Not long ago it was all about tech companies; now life science occupiers are driving some of the most innovative urban developments in Europe’s cities.
In East London, site preparation has just started for what is currently slated to be the tallest life sciences wet lab building in the world.
Even by Canary Wharf Group’s standards, the 23-storey, 826,000 ft² (77,000 m²) tower to be constructed at North Quay is bold, something rival developers and investors haven’t failed to notice. The building will be the first phase of a commercial health and life sciences hub on 3.3 ha of the Docklands estate which has outline consent for 3.5 million ft² of development.
JLL is joint leasing agent with Cushman & Wakefield on the project, and the firm’s EMEA head of life sciences markets Alexander Nuyken agrees the tower represents ‘a completely new model so this will be very interesting to observe’. He says: ‘Laboratories have not often been placed in buildings with more than four or five storeys; all over Europe, people are looking curiously to see how it evolves.’
It isn’t just the size and height of the anchor building which makes the North Quay development ambitious. CWG will have to create a science community from scratch – there is no existing university, hospital or research institute close by, an omission which defies all the norms about developing life science clusters.
But with a huge and growing demand to be located in city centres from life science occupiers, coupled with the challenge of finding suitable buildings, Richard Archer, managing director at CWG, argues that theirs is an urban development strategy that will work.
He says it was back in early 2019 when the management team sat down to consider how to develop North Quay and with what uses. By then, Canary Wharf had long since evolved from its genesis as a banking centre, to the extent that today only 50% of its occupiers are financial services companies.
Lessons from tech
The latest phase, Wood Wharf, developed out over the last four years, is mixed-use and includes 3,700 homes, hotels and low-rise offices designed to appeal to scaling tech companies. The experience gained incubating new tech companies in Level-39, its technology accelerator in the flagship One Canada Square tower, should prove useful at North Quay.
‘North Quay is our next big site,’ Archer says, ‘and like any regeneration, trying to continue to diversify an estate and create a different environment is important, so we asked ourselves, what was the logical next thing to do?’. They concluded that ‘it was already clear that if you wanted to do something different, life sciences was a sector that was seeing a lot of interest’.
‘We knew we didn’t have a teaching hospital or a big university on our site,’ he continues. And so they launched the search for a specialist partner, which led them to Netherlands-based European developer-manager Kadans Science Partners, owned since 2020 by AXA IM Alts.
CWG chose Kadans, Archer says, ‘because the ethos of what they do is very much part of our own DNA: best-in-class buildings; partnerships/relationships; tenants starting small and growing through the ecosystem. They are also the largest life science developer in Europe which gave us a lot of confidence.
‘Finally, unlike some of their competitors, they don’t only buy in absolutely prime life science locations. These guys understand creating value by going to new locations, building relationships to create ecosystems and driving immense value off the back of it.’
Kadans will begin to create an ecosystem well before the wet lab tower opens in 2026. The company has taken 40,000 ft² (plus an option on two further floors) from CWG in an existing tower on the estate, 20 Water Street.
Kadans’ UK/Ireland managing director James Sheppard says the space will be fitted out by Q2 2023 as a Lab Innovation Centre, with plug-and-play supporting infrastructure and services ‘where you’ll be able to start your business by renting a single lab bench – so tens of square feet, not hundreds – all the way up to 5,000 ft²-plus.’ Larger life science requirements can be accommodated in some of the rest of the 211,000 ft² Water Street building controlled by CWG.
The Dutch company was already scouring central London for a debut opportunity when they were approached
The Dutch company was already scouring central London for a debut opportunity when they were approached two-and-a-half years ago by CWG. ‘There is a huge under-supply of life science space in London but there are not many places where you can build a decent- sized building to move the needle,’ Sheppard says.
Canary Wharf’s connectivity within the capital, served by the DLR, Jubilee and new Elizabeth line, and internationally via London City Airport nearby and the Elizabeth Line’s fast link to Heathrow airport, was a key argument in its favour. ‘Immediately you have this big selling point to some of the early tenants that we’ve been engaging with on an international basis,’ he says.
