Europe

The European life sciences sector is steadily maturing, as the hype of the pandemic passes and the tougher funding environment is absorbed. That said, the industry will not stand still. Supply chain changes will accelerate amid ongoing geopolitical and economic pressures. Ground-breaking developments will continue, driven by the excellent research underway around Europe, and by investment in novel modalities, AI and MedTech.

The Funding Environment is Stabilizing

Venture Capital Funding for Life Sciences in Europe

^{Source: Pitchbook, Cushman & Wakefield}

Venture capital funding for life sciences stabilized in the second half of 2023, and while down 8% on the year, funding in Q4 rose 5% over the previous quarter. In addition, activity also rose as a percentage of all VC activity, hitting nearly 12% for the first time since 2021.
The number of deals has been falling at a faster pace than the invested volume—down over 30% in 2023—as larger deals have dominated. However, deal numbers also rallied in the last quarter, rising nearly 6% in Q3.
The UK and France led the way, accounting for 46% of VC funding last year, with Switzerland, Denmark, the Netherlands and Germany next in line.
The main areas of funding growth in the past year have been the Netherlands, Denmark, Spain and Switzerland, with France, Belgium, Ireland and Finland also showing a marked improvement in recent months.

Key Takeaway: Fourth quarter 2023 VC funding reversed the downward funding trend in 2023 and will hopefully be a bellwether for 2024 VC activity.

Real Estate Investment Muted

Investment in R&D Real Estate in Europe

^{Source: RCA, Cushman & Wakefield}

Higher interest rates and a more cautious funding environment have impacted real estate, with investment in R&D assets down 81% in the past year to just 462 million euros.
Geographical trends have varied, with the leading markets, Germany and the UK, seeing a heavy decline. Other areas of activity such as Italy, Denmark, Norway and Poland, also experienced a decline. Activity in France moved ahead strongly.
The sector performed below the wider market, with R&D's market share dropping to just 0.3%. Notably, Q3 marked the weakest quarter, but there was a sizable increase recorded in Q4.

Key Takeaway: R&D property investment historically only captures 0.6% of total market activity.

Life Sciences vs. Other Sectors

Rental Growth

^{(Western Europe, year to Q4 23, % pa)}

^{Source: Cushman & Wakefield, RCA}
^{Life Science Rental Growth & Yield Change to Q3.}

Investment Volumes

^{(Change, all Europe, 2023)}

Yield Change

^{(Western Europe, year to Q4 23, bp)}

All sectors have enjoyed positive rental growth but also declining yields and investment liquidity.
Lab-enabled life sciences offices enjoyed significant outperformance in terms of rental growth but also witnessed a more marked slump in liquidity and a major yield re-rating.
Increased caution and higher costs led to more selectivity among investors, but the resulting re-pricing of risk should open the door for more activity in 2024.

Corporate drivers of the life science occupational and investment market could intensify. Some of these drivers include:

M&A expected among cash-rich large pharma and biotech companies.
The need for cost saving will drive more outsourcing.
Increased restructuring of property portfolios and sale & leaseback activity.

Key Takeaway: The increased life sciences pipeline now emerging in Europe, and centered on the UK, should trigger the next growth phase in the market, as occupiers have a real choice of quality property solutions. This may dampen rental growth but will boost activity and liquidity.