The Subplot | Life sciences, Warrington investment, MIPIM

THIS WEEK

• Let there be life: As Bruntwood SciTech auditions new funding partners, who could be in the frame for further North West investment?
• Elevator pitch: your weekly rundown of who and what is going up, and who is heading the other way

Money and opportunity meet in the lab

A flood of money into the life sciences sector is turning one of the North West’s growth hopes into a once-in-a-lifetime property opportunity. Who will grab it?

And then there were three: this week Bruntwood and Legal & General confessed the hunt for a third partner to join them in the Bruntwood SciTech venture. Neither firm wanted to talk to Subplot but a statement said the partners “periodically engage advisors to assess the possible equity-based funding options that could be available to us”. As well they might because the volume of money available to back their development programme is growing like fuzz on a petri dish.

Behind the lab coats

Last year saw £2.4bn deployed into the UK life sciences sector, according to JLL figures released a few weeks ago. That’s 61% up on 2020, and amounts to about one in every £10 invested into UK office floorspace. But behind the £2.4bn sits a mighty pot of £20bn of uncommitted funds, mostly venture capital. Bruntwood SciTech could benefit from a chunk of that.

Golden test tubes

Regional clusters matter, although most of the scitech money is going to the life science Golden Triangle – meaning London-Oxford-Cambridge. Investor preference for a section of this area – call it the Golden Test Tube, linking the university cities – would have been massively enhanced if 2017 plans to create a growth corridor between the two universities looked like flying. Since 2019 they have stalled, and with it about 1m extra homes and easily 7m sq ft of new floorspace. The Whitehall vibe is that the rail line which anchors the projects is not going to get funding because it doesn’t have a levelling-up flavour.

Not much use

The notion – mooted by some – that the loss of a big South East project is a potential gain for the North West is doubtful, to say the least. The UK’s main life science clusters have a fraction of the lab space of US rivals – a trivial 5% or so of Boston, the largest US cluster with about 35,000 life science employees (also JLL figures).

Here they come

Getting investors to look at the North West is by no means impossible. UK Commercial Property REIT is busy expanding its life science focus, spending £94m acquiring Precision Park in Leamington Spa, about half of which is one of the two UK ‘Megalabs’, aimed at increasing the UK’s daily testing capacity for Covid-19. Would the REIT head further North? “UKCM is opportunity driven and so considers options across the UK,” a spokesperson tells Subplot.

London first, as usual

With newer, overseas investors it is the same old story. London gets the money first, Manchester next (or next but one). Which is a shame because the sums involved are extraordinary. Miami-based HIG Capital has $47bn under management and is growing its London scitech offer with a buy in the Whitechapel life sciences cluster. Managing director and Europe boss Riccardo Dallolio says: “We plan to further expand New Life Realty in the UK as well as across Europe, where key markets are experiencing material shortfalls in purpose-built laboratory space.” They could be coming to a science cluster near you sometime soon.

Watch the Texans

Keep your eye on Hines, too. The Texas-based business bought Manchester’s Royal Exchange in 2016 (in partnership with Bayerische Versorgungskammer, Germany’s largest pension scheme). Hines has signalled a tilt to life sciences, ideally purpose-built, maybe 60% lab and 40% offices. An internal company think piece concluded “cities with an active venture capital ecosystem should be well-positioned to outperform their lacking peers,” which raises interesting questions about the North West. Hines knows the big players in Manchester and if it wasn’t scoping the Bruntwood SciTech options it would be surprising. It has $84bn under management, so can probably afford a punt.

So, who will buy in?

Bruntwood SciTech is already moving fast. Within the last few weeks it unveiled plans for 200,000 sq ft in two buildings at Alderley Park. Although it passes under the radar in Manchester, the JV is also investing in relatively undersupplied markets like Birmingham – where it expanded health park proposals at Aston to 1m sq ft – and in Leeds. The firm’s Liverpool partnership, Sciontec, is also furiously busy.

The geographic spread of the Bruntwood SciTech portfolio makes it extremely appealing to newbie investors. They get scale and spread all at once.

A big deal is coming. Get ready.

ELEVATOR PITCH

Going up, or going down? This week’s movers

That whooshing sound? It’s only Warrington Council rocketing to the top floor. And what’s that other sound? That’s Moscow’s MIPIM delegates getting themselves trapped in the doors.

Warrington’s property punts

Warrington Council has managed at least one fairly duff investment in the past few years. Its £18m investment in Together Energy turned out to be a turkey. The £150m loaned to Hut Group founder Matthew Moulding, and secured on local warehousing, raised eye brows, and its 33% stake in Redwood Bank (via holding company Redwood Financial Services) is still debated.

The £600m it has invested in real estate over the past five years has been eye-catching and the latest plunge – lending to support the £300m Viadux apartment and office tower – is nothing if not that.

To its credit the council is putting eggs in various property baskets. The tower’s 375 apartments and 240,000 sq ft of offices come as the market begins to sense an appetite for both. Critics can take comfort that the deal, via CBRE Loan Services, does not represent a major step up the risk curve. If there was risk, it was the early-pandemic decision to fund the 175,000 sq ft office block at Four New Bailey for around £112m. Back in October 2020 it wasn’t clear there would be much of an office market in the future, which makes the council either farsighted or brave.

MIPIM delegations

The Four Horsemen of the Apocalypse seem to have it in for MIPIM, the annual property jamboree on the French Riviera. First pestilence, now the sword, we can only hope that wild beasts and famine aren’t planning imminent arrival.

Three years after the white-wine-meets-yachts-meets-property show last convened in person, European Union sanctions on Russia mean that Russian money and civic showcases are forbidden. Moscow City Council, normally a big presence, won’t be showing up this year. The city shares this distinction with Manchester, who weren’t banned but simply chose not to bother.

Of course plenty are still making the pilgrimage. The Liverpool City Region is showing its face, and so is Liverpool City, and you can read the full list here. The story is that in these difficult times MIPIM will be more sober, sensible and work-focused than back in the pre-pandemic dark ages. Good luck with that.

Get in touch with David Thame: david.thame@placenorthwest.co.uk | 01544 262127

The Subplot is brought to you in association with Oppidan Life.