Big talent pool
The deep talent pool in Tower Hamlets where Canary Wharf is located is the other thing exciting Sheppard. ‘If you talk to any of our tenants, irrespective of size or scale, the biggest issue for them is talent.’ He says there is a high percentage of post-doctorate workers living in the borough and seven million people in under an hour’s travel time of Canary Wharf – ‘that is 10 times higher than Oxford, an incredible number’. Furthermore, although there is no world renowned teaching hospital or research institute on site, Genomics England, NHS Transformation, the MHRA, Nice and the General Pharmaceutical Council are all now based at Canary Wharf.
CWG is also negotiating agreements with other parties to help create an East London Life Science District, similar to the Knowledge Quarter (around King’s Cross in the north central area of the capital) and SC1 cluster (in the south around London Bridge), Archer says.
The Knowledge Quarter’s international magnet is the Francis Crick Institute which opened in 2016 as well as nearby universities including University College London. SC1 is where Guys and St Thomas’s teaching hospitals are working on a number of adjacent sites to develop lab and office space with investors including: Stanhope with Baupost at Royal Street; CIT, on 370,000 ft² at Vinegar Yard; and Oxford Properties and Reef (the 300,000 ft² ‘Snowfields Quarter’).
Other urban developments competing for life science occupiers in the capital include Stanhope’s White City in west London, where the developer and its partners have worked hand in glove from the start with Imperial College London. Its roll call of biotech and therapeutics companies continues to grow and the ThinkSpace, Scale Space and WestWorks buildings offer flexible incubator and accelerator space for start-ups and growing companies.
Nearer to Canary Wharf than all these initiatives, NHS Property Services has this year submitted plans to Tower Hamlets for a life sciences cluster in Whitechapel which is backed by Barts and Queen Mary University. Archer is keen to stress CWG will be delivering its building on time in 2026, ‘and no-one else is close to doing anything similar. Speed to market is the most important thing with this quality of product’.
Collaboration between clusters
Sheppard stresses there will be a degree of collaboration between all the London clusters, particularly to support the city to compete on the international stage. Referring to MedCity, an initiative set up by the London Mayor, he comments: ‘There is a concerted city-wide effort to join up the dots. A city of London’s size and capability can host lots of different, smaller clusters as long as they are in constant dialogue. The worst case scenario is that we all miss out on a company that doesn’t base itself in London. Because you only really get one shot with these big global entities.’
All these developments add up to a lot of potential real estate, although not all of it will be true lab space – some will be offices – and there will be dry as well as wet lab space, which is the environment suitable for analysing and testing matter.
As Richard O’Boyle, CEO of life sciences developer/manager Pioneer Group, points out: ‘It’s an urban myth that everyone working in a biotech company walks around in a haz suit and it’s also an urban myth that you have to have a long list of letters after your name. Not everyone has PhDs working in these businesses. Some staff are non-science degree grads with other roles and skills (common to any company).’
Asset class comes of age
The sector has certainly arrived as a stand-alone asset class, says JLL’s Nuyken. ‘Every investor who has an opportunity to look into life sciences is doing so.’
Since the Covid pandemic, ‘there is resilience in life science take-up relative to office space, driven by the fundamentals’, he says. ‘Compared to office space there’s a vast unmet medical need; you have a huge pipeline of products and innovation coming out of universities. The big pharmas are not able to fill their growth gap with their own development, their own pipelines, so they need these innovations coming out of these universities or other institutions.’
And despite these early-stage spin-outs having no credit rating, because they are simply burning rather than earning money at that stage, he says they are quite stable and attractive tenants. ‘Their funding has increased massively over the years and particularly through the pandemic: that gave the sector a big push.
‘Venture capitalists have money to make bigger rounds; that means longer term funding for bio-techs, which means their business plans, and their rents are embedded, they’re stable. Cash flows that are planned for rents the bio-techs have visibility on – they are not impacted directly by, for example, the drop in the consumer appetite.’
Investors get a rental premium in the market relative to offices because of the scarcity. Recently listed Life Science REIT is targeting £110 per ft² for space in the full lab fit-out under way on two of the floors at Rolling Stock Yard in King’s Cross. It said in September that it expects to let both floors in the 57,000 ft² building before completing the work early next year.
Life science hotspots in Paris and Berlin
The Grand Paris rapid transit project to link up the entire Greater Paris region is as transformational for life sciences growth as it is for other parts of the city’s economy.France’s capital has 700,000 students, 125,000 researchers and 39 hospitals according to Marcus Fernhout, key projects director at Kadans.
Speaking on a panel in July this year moderated by Choose Paris Region, Fernhout outlined some of the new life sciences projects being planned.
