This Is How A Fast-Growing Life Sciences Company Thinks About Real Estate
To understand how the UK life sciences real estate sector will evolve — and what tenants in the sector want and need — you have to understand capital and how such businesses are funded.
“We think about space based on the availability of capital,” Nuclera chief executive and co-founder Michael Chen told an audience of more than 300 people at Bisnow’s UK Life Sciences Summer Cocktail Schmooze, which was held at British Land and AustralianSuper’s Paper Yard, a new 33K SF modular, lab-enabled life sciences building that was built in just 10 months.
At the event, the first letting at the building was announced: the 2,100 SF Chemastery, a startup focused on increasing the efficiency of chemical research and manufacturing.
The building is part of BL and AustralianSuper’s 53-acre mixed-use Canada Water scheme. It aims to offer the kind of flexibility in space and leases that Chen described as essential for life sciences companies to grow or shrink as necessary.
And those real estate needs are inextricably linked to funding.
Nuclera, founded by four Ph.D. students from Cambridge University in 2013, has devised technology that makes it easier for scientists to access proteins in their experiments, including a bioprinter than can sit atop a workbench.
The space Nuclera required varied at different stages of the company’s evolution.
“Like most of our peers, we commit to space based on unlocking term sheets from our venture capital investors,” Chen said. “So at seed stage, we were effectively looking for a broom cupboard somewhere, some benchtop space.”
The company raised $600K in its seed stage in 2014, and since there was no available space of the required type in Cambridge, the team commuted an hour or more to the Stevenage Bioscience Catalyst. That worked well for a small company because it was replete with scientific equipment like a nuclear magnetic resonance machine, which the company could access but wouldn't have been able to purchase for itself.
In 2018, the company raised $12M in a Series A funding round, which saw it move to around 2K SF in Cambridge Science Park.
“All we really needed over there was a dedicated space where we could keep our team and really work with the team in a central location, because we were starting to have 10-20 people at that site,” Chen said.
It raised $58M in a Series B funding in late 2021, which saw it move into around 10K SF of lab space in Cambridge Science Park, with the funding round led by an American investor.
Its most recent move, agreed upon in summer 2022, saw it expand to a team of 140 and new space at Lateral and Amazon Property’s Mortlock House, where Nuclera has taken all 31K SF. About half of the building will be offices and half will be lab space, including manufacturing and distribution space for the products it creates.
Chen said life sciences clusters can help companies attract funding, which is important if the UK life sciences sector is to grow. The UK is great for startups, he said, but not nearly as good as the U.S. at scaling up ideas to make them commercially viable and create large, successful companies.
“There are local companies in that cluster, and that is very relevant to us,” he said. “So we get teams of investors visiting us because they don't like to visit one company; they like to visit a bunch of companies.”
Chen added that the lack of available space is hindering the medium- and long-term growth of life sciences companies in the UK. At Mortlock House, the company worked with Lateral on the design and fit-out of its space in advance. But companies need to be able to move quickly and easily, or they risk wasting money.
“How VC term sheets work, it takes three months to syndicate, and then you had two years of cash runway on that,” Chen said. “So if you're taking six to 12 months to get into a building, you're spending a lot of that money already and not taking advantage of that space.
“The lag with that space has been a major differentiator between us sitting here in the UK versus a lot of our counterparts in the U.S.”
Chen added that because VC funding is less plentiful in a world where interest rates have risen sharply, particularly for larger, later-stage funding rounds, companies are not expanding as fast or at scale.
“The seed stage is still incredibly active, and you're still seeing raises of between £500K and £5M, that range,” he said. “And their space requirements are like when we were back five, six years ago, where you needed something in the range of 500 SF to 2K SF.
“Those companies can't afford to hire a facilities manager or health and safety manager. So they need a core facility, they need a central managed service of some sort. And that's very difficult to find at the moment.”
The life sciences occupier market is less dominated by venture capital and the need to exit via public markets than the U.S., attendees heard. To some degree, that makes the UK market more resilient than its larger, more mature American cousin, which is giving investors comfort even in a world of rising interest rates.
“I think we're seeing a lot of investment flow from governments, from corporates,” Harrison Street Managing Director and European CEO Paul Bashir said. “I think what we've seen is a little bit of resilience as opposed to the U.S. market, which was a lot more exposed to the VC space than we are over here. So we're seeing some interesting dynamics in the market.”
Harrison Street has been one of the pioneers in the UK life sciences sector, with a portfolio now totalling more than £500M.
Bashir said the investment market has slowed compared to previous yields, but it is far from dead.
“There isn’t that stampede for deals that you have seen over the past few years, but deals are still getting done,” British Land Head of Investment Kelly Cleveland said. “Yields are higher than they were because the rates have risen, but they're still lower than the cost of debt. So there's an assumption there about growth, which makes perfect sense given it's an undersupplied growth sector.”
