Written by Matt Swash SIOR MRICS, Managing Director at COREP | An NAI UK Company
The United Kingdom has long been renowned for its contributions to science and innovation, particularly in the field of biotechnology. However, for many of COREP’s early-stage life science clients, navigating the landscape of laboratory space continues to be a daunting challenge.
The prohibitive costs associated with securing and maintaining laboratory facilities often pose a significant barrier to entry, hindering the growth and development of promising startups.
In this article, we delve into the factors that contribute to what can only be described as a complex and challenging real estate landscape for laboratory space in the UK.
COREP are a specialist location strategy and real estate consultant focused on advising life science companies in the laboratory sector.
Finding a balance between talent, location, and cost
The location of laboratory facilities plays a crucial role in determining their cost. In major biotech clusters such as Cambridge and Oxford, where research institutions, universities, and established biopharmaceutical companies are concentrated, the demand for laboratory space is particularly intense given the excellent talent pool these areas boast. This has surged in recent years, driven by the rapid growth of the sector. With advancements in genomics, personalised medicine, and gene therapy, the need for cutting-edge laboratory facilities in these areas has never been greater.
However, the supply of available laboratory space has struggled to keep pace with this growing demand. As a result, early-stage biotechs often find themselves competing for a limited pool of suitable facilities, driving up rental prices and making access to laboratory space increasingly cost-prohibitive. Rental costs for fitted laboratory space in Cambridge and Oxford have doubled in the past five years (to c.£65.00-£75.00 psf pa), with developers in London – an emerging laboratory market – quoting £125.00+ psf for comparable space. And that’s before local taxation, service charges, stamp duty, professional fees and utility costs are considered. Whilst the costs of incubator space tend to trend slightly lower, there is a lack of available space in this subset of the market too.
In light of the above, investor / developer interest in the laboratory market is high with a healthy pipeline of new space coming online from late 2024 and into 2026. However, much of this space seeks to push rents yet higher.
Within a sector that strives to innovate, collaborate, and cluster, an increasing number of life science businesses are simply baulking at these rental figures. Typically, biotechs with early-stage / Series A funding seek to support their growth in a new space of 6,000-12,000 sq ft. If we assume a scenario whereby one requires 10,000 sq ft having raised $20m of funding, half of this will be spent on committing to a 5-year lease for prime space in London. This isn’t sustainable and opens up a strong possibility that secondary, better value locations will emerge in the medium term. This is starting to happen in London, with more cost-effective – but less advanced – life science clusters starting to establish themselves in East London, most notably around Canary Wharf and Whitechapel. A similar trend is also happening in fringe locations within the Golden Triangle (e.g. Stevenage / wider Cambridgeshire), as well as in Manchester and Liverpool which are seeing major investment from both public and private sources. Newcastle and Norwich are other areas of increased activity in this respect.
Inflexible lease terms
From an investor / landlord perspective, land values and the costs of lab construction are a challenge which can be offset by securing tenants on longer lease terms. In the UK, the traditional lease cycle has been 5-10 years and this tends to be the default approach within the laboratory sector too. However, with early-stage businesses often raising funding that only enables a 3-year runway, a lack of lease flexibility can become a stumbling block. Most landlords also require a 6-12 month rent deposit for such a lease term – payable upfront – as most biotechs are not revenue generating and therefore deemed as high risk covenants. These elements, when paired with the high real estate costs, mean that many businesses are having to make compromises elsewhere – primarily around building specification and increasingly location – to ensure their real estate strategy aligns with the funding / operational objectives of their business.
“For many reasons, the UK is an excellent location to source R&D talent to incubate companies and drive growth in the life sciences, especially in genomics. However, the real estate market, (price and typical lease term lengths) is less well-matched with our desired early R&D headcount and overall growth plans. As a venture backed pre-commercial company the lease lengths especially limit our flexibility. To compensate, we commit to 8-12 month cycles on real estate search, lease negotiations and execution, and choice of partners here is key amongst the considerations. While this added effort adds cost, we are very comfortable with the trade-off to ensure we hire and retain the best local talent in our organization.” – Jay Harger, PhD, Chief Operating Officer, CS Genetics.
