Europe

The Funding Market Has Firmed

Venture Capital Life Science Funding and Real Estate Investment

^{Source: Pitchbook, RCA, Cushman & Wakefield}

European Life Sciences VC funding rose 4% in the first half of the year, but the number of deals declined by 28% as investors focused on bigger deals.
Life sciences funding outgrew the wider VC market over the year, taking an 11.2% market share vs. 10.8% a year ago.
The UK, Switzerland and France led the way, accounting for 61% of VC funding in the past year, while the strongest growth was seen in Norway, followed by the UK and Ireland.
Signs of a stabilization in the funding environment are yet to be reflected in the real estate investment market, with investment in R&D assets down 67% in the past year to 391 million euros.
Geographical trends have varied, but all markets are down. The UK and Germany remain the largest markets overall, followed by France, the Netherlands and Spain.
The R&D sector underperformed the wider property investment market again, with its market share dropping to just 0.2%.

Key Takeaway: Recent conditions have been challenging, but the outlook has improved. With medical advances accelerating, new treatments emerging and public sector support strong, activity and interest in the sector is set to increase in the months ahead.

Real Estate Values Stabilizing

R&D Real Estate Values in Europe

^{Source: RCA, Cushman & Wakefield}

Life Sciences markets across Europe have been typified by the start of a stabilization in yield increases and good rental growth.
Rents for lab-enabled space increased by 4.7% at the end of the first quarter of 2024 compared to gains of 5.9% for CBD office space and 3.8% for decentralized offices in the same locations. These gains have been led by Norway, the UK, Germany, France and Sweden.
At the same time, yields have started to stabilize after strong outward moves last year, as the sector caught up with the earlier decompression in the wider office market. Yields have increased 108 bp on average over the past two years, compared to 155 bp in the CBD office market.

Key Takeaway: With yield increases outweighing rental growth, there was a slight fall in average capital values of 5.5%. However, yield increases remain less than in other parts of the office market. As a result, capital performance has been more resilient, with CBD offices seeing a 10.1% decline.

Life Sciences vs. Other Sectors

Rental Growth
(Western Europe, year to Q2 24, % pa)

Investment Volumes
(Change, all Europe, Yr to Q2 24)

Yield Change
(Western Europe, year to Q2 24, bp)

^{Source: Cushman & Wakefield, RCA
Life Science Rental Growth & Yield Change to Q1.}

Key Takeaway: The market is maturing, with greater demand to lease than buy and more awareness of what is “best in class.” The definition of “best” continues to evolve, both in terms of location and function, with a recognition that the ecosystem needs a range of space types to promote businesses at different stages of growth.

Lab-enabled life sciences offices posted significant rental growth in the past year, but also a marked slump in liquidity and a major yield rerating.
The best performing markets, in terms of investment volumes, have been hotels and PBSA , as well as niche operational sectors such as self storage and data centers.
In the life sciences sector, active demand from occupiers and investors has softened, and the market is hindered by a shortage of modern, sustainable property in most major European clusters. This scarcity has led to sustained rental growth for the best space, while creating barriers to market activity.
This trend will change, as development activity increases in response to growing public sector, investor and VC activity in recent years. An increase in space delivery is expected in the next one or two years, particularly in the UK and the Netherlands. Life sciences businesses will have more high-quality space options, which will boost activity and further develop the sector in Europe.

Trends Ahead

Occupier Demand

Activity will be driven by the development of new treatment areas and the acceleration of clinical trials, which will boost demand for lab, testing and production spaces. The increased integration of AI and technology will increase the pace of development and place greater emphasis on modern property that accommodates new ways of working and features embedded technology.

Corporate Trends

A mix of consolidation, M&A and partnering can be expected in the short term, leading to changing patterns of supply and demand. Partnering and the search for new, innovative startups will reinforce existing clustering, but the search for supply chain resilience and resulting reshoring could potentially put more emphasis on new areas.

Investor Demand

Appetite to allocate to the sector remains strong, but there has been unease about pricing and uncertainty about when to commit. This is likely to ease as investors see funding and occupier confidence improve. We expect increased demand for passive investment partners to develop new projects in a market with more expensive financing and higher construction costs.

Occupier confidence now improving
New supply to boost activity in H2
UK to lead but leading clusters all more active where they have the right supply
Rental growth to slow but to remain above inflation
Investment pricing now at a low
Investment volumes to rise by Q4 2024