space in the Arc so far this year as investors continue to pile into UK life sciences thanks to the sector being backed by long-term market fundamentals.
Data collected by Bidwells also reveals a growing appetite among overseas investors for UK life sciences assets. In Cambridge, home to several life science world leaders, overseas investors accounted for 70 per cent of office and lab investment – approaching £500 million.
Life science plays are a major component of the UK economy. In 2019 the sector contributed over £70bn in turnover and employed an estimated 250,000 people.
During the Covid-19 pandemic the sector has played a vital role in being a global exporter of innovation, with the development of vaccines – and also as a job creator.
The new data reveals how assets well located for the UK’s booming science and technology sectors space have become commercial real estate’s hottest property.
Bidwells cites a number of landmark deals. In October, GIC – Singapore’s sovereign wealth fund – bought a 40 per cent stake in Oxford Science Park for around £160 million from Magdalen College.
Elsewhere, pension fund Brockton Everlast paid £99m for five buildings on Cambridge Science Park. Thirty-three percent of the floorspace at the development was vacant at the time, demonstrating a willingness among investors to move up the risk curve to gain access to the market.
While the pandemic has hit traditional commercial real estate sectors, such as offices and retail, life sciences stand apart.
Much of the work conducted by life sciences companies, pharmaceutical, biotech and other medical research fields, is simply impossible to conduct remotely – meaning companies will continue to vie for very limited space.
The sector also offers institutional investors – such as pension funds – long-term leases. Due to the complexity and expense of fitting out a laboratory, larger companies tend to take longer leases on space in order to realise a return on investment.
Heightened activity levels have driven down availability rates for office and lab space in the Arc, threatening to lock out promising ambitions from startups and stunting scale-ups growth ambitions.
Availability rates for lab space in Oxford and Cambridge hit lows of 2.8 per cent and 2.2 per cent, respectively.
Sue Foxley, research director at Bidwells and co-author of the report, said: “The influx of overseas investment into the Oxford and Cambridge R & D clusters is evident from the significant transactions recorded across the markets over the last nine months.
“Neither Oxford nor Cambridge had seen significant international interest prior to the pandemic. However, 70 per cent of investment funds into the Cambridge office and lab markets in 2021 has been directed by international investors.
“The growing recognition of the long-term growth opportunities presented by the life sciences sector has attracted international attention to the Arc’s clusters of scientific and technological excellence.
“This extends well beyond its pivotal role in the Covid-19 response and will see it continue to power the UK’s post-Brexit economy.”
Saul Western, partner in capital markets at Bidwells and co-author of the report, added: “UK life sciences continues to be a shot in the arm for real estate investors, many of whom are searching for assets backed by long-term market fundamentals.
“Record levels of capital raising in the UK, from both IPOs and venture capitalists, has filtered down into the occupational property market, where investors increasingly want a slice of the pie.
“However, there is an urgent need to speed up the delivery of more lab and office space in the Arc region as supply constraints could push out the unicorns of tomorrow to other competing countries.”