One of the most popular locations in Britain for the bioscience sector is Cambridge which continues to see business growth and as a result a lack of commercial and residential property investment. In 2017 alone almost 262,000 square feet for offices and laboratory space has been taken by firms. The average annual acquisition of of office and laboratory space has climbed to 620,000 square feet according to a recent review by Savills.
Their survey states:
‘This structural shift has been driven by both inward investing and expanding global R&D businesses, which has left the market with only 1.3 years of supply. We classify this as a shortfall.’
As a result of this Cambridge will have to attract new property investment while also attempting to lure new firms to the area.
The prediction is that over the next five years Cambridge is expected to have 2,200 new office and laboratory R&D staff needing roughly 300,000 square feet of additional new space. One bright spot for Cambridge is its affordability as salary wages for employees is 40% below when compared to the equivalent bioscience jobs in the American city of Boston. For software development engineers the wages in Cambridge are 32% lower than the equivalent position in Chicago. This wage differential will continue to make Cambridge more of a favourable location for multinational companies looking for value in skilled labour. Median full time earnings for staff in Cambridge for 2016 were £30,855 per annum, according to ONS.
Considered to be one of the best indicators for investment capital cash flow is the future in commercial property with already £790 million of investment in the Cambridge since 2012 with £270 million being invested in the first seven months of 2017.
The majority, 84%, of the funding has been in the biotechnology, pharmaceutical and software sectors. As a result pressure on the commercial space sector will continue in order to keep up with demand and not just in the city of Cambridge but outside the city. One firm Bicycle Therapeutics recently invested £40 million for a cancer treatment facility six miles outside of the city of Cambridge in Babraham. It is expected in the Savills report that over the next three years almost 2 million square feet of commercial office and laboratory space developments will become available on the local market.
The south-east location of the city is lacking commercial space for business incubators and accelerators even though investment levels have been robust for 2016 and 2017. Biomed Realty are reported to be developing 108,000 square feet of speculative space at Babraham to be completed by 2019. Additional construction developments include Bradfield Centre at Cambridge Science Park for 40,000 square feet of space to help 500 new start-ups.
The Savills report found:
‘...value per square foot, Cambridge behaves much more like London than the rest of the East of England. Central Cambridge, at £630psf, is achieving equivalent values to Zone 2 locations in London, such as Brixton. With the average house price in the 12 months to May 2017 standing at £490,000, homes in Cambridge are currently 13.5 times more than earnings. This makes it one of the least affordable places in the country.'
Cambridge’s continued business growth has not surprisingly put pressure on housing stock available for staff. As a result the Cambridge market has seen a price growth of 55% over the past five years. For South Cambridgeshire price growth for homes been at 43% however both locations have outperformed the averages of both England and Wales of 29%.
It is forecasted that Cambridge and South Cambridgeshire will need at least 2,415 new homes a year including affordable housing.
The new build stock is mostly at the top end of the local market when compared to secondhand and the Help To Buy price values of £600,000. Investor demand has decreased and prices have been under pressure with large urban extensions in the city decreasing by 5 to 7%.
With the lack of investors it is expected to impact the rental market particularly for prime rentals for families. The rental market has performed well with rents increasing almost 5% in the past year.
‘Cambridge city has seen high levels of housing delivery over the last couple of years, yet it needs more. Future residential development needs to offer a range of products and tenures at the right price point to ensure that the affordability gap does not widen yet further.’