Savills plc

08/31/2021 | Press release | Distributed by Public on 08/31/2021 07:30

Savills forecasts 474,000 sq m of new office and lab requirements from the life sciences sector in Europe

Savills calculates that every €1bn of VC investment creates 46,000 sq m of life science real estate demand. Rolling this forward, the €10.2bn of capital invested during 2019 and 2020 indicates that approximately 474,000 sq m of new requirements from the life sciences sector will emerge between now and 2022.

New office space supply of 5.2m sq m, which is distributed across 24 markets in Europe, is due to be completed this year, with a similar amount of supply (5.1m sq m) due in 2022.

However, Savills predicts that with half of this space already committed - 54% of new offices in 2021 already pre-let and 39% in 2022 - the life science industry will be competing with other occupiers for the best space in the right places, making it crucial for the sector to plan ahead and secure space as soon as possible. The rents achievable in life science facilities are competing with those in the office sector and we may see more conversion of space as a result.

Christina Sigliano, Savills EMEA Head of Occupier Services, says: 'Of course, life sciences occupier demand is not dictated by VC investment alone, as higher value government initiatives and private equity/M&A activity contribute to a number of large-scale occupier deals. Life science occupier requirements vary to a large degree depending on the R&D success rate, making it vital for occupiers to have flexibility and growth options.'

Mike Barnes, Associate, Savills European Research, comments: 'Global pharmaceutical companies are now increasingly expanding into Europe due to attractive tax incentives and access to talent. Over €100bn was invested as R&D spend in 2019 with over €33bn in the UK through the likes of GSK and AstraZeneca, €30bn in Switzerland including Roche, Takeda and Novartis and €12bn in France including Abbvie, Sanofi and Servier.

'As well as access to talent, global occupiers focus on the cost of their workforce for their operations. Comparing the average cost of employing a life scientist worldwide, most major European countries, including the UK, provide a discount to many of the established US cities.'

George Coleman, Associate, Savills Regional Investment Advisory EMEA, adds: 'Hotly contested open market opportunities will encourage investors to consider off-market sale and leaseback transaction structures to gain exposure to the life sciences sector at more attractive yields.'

'The specialised configuration of the real estate and covenant issues have previously dissuaded investors from committing to the sector, however we believe these barriers to entry will be lowered as education surrounding the industry improves. On the other side of the table, sale and leaseback transactions offer life science companies the opportunity to raise capital for their operations and invest in primary business areas.'

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