_Life Sciences in 2025: the impact of digital transformation and economic adjustments on real estate
As organisations adapt to these changes, Nicholas Blevins, Partner, Head of Life Sciences & Innovation Agency at Knight Frank, explores the current landscape and the implications for the real estate market in 2025.
Continued digital transformation in life sciences
The COVID-19 pandemic accelerated digital transformation across various industries, and the life sciences sector is no exception. Companies are increasingly integrating AI, machine learning, and data analytics into their operations, which is reshaping their space requirements. Life science firms require facilities that not only support traditional laboratory setups, but also emphasise collaboration and real-time data sharing. Real estate developers must consider the architectural design and technological infrastructure that can accommodate these shifting operational needs.
The impact of digital transformation varies across the sector, however. Smaller, more agile biotech companies are benefiting from cost savings due to reduced office space requirements, while larger pharmaceutical firms are starting to mandate in-person attendance. In 2025, smaller businesses are likely to increase their lab-to-office ratios, while larger firms may continue to emphasise office spaces for collaboration.
Economic adjustments and competitive pressures
With the ‘patent cliffs’ on the horizon, larger businesses are looking at repurposing existing compounds to extend their life cycle, expanding their development pipelines, and increasingly licencing and M&A activity. Should M&A activity increase, this will likely result in a larger ‘grey space’ market, as biotechs are absorbed into their new owner.
Government support and fiscal policies
The UK government’s recent budget emphasised investment and focus on science and innovation, and while R&D costs are competitive compared with the US, the actual UK government investment in the sector remains relatively small in comparison with the global market.
The key area to resolve is increasing access to capital, and adjusting pension fund regulations to encourage investment in high-potential life sciences ventures is a hugely exciting development, with funding rounds starting to be led by UK pension funds. The more UK pension funds can be involved, the greater the opportunity in the UK for mid-cap businesses to grow without moving wholesale to the US.
Implications for the real estate market
A better balance of supply and demand: In the short term, the supply-demand imbalance in high-quality lab space appears to have been addressed; occupiers that need good quality real estate can expand as needed. For larger businesses that need more than 30,000 sq. ft., whilst options across the Golden Triangle may currently be limited, by planning ahead, the two-to-three-year development pipeline should fulfil these organisations’ requirements.
Re-use of space: At the smaller end of the spectrum (below 10,000 sq. ft.), the sector is starting to see increasing amounts of second hand space available; occupiers that may be at the end of their business cycle are leaving good quality fit outs in place, meaning occupiers can make savings by moving into an existing space – if appropriate for their science – removing some of the friction to expansion and reducing capital expenditure.
Growth of tech box/manufacturing concepts: The rise of the ‘tech box’ or hybrid workspace model is becoming particularly relevant in the life sciences sector, as businesses start to look at pilot manufacturing.
While cities like Cambridge and Oxford are leading the charge with innovative, adaptable facilities, there is significant justification and demand for such developments in prime markets like London. The need for spaces that foster collaborative research and development will drive growth in UK cities that are well-equipped with talent and logistical advantages.
Need for wet lab space: Some of the larger pharmaceutical companies are beginning to leverage AI to recycle their existing compounds, with lab space then being used as a confirmatory tool. However, despite increasing automation and AI advancements, wet lab spaces remain crucial for mid-sized and smaller life sciences companies that require hands-on research, meaning they still need to have at least the 60/40 lab to office split common to most CL2 lab buildings. Real estate developers should continue to invest in wet lab facilities that accommodate this, whilst ensuring they meet the evolving needs of life sciences tenants.
Rental market dynamics: Following a substantial increase in rental prices averaging around 34% since 2021, stabilisation may be seen as supply aligns with demand in key markets like the Golden Triangle.
Attracting international R&D investment: The UK must become competitive in attracting international R&D investments, through leveraging the country's relatively affordable real estate, highly skilled pharmaceutical workforce, universities, institutions, and world-class data resources like the NHS.
Institutions like the Francis Crick Institute are actively collaborating with the real estate sector to create an environment that appeals to international businesses. With recent changes in the US government, there is a possibility that the UK could see increased activity in the vaccine space, though this is very speculative at this stage.
Looking ahead to 2025
Overall, there is a positive outlook for the life sciences sector as we head into 2025, with occupiers increasingly confident of securing the funding they need, and demand for science space remaining strong. Over the next 12 to 18 months, supply is expected to meet demand, with minimal disruption to the market.
In the short term, rents are likely to stabilise as supply aligns with demand, and there is optimism that available space will continue to be leased in the coming year. As the life sciences sector navigates ongoing changes driven by digital transformation, and economic pressures, it is crucial for stakeholders to remain proactive in identifying opportunities. By adapting to these evolving trends, real estate professionals can support growth and ensure the sector continues to thrive. The future is promising, with ample opportunities for occupiers looking to expand and innovate.
For strategic advice and support within the life sciences sector, from development consultancy to driving efficiencies, our team of market experts can help meet your requirements. Get in touch with our team to discuss your needs, or to connect with Nicholas Blevins, follow him on LinkedIn.