Financial Constraints and Funding Uncertainty:
Venture capital plays a crucial role in fuelling innovation across the life science sector, providing early-stage businesses with the financial resources needed to grow and scale. However, the development timeline for life science products is often protracted, spanning years of rigorous research, preclinical testing, clinical trials, and regulatory approval processes. Moreover, the inherent complexity and risk associated with biotechnological innovation fuels the uncertainty surrounding investment or revenue returns. Unlike software startups that can iterate quickly and pivot in response to market feedback, life science companies face formidable barriers to entry and a high probability of failure at each stage of development.
What appears to have been lost within the commercial real estate world is that biotechs are wary – more so than ever given the current economic and geopolitical backdrop – of allocating capital to significant overheads / real estate expenses, as it may detract from resources that could be allocated towards research and development. Consequently, many promising biotechs are left in a Catch-22 situation, unable to attract funding and talent without access to laboratory space, yet unable to afford laboratory space without sufficient funding. London, more than any other market, needs to be careful within this respect.
Infrastructural Challenges:
While the UK boasts world-class research infrastructure and academic institutions, there are persistent challenges related to the quality of laboratory facilities. Many existing research facilities are outdated or lack the specialised equipment necessary for cutting-edge biotech research.
Furthermore, the process of retrofitting or constructing new laboratory space is often mired in bureaucratic red tape and regulatory hurdles, leading to delays and inflated costs. As a result, early-stage businesses are left grappling with suboptimal facilities or forced to allocate a significant portion of their budget towards customising and upgrading existing spaces. This has been a notable trend in the past 5 years, with more and more of COREP’s clients seeking to repurpose cost-effective office or industrial buildings, as opposed to relocating to purpose-built, higher value laboratory buildings. There has been a reaction to this from developers in more of the developed life science clusters, most notably in Cambridge where a handful are delivering well specified, lower cost ‘mid-tech’ units capable of supporting R&D and manufacturing use.
Beyond the base build infrastructure, laboratory spaces are inherently costly to operate and maintain. From specialised equipment and utilities to stringent regulatory requirements, the overhead expenses associated with running a laboratory can quickly escalate. For early-stage businesses seeking to retain capital, the level of these operating costs represents a significant financial burden.
Additionally, the need for compliance with strict health and safety standards further adds to the expense, as companies must invest in robust infrastructure and protocols to ensure a safe working environment for employees.
It is important for investors and landlords to recognise this challenge and provide access to communal facilities for early-stage laboratory users – whether through shared space / equipment within a dedicated building on-site, or by partnering with nearby academia / 3rd parties which can help reduce day-to-day management and associated costs.
Policy and Regulatory Frameworks:
Government policies and regulatory frameworks also play a crucial role in shaping the cost dynamics of laboratory space in the UK. While initiatives aimed at promoting innovation and entrepreneurship exist, such as tax incentives and grant programs (e.g. the Chancellor’s Mansion House Reforms announced last year), their impact on alleviating the cost burden for early-stage biotechs is often limited.
Moreover, regulatory requirements linked to planning and environmental standards can – and will – inflate the cost of constructing or retrofitting laboratory facilities.
Streamlining regulatory processes and providing targeted support to biotech startups could help mitigate these challenges and make laboratory space more accessible.
Conclusion:
The prohibitive costs of laboratory space pose a formidable barrier to entry for early-stage life science companies in the UK, stifling innovation and hampering the growth of the sector.
Addressing this issue requires a multifaceted approach that involves stakeholders from the public and private sectors collaborating to develop innovative solutions. By increasing the supply of affordable laboratory space, reducing operating costs, and providing targeted financial support, policymakers can foster a more conducive environment for biotech entrepreneurship and ensure that promising innovations reach their full potential.
Only by overcoming and truly understanding the cost conundrum surrounding laboratory space, can the UK unleash the full power of its biotech ecosystem and maintain its position as a global leader in life sciences innovation.
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