Life sciences real estate trends for 2024 and beyond

The life sciences industry is constantly evolving. With tight budgets, shifting priorities, and the way we work changing for good, life sciences companies need to keep pace with employee and investor demands ‐ or risk being left behind their competitors.

As the life sciences sector continues to evolve with the rise in digital health, continuous development of preventative and personalised treatments, and to cope with the challenges of ageing populations, its workspace requirements must evolve too. While demand for specialised office and laboratory facilities is soaring to keep pace with this innovation, real estate managers now face a delicate balance between evolving tenant needs, increasing financial and ESG pressures, and planning for the future.

Now in 2024, the life sciences real estate has four key trends to contend with: sustainability, funding, investor consolidation, and looking to the future.

Sustainability

Sustainability has fast become a top priority for every sector — and life sciences are no exception. From January 2024, the Corporate Sustainability Reporting Directive (CSRD) requires large businesses and SMEs that trade in the EU to conduct sustainability reporting to stricter standards. This will affect any life sciences organisation that operates across or trades in Europe — including those based in the UK. This Directive, coupled with societal and investor pressure, will bring a heightened focus on the sustainability of laboratory buildings and the recognition that these buildings are different from standard office spaces.

In 2024, we should see the development of an industry standard for sustainable life sciences developments. Although the UK has largely been at the forefront of building sustainability, the life sciences sector has been somewhat left behind. Closer collaboration between developers and tenants will ensure buildings are designed with the end-user in mind, optimising operational efficiency and reducing the burden on day-to-day operations. For instance, enhancing how laboratory waste is dealt with or the energy efficiency of HVAC systems could result in great sustainability gains and cost reductions.

Tenant confidence

2023 was a hard year financially for businesses of any size. Budgets were squeezed across the board, regardless of sector, with soaring energy prices, inflationary pressures, and cost-of-living challenges hitting all of us. As such, tenants have been scaling back and focusing on optimising how they operate in 2023 — making the leasing market more challenging.

However, there is still significant money for the life sciences and we will continue to see confidence returning to the sector in the year to come. For instance, this year is finishing with significant funding success, such as Quotient Therapeutics, which should act as a springboard for 2024. What’s more, UK biotech fundraising has now achieved its best quarterly total since 2021, rising 48% from earlier this year. As companies can now afford to look forwards with more confidence, we will see more deals being completed and landlords co-investing with their tenants in their physical infrastructure to allow companies to optimise their cash position.

Consolidation of investors in the sector

Over the past few years, we have seen a huge number of new entrants into the life sciences real estate market — some good, some bad. However, a lot of people are quickly realising that this sector isn’t as easy to get into as the headlines suggest.

Now, the challenge comes from asset and property management. Currently, it is very rare in the UK and European markets that spaces are leased and operated by the same provider — a skill that is not readily available. This means that life sciences companies can rack up unnecessary expenses on building management. In 2024, many newer investors in the life sciences real estate space will turn their capital in new directions that are less risky and less operationally intensive. For those who remain, we will see them support start-ups and smaller organisations with shared spaces that allow them to get on with their work while their landlord takes care of the building burden.

Planning

Everyone knows planning is challenging. Up and down the country and across the continent this affects landlords of all sizes and ages. However, in 2024 we want to see more engagement between the private sector and the planning system to better articulate what a lab building is and how it functions. The onus shouldn’t always be on planning officers or councillors to research the sector and give their recommendations — life sciences real estate providers must play their role as well.

Ultimately, science and innovation will continue to power the UK economy for years to come, and for that we need a planning system that is fully integrated with the sector. Rather than working to beat the planning system, the private sector should extend an olive branch and bring the planners on the journey. From laboratory space and cleanrooms to office space and collaborative communal areas, working together to create planning that works with life sciences real estate and not against it will mean that we can create spaces that spark innovation and enrich the communities they are situated in.