- Paris Oncology in Villejuif in the south is one of the top cancer centres in the world and home of the renowned Gustave Roussy cancer-research hospital. The vision there is to create 100,000 m² of space phased over the next eight years; Kadans is building 24,000 m² of commercial lab space, to be operational in 2023.
- Hotel Dieu, the oldest university hospital, in a historic building in the heart of Paris, is the choice of Biolabs, the US life sciences coworking space investor, to create its first, 9,000 m² lab centre in Europe.
- Saint-Ouen in the north is currently mainly offices but two universities will merge and make it a major life science hub with delivery expected in 2027.Established locations in Paris which continue expanding include: Genopole, the 100,000 m² cluster featuring around 100 biotechnology companies and research labs specialising in genetics in the city’s south west; and Paris-Saclay in western Paris close to Paris-Saclay University, a massive campus where approximately 15% of all French research activities take place.
In Germany, Berlin and Munich lead in terms of attraction to life science occupiers, says JLL’s Alexander Nuyken. ‘But there is also an opportunity in smaller locations. Heidelberg is well known for life science activities and even communities like Mainz or Hanover and Göttingen are popping up.’ Mainz, he points out, benefitted hugely from being the home of Covid vaccine company BioNTech.
‘From a political viewpoint in the past, biotech was regarded as a bit risky and not really big enough to bother about,’ he believes. ‘But a huge mind shift has happened in Germany with the success of BioNTech which now contributes huge tax payments to the city.’
JLL advised on Garbe’s recent acquisition for its science and technology real estate fund of ‘The Lab’ in Adlershof, an area in Berlin which is developing as a life sciences cluster. ‘Garbe bought 19,000 m² of space, not super-centrally located but still very well connected to the centre of Berlin and public transport. The whole eco-system is being rebuilt and refurbished,’ he explains.
Garbe is just one established player looking for more opportunities in fresh markets across Europe, particularly the Netherlands, France and Germany as well as markets further north like Denmark around Copenhagen.
Pioneer Group is one of the UK’s largest developers and operators of lab space with 3.6 million ft² in its portfolio and a 1.5 million ft² pipeline. O’Boyle says the company is very close to announcing a first tie-up in continental Europe. Earlier this year, the group poached ex-Schroders fund manager Harry Pickering for a newly-created role running the UK portfolio, freeing up O’Boyle to spend more time in the rest of Europe.
Buildings with the right ‘bones’ for repositioning
Repurposing existing buildings to create laboratories is one interesting answer to the scarcity of land for new developments in urban locations.
Pioneer Group teamed up with Oxford Properties last January to buy Victoria House in Holborn in central London; the JV paid £425 mln to secure the circa 300,000 ft² listed office block. Pioneer CEO O’Boyle confirms that the intention is to create a life sciences cluster and the JV will soon submit a planning application. ‘Our ambition is to start on site in H1 next year with Phase 1 delivered in early 2024.
’The building is within walking distance of an area popular with venture capital funds, of University College London, UCL Hospital, The Wellcome Trust and Francis Crick Institute, and he reveals that securing it was the culmination of six years hunting for a suitable building which could be converted quickly. It was the case that: ‘Three key stars finally aligned: it was in the right location; the majority of buildings don’t convert for life sciences use and this one does; and there was a vendor (Lab Tech) who would sell. It is not unique – but it is pretty rare.’
Pioneer is in a different joint venture with Angelo Gordon which bought and hopes to repurpose a large shopping centre in central Cambridge as a science campus. ‘We have multiple different business plans we can execute, but we feel the Grafton Centre would work incredibly well for life sciences,’ O’Boyle says.
In both cases the existing real estate has ‘the bare bones’ that work for conversion and working with the existing building. ‘Most shopping centres will deliver six air changes an hour to the retail floors which is what you’d need for biology space. So you’ve already got the riser capacity, you’ve already got the M&E compound areas for what you need to deliver.’
Similarly, ‘Victoria House has the capacity, the floor-to-ceiling heights, the floor loadings, areas for off-site storage, off-street parking for things like nitrogen bottles...things that are incredibly hard to find without developing new.’However, the cost to convert is now some 20% to 30% higher in the current climate, and he says that raises the barrier for entry even more for new players. ‘We have absolute conviction based on our data that it will translate into extra return.’