The stars have been aligning for the life sciences real estate market over the last few years, but as an increasing number of investors and developers seek exposure to the sector, there’s a real risk that it becomes overheated.

Such conditions mean that, to succeed, the operational performance of asset owners will be crucial. Across the UK, despite the current market instability, there are billions looking to tap into this emerging asset class.

The raft of new life sciences space being announced is good news for an evolving tenant market – in which demand still greatly outweighs supply – and UK plc. But those developers need to properly think about how they are going to purpose and manage space to ensure returns – particularly if the market turns.

Think carefully

Increasingly sophisticated and complex occupier demands, enhanced ESG requirements and technological advances, coupled with economic and demographic trends, are requiring a more active asset management role for real estate owners.

Operational real estate is essentially aligning the performance of occupiers with the real estate asset they occupy. A full and successful life sciences scheme has happy occupiers paying rent, which means reliable and long-term income streams increasing the value of the asset.

It means the development of the right space for occupiers with developers thinking carefully about the occupier base they want, what they need and how to attract them. Working in collaboration with the right partners and universities, and creating a strong brand and marketing to attract occupiers, helps.

Once occupiers are in, they need to be effectively managed, ensuring their complex needs are met, they have the opportunity for expansion and they are listened to. Technology can play a big part in this, not to mention enable efficient measurement and reporting to investors. But costs can spiral without care and there is nothing like the human touch.

An efficient management company with space that is well-designed and on which there is good consultation can keep voids
down, ensure a smooth search for new occupiers and that they stay

Aligned success

A further key consideration of operational real estate is how to tie the interests of investors and occupiers together, aligning the success of occupiers with our own objectives in a way in which everybody wins.

At Pioneer Group we have more than 20 years’ history of working with life sciences companies of all sizes. Operating buildings as if we were a tenant paying the cost to ourselves is key.

We invest in our occupiers through several VC funds. This is clearly not for everyone – and is an order of magnitude further up the risk curve from your standard real estate investment – but there’s a number of reasons why we do it.

It means we have a ready pipeline of new occupiers coming to us because we can also fund their ideas. To date we’ve supported over a hundred companies, worked with 32 universities and raised £300m in investment.

This means more expertise on our part – the fund was supported by a team of scientists, entrepreneurs and investors choosing investing in and speaking to occupiers. It also means helping to ensure the success of our occupiers by stacking the odds in their favour. We provide introductions, how-to resources, connections to investors and experts alongside accelerators and launch programmes.

This leads to more successful, long-term tenancies and less risk to our income. Let’s not forget there is also the added benefit
of substantial possible returns from the seed investment itself.

Correction Coming?

The really interesting thing is, if we can do it, why not a shopping centre or a serviced office? Serve a tenant well and you have a tenant for life but only if you can provide the space and facilities for their expansion.

If there is a correction in life sciences – which there is in every sector – it will be assets that are not fit for purpose that suffer. With the UK’s universities and research background drawing in and churning out some of the top intellectual talent globally,
what we will not lack is innovative companies with good ideas.

The concept of life science is sound – it’s the right type of space in the right location with the right type of support that needs to be appropriate.