Health is wealth
One of the most profound changes the pandemic has brought about is that it has sharpened society’s focus on our health and wellbeing, and, frankly, underlined the fragility of our existence. This is encouraging a rethink of the environments in which we spend our time, the health of our cities and the sustainability of the built environment.
Well, well, well….
The public health crisis has impacted us in a number of ways – the most obvious place to start is that it has expedited the societal, economic and political pressures that are driving the push towards zero carbon as we look to address the climate crisis.
However, there has also been a fundamental shift in the importance given to the health of our society, whether that’s a shift in attitudes towards air pollution in our cities; awareness of the health and wellbeing1 of our homes and workplaces; the suitability of our elderly living facilities and care homes; how we access healthcare – the pandemic forced a significant amount of healthcare online, with this likely to increase further in coming years2; or the investment in medicine – whether that’s through the NHS, or how innovative approaches to medicine and diagnostics are funded. This is all set against a backdrop of a population that continues to age at a significant rate – 19% of the population is over 65, and this is forecast to increase over the next decade or so.
of the population is over 65, and this is forecast to increase over the next decade or so.
UK POPULATION BY AGE
INVESTMENT IN HEALTHCARE BY ASSET 2016-2021
Caring is sharing
Demand for primary care is driving an increase in medical uses forming the basis of repurposing projects, underpinning values and covenant strength in a number of retail assets.
Investor interest in the diverse healthcare sector in the last few years has come from a diverse investor base from specialists such as Medical Property Trust, BMI, and Aedifica to institutional interest which will continue to increase.
AXA IM, Aviva Investors have all invested significant volumes in the healthcare sector, while the demand for retirement living has seen the likes of L&G, Blackstone and Carlyle all commit to the market in recent years.
Following the Science
Covid has also driven a fundamental shift in the life sciences sector, which was already growing at pace. The most immediate response was the fast tracking of the development of the 80,000 sq ft VMIC development at Harwell, due to be operational in 2022. The facility is due to enable an increase in manufacturing by 20 times.
The UK has a long tradition of investment in healthcare – and its infrastructure is long-standing. The NHS is the largest integrated health service in the world, with the benefits that come along with that including the evidence base, testing data and research capabilities; a large number of world class leading universities, most notably but not just limited to Oxford and Cambridge; and from a regulatory perspective, the UK has the MHRA, and was until recently home to EMA. There is also a long-standing clinical research history, with the UK a significant recipient of Foreign Direct Investment in the sector – the UK is one of the top 3 places for delivery of early phase trials in the world and delivered 12% of all global trials for innovative cell and gene therapies in 2019.
NUMBER OF LIFE SCIENCE FDI INVESTMENT PROJECTS 2019
This shift has coincided with a renewed focus on how to grow productivity post-Brexit and contribute towards levelling up. The UK has ambitious R&D investment targets as a result of this – albeit not just limited to the sector – with the aim for spending to make up 2.4% of the economy by 2027.
This will be supported by funding from the National Productivity Investment Fund, as well as the Life Science Fund – which is partly responsible for a doubling in Government funding in the sector.
R&D INVESTMENT IN THE UK
This is just part of the story. The private equity investment we have seen in the sector has increased and is driving demand for real estate. The ‘golden triangle’ of Oxford, Cambridge, London have been the most obvious beneficiaries but are not alone. The northern arc of Liverpool, Manchester and Leeds, as well as other cities such as Bristol-Bath and Nottingham continue to see a number of fast-growing businesses.
All of these factors have had an impact on commercial real estate, and we are seeing an increase in developer appetite and supply of lab space – both across science parks, but also in city centres, innovation districts with the focus on collaboration between universities, hospitals and research institutions.
During 2022, we expect to see investment in the sector drive further demand for lab space, and the development market continue to evolve – with wet lab space in King’s Cross and White City under construction.
We also expect to see potential for office conversion to lab space, particularly in the ‘Golden Triangle’ of London, Oxford and Cambridge, where values can underpin such capital expenditure. Investor appetite for assets will remain very strong, with a number of new overseas investors in the market. During 2021, Magdalen College, Oxford sold 40% of its stake in Oxford Science Park to GIC for 10 times what it was worth in 2016 when it bought out its then partner M&G, while still retaining majority control.