Perspective

specialised firms. This division of labour between smaller (often venture-backed) businesses focusing on research and big pharma utilising its skills in development, trials and marketing of new medicines manifests itself not only in the statistic highlighted above, but also the increasing trend towards big pharma M&A and other commercial partnerships to tap into future drug pipelines and scientific talent.

These trends in conjunction with increased funding allocated to R&D from an increasingly broad range of sources - government, philanthropic interest, big pharma, big tech and venture capital - has helped support the significant growth of a wide range of specialised companies driving scientific R&D in this new era.

A successful scientific innovation ecosystem

Because of the extremely high barriers to entry and human capital required in the Life Sciences sector, companies tend to group into “clusters”, typically anchored by top universities and hospitals with cutting edge research programs. This dynamic has resulted in certain regions attracting nearly all the available government and private sector funding. From a real estate investment standpoint, this means that occupational demand for space is concentrated in predictable locations thereby reducing speculative investment risk.

The US is the largest global market for venture investment into biotech, accounting for 66% (£18.8bn) of the £28.1bn of global biotech venture investment in 20215. This investment has been concentrated into key innovation clusters in the US, including Boston, Cambridge, MA; San Francisco Bay Area, CA; San Diego, CA; Durham, NC; New York City, NY; and Philadelphia, PA. PSP Investments has been investing into the US Life Sciences commercial real estate sector since 2018 when the sector was still nascent, building a portfolio of meaningful scale comprised of both new and converted assets.

The UK is the third largest behind only China, registering a record year in 2021 at £2.5bn. To put this UK performance in context, this is equal to the total venture investment into biotech across the whole of the rest of Europe (including Israel) combined. This investment has been largely concentrated into the UK’s “Golden Triangle” of London, Cambridge and Oxford, which exhibit the pre-requisite characteristics to be one of the world’s foremost Life Science clusters. The UK benefits from world class science and research capabilities; globally successful pharma, biotech and medtech sectors; outstanding higher education institutions, being home to four of the world’s top 10 universities (University of Oxford, University of Cambridge, Imperial College London, and University College London); the NHS itself as well as an associated wealth of genomic and health data; an agile regulatory environment; and Government support for the sector. All of these are vital ingredients for a successful scientific innovation ecosystem, which can only thrive if there are su cient suit-for-purpose spaces.

These strong fundamentals are further supported by increased healthcare spending. The UK’s overall healthcare expenditure as a proportion of GDP has risen from 6.9% in 1997 to 11.9% in 2021, with UK public healthcare spending now accounting for 45% of overall government spending on goods and services. Science and innovation is also one of the main pillars of the UK’s industrial strategy post-Brexit, with a focus on adding highly skilled jobs and enhancing productivity across the economy. A similar shift is occurring in the private capital markets, with venture investment into biotech in the UK surpassing £2.5 billion in 2021, a new high watermark.

Partnerships to create impact

Once the theme, sector and regions have been identified as factors contributing to market beta, PSP Investments seeks out best-in-class development and operating partners who can source key assets and can execute the envisioned strategy that will support alpha return generation. The importance of this is only amplified in specialist sectors like Life Sciences where first-hand knowledge and experience are critical to success. Given the limited availability of suit-for-purpose stock, a key focus is on valueadd, repositioning, and redevelopment strategies, where a rigorous asset selection process is required to identify the properties with the right potential to accommodate the technical specifications for specialised laboratories that life science occupiers require, including low structure vibration, enhanced MEP installations, etc.

PSP Investments benefits from longstanding relationships with best-in-class life science developers and operators, such as Longfellow Real Estate Partners. This partnership first started in the US and is delivering world-class lab and workspace to support the growth of life science companies, not only through providing the necessary space to meet their evolving needs, but also the amenities, services and communities to support collaboration and the workings of the ecosystem. Founded in Boston, MA, over 13 years ago, Longfellow became one of the market leading developers and operators of life science real estate, and have established strong relationships with the various stakeholders, including occupiers, government institutions, universities and research institutes.

In early 2022, PSP Investments and Longfellow launched their Life Science real estate platform in the UK, making their first investment into Capital Park Cambridge, a 42-acre, 245,000 sq. ft. innovation-focused campus located a 10-minute drive or 15-minute cycle ride from Cambridge railway station. This was followed in October 2022 with the exchange of agreements to recapitalize Capital Park Cambridge and enter into a new partnership between Longfellow, PSP Investments and Norges Bank Investment Management (NBIM), targeting £1.5bn of investment into Life Science and innovation real estate across the UK, with a particular emphasis on the likes of Cambridge, Oxford and London. ESG will form a key consideration in the partnership’s investments with a focus on having a positive impact in the local communities, while designing environmentally sustainable buildings that align with the investors’ stated objectives.

Partnering with experienced partners such as Longfellow is intended to give PSP Investments an excellent platform through which to target high quality, risk adjusted returns in a specialist and growing sector with compelling long-term structural tailwinds.