The UK science sector is considered a strong suit of the UK economy, which was no doubt accelerated by the onset of the Covid-19 pandemic. Indeed, the latest data from the ONS demonstrates that between 2017 and 2021, the number of active companies in the UK rose from 270 to 505, and by the end of 2022, the sector supported 304,000 jobs. This growth caused a ripple effect into the real estate market, with investors trying to capture the upside by purchasing sites and buildings capable of servicing or being redeveloped to support the growing science sector. The excitement in the sector has led to the commencement of various developments, resulting in a significant pipeline of laboratory projects currently in progress.

Given the recent turmoil in global capital markets, venture capital (VC) funding remains challenging for end users, casting doubt over the extent of demand for the space. For those tenants that do have a need for new space, the availability of funding has impacted the desire to invest capex in lab fit-outs. This has, in turn, shunted the requirement to the development market, with landlords now fitting out space directly and offering higher leasing terms to the end users.

Smaller, spin-out and early-stage companies continue to show a preference for ‘turnkey’ lab space with communal shared services. Whilst historically, only incubator space was typically delivered to market fully fitted, the tenant demand is now showing preference towards pre-fitted space for up to as large as 10,000 sq ft suites (split office and lab). Larger requirements for more established companies tend to require bespoke solutions, and as such, spaces are still left in shell and core condition for leasing, to allow for bespoke solutions. Outside of London, there has been an increase in the provision of flexible mid-tech boxes, reflecting a diversification in the market. These buildings tend to be let at lower rents and provide increased flexibility of use, with high ceilings and roller doors, allowing for physical sciences and manufacturing use, as well as life sciences R&D.

Turning to the wider market, London and Cambridge experienced a lower lab take-up than years previously, particularly from a weakened funding environment in Q1–Q3 2024, which led to a fall in occupiers making real estate decisions. However, Q4 2024 showed signs of recovery, and this is reflected in the significant amount of space under offer in both markets. Oxford showed resilience throughout 2024, and the lab market experienced high-profile deals with the likes of Oxford Nanopore and Novo Nordisk and, more recently, The Ellison Institute’s £1bn investment commitment to Oxford.

With regards to build costs, the average construction tender price forecast across leading cost consultants for science sector projects is currently 3.5%. This reflects a slightly higher percentage increase than the commercial office sector, largely due to the increased proportion of MEP (mechanical, electrical and plumbing) in science facilities, which is one of the main areas of cost increases across all sectors. This is partially due to a number of significant industry insolvencies, the location of component parts and a lack of capacity in active MEP subcontractor firms. As a result, plant and equipment remain on long lead times, with project teams being driven to mitigate programme impacts through early orders. 

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