Commissioned research examines the economics of providing commercial space for high-potential firms in the Cambridge sub-region and highlights non-traditional funding routes as opportunities through which future development could be supported
Recognising the challenges from this well documented research, allows us to consider appropriate solutions and act upon them. Cambridge is a vital and unique economy in the UK for life sciences and technology...
The report, authored by Nick Mansley, Cambridge Real Estate Research Centre, University of Cambridge, is designed to be read in conjunction with David Gill’s recently updated paper on ‘Cambridge Incubator Space – Engineering, IT & Digital’. The report, a ‘Review of Web Lab Space and Incubator Space for the Life Sciences in the Cambridge Area’ was commissioned to help understand the landscape in this area and examines the economics of this type of commercial space and the costs associated with supplying it. The report was kindly sponsored by AstraZeneca, Bidwells and Howard Group.
Cambridge is a globally competitive location, which has, and continues to experience a phenomenal rate of growth. In 2015-16 the growth of Cambridge companies and organisations, registered and trading in Cambridge, was around 7% on a one, three and five-year view, global turnover increased by 7.6% to £35.7bn, up from £33bn the previous year, and global employment grew by 7.6% to 210,292. Turnover and employment in the life science sector grew by 32.1% and 10.5% respectively.*
The Cambridge sub-region is in a unique position in the UK and Europe in terms of life sciences and related knowledge-intensive industries. The life sciences cluster effects are substantial with companies’ desire to locate here driven by:
- Access to a skilled labour pool and rich stream of entrepreneurs.
- Extensive supplier base (technical, financial etc) enabling cost effective procurement.
- Opportunities for knowledge sharing and informal learning.
The associated wet lab space market and the availability of appropriate space will play an important role in the vitality of the sector. The report highlights these challenges, which could, if not addressed, affect the future growth of the sector, namely:
- Insufficient supply of space for new start-ups and early stage firms – demand has outstripped supply – leading to both start-ups and expansions being delayed.
- Early stage firms are unwilling (unable) to commit to conventional leases (5 years+) and have rapidly changing requirements.
- Returns available on multi-occupancy buildings for early stage firms are insufficient to justify new supply, even before taking account of the costs of supporting infrastructure e.g. genuine “incubator” environment. In particular, wet-lab space is significantly more expensive to build than office space whilst the income flows generated from space aimed at early stage firms typically have shorter duration and lower credit strength.
- The supply response needs to maintain the cluster benefits e.g. accessibility is critical.
There is a recognition of the issues in ensuring there is sufficient space for new and small businesses in the life sciences across the main providers of space in the sub-region and a willingness to collaborate/co-ordinate with other organisations to find ways to address the viability gap in the supply of additional space.
The provision of suitable, flexible workspaces for high potential firms across all sectors, including life science, engineering, IT and digital, is critical to continue feeding the pipeline of disruptive, innovative, fast-growing companies that Cambridge has established a global reputation for nurturing. Incubators are facilitators – rather than originators – of wider commercial success. Taking a longer-term view, where possible, and thinking innovatively about non-traditional funding routes could offer solutions to the potential bottleneck in supply. For example:
- Securing grant funding (as at the Bradfield Centre) or philanthropic donations (ideaSpace) provided that the reporting requirements and ancillary targets do not undermine the core mission of the incubator so support the most high-potential businesses.
- Major landowners could consider an incubator with lower profitability as part of a wider value proposition, for instance by taking the capital uplift into account and/or using the incubator as an active ‘feeder’ to keep larger, more conventional buildings on a science or business park at the highest levels of occupancy and/or generating ancillary income from the Park as a whole by providing conferencing and catering services.
- Taking an equity stake, which allows for participation in the future value of tenants.
- A combination of all these factors.For instance, an incubator on a science park built with the help of grant funding would further benefit from the active engagement of angel investors as mentors to tenants. Tenants would migrate to mid-tier (shared), then full-scale (their own front door) buildings on the park. The incubator would benefit indirectly (pricing, reputation, capital value) from the uplift in equity value in tenants over the years via the contribution of time and expertise from the angels, who provide their services for no fee in return for early access to the most promising companies on site.
Andy Williams, Vice President, Cambridge Strategy and Operations, AstraZeneca commented: “We were pleased to support this important research into securing provision of wet labs for early stage companies within the life sciences ecosystem in the Cambridge region. It is in line with the recently published Life Sciences Industrial Strategy recommendations on how clusters need to be supported.”
Dick Wise, Partner, Bidwells said: “Clusters work at their best when start-up businesses and more established companies can interact and collaborate fluidly with each other. This report correctly highlights that traditional funding models often don’t work for early stage companies because the short-term nature of their businesses means their finance options can sometimes be limited. However, creating innovative solutions to seemingly difficult problems is absolutely what Cambridge does best and we are delighted to support a study which furthers the debate around how Cambridge and government can best support the life sciences sector.”
Nicholas Bewes, Chief Executive at Howard Group, added: “We are invested in helping shape Cambridge’s long-term growth and prosperity and believe that research such as this can have a huge impact in influencing change. We are focused on meeting the demand for purpose-built space in the life science sector to enable the city to continue to retain and attract the most dynamic global businesses. Cambridge is a collaborative community that understands its joint responsibility to safeguard the city's future. We hope this report provides the knowledge and insight to allow us to work together more effectively to remain globally competitive.”
Jane Paterson-Todd, CEO, Cambridge Ahead concluded: “This research, in conjunction with David Gill’s paper*, provides invaluable comment on the economics of supply in wet lab and incubator space. More specifically, it will feed directly into the strategic work we are currently undertaking, to model growth patterns in the Cambridge area. Recognising the challenges from this well documented research, allows us to consider appropriate solutions and act upon them. Cambridge is a vital and unique economy in the UK for life sciences and technology and Cambridge Ahead is committed to finding solutions to continue its sustainability."
Download the report Review of Web Lab Space and Incubator Space for the Life Sciences in the Cambridge Area
*Cambridge Incubator Space: Engineering, IT & Digital, authored by David Gill, Managing Director, St John’s Innovation Centre, Cambridge focuses mainly on ‘dry’ facilities typically used by engineering or IT-based start-ups, and is designed to be read in conjunction with the companion report ‘Review of Web Lab Space and Incubator Space for the Life Sciences in the Cambridge Area'