UK Life Sciences Sector Faces Investment Retreat Amid Rising Vacancies

UK Life Sciences Sector Faces Significant Headwinds

The UK life sciences sector is experiencing a period of contraction, marked by a sharp increase in laboratory property vacancies and a notable decline in leasing activity. Data from CoStar indicates that the vacancy rate across UK life sciences buildings has more than doubled over the past year, reaching a record high of 9.9%. Concurrently, leasing activity for laboratory spaces across the UK has plummeted by 56% year-on-year, contributing to a 12-year low in annual take-up.

Major Pharmaceutical Firms Reroute Investments

Several leading pharmaceutical companies have announced decisions to either pause or redirect substantial investments away from the UK, predominantly towards the United States. AstraZeneca paused a planned £200 million investment and had previously withdrawn a £450 million expansion plan. Merck (known as MSD outside North America) has confirmed it will not proceed with a planned £1 billion expansion of its UK operations, with reports suggesting it will relocate life sciences research to the US and reduce UK staff. Similarly, Eli Lilly has paused work on its UK biotech innovation incubator, 'Gateway Labs'. In a stark contrast, GSK has outlined plans to invest $30 billion in research and development and supply chain infrastructure in the U.S. over the next five years, while AstraZeneca also intends to invest $50 billion in the U.S. by 2030.

Policy Disparities Drive Commercial Environment Concerns

The primary drivers behind these strategic shifts are attributed to what major pharmaceutical firms describe as an "unfriendly commercial environment" in the UK, particularly concerning drug pricing and market access. Speakers at a recent House of Commons' Science, Innovation and Technology Committee meeting highlighted high Voluntary Scheme for Branded Medicines Pricing and Access (VPAG) rates, specifically 23.5%, and outdated National Institute for Health and Care Excellence (NICE) thresholds as key impediments. These factors contribute to a perception that the UK undervalues innovative medicines, especially when compared to the more fragmented, insurance-based U.S. system which typically allows for higher drug prices.

The Association of the British Pharmaceutical Industry (ABPI) has published reports confirming that the UK is losing ground in attracting investment for R&D, clinical trial delivery, and foreign direct investment, characterizing the trend as a "landslide of recent decisions."

Impact on Property Markets and Publicly Traded Entities

The repercussions of this investment retreat are clearly visible in the UK's property market, particularly within the specialized life sciences sector. The vacancy rate for lab spaces in London has reportedly soared to 35.2%, according to Cushman & Wakefield. This has placed pressure on entities such as Life Science REIT, a UK-listed real estate investment trust focused on the sector. The REIT reported a 4.0% like-for-like decline in its total portfolio value as of December 2024, although the rate of decline slowed significantly in the latter half of the year. Its net rental income did increase by 4.3%, reaching £14.4 million, driven by new leases. However, its loan to value (LTV) ratio increased to 30.4% from 24.7% in 2023, primarily due to development progress. Despite these challenges, Life Science REIT noted that £3.7 billion was raised for UK biotech funding in 2024, the strongest year since 2021, with 300,000 sq ft of space under offer by year-end.

Government Initiatives and Industry Skepticism

In response to these concerns, the UK government launched a new Life Sciences sector plan on July 16, 2025, aiming to increase the sector's value by £41 billion, representing a 165% growth by 2035. The plan includes a pledge of £520 million through the Life Sciences Innovative Manufacturing Fund (LSMIF) to bolster manufacturing capabilities and £600 million for an artificial intelligence (AI)-ready health data platform. Efforts are also underway to streamline regulation and reduce clinical trial setup times. While the BioIndustry Association (BIA) welcomed the plan's focus on early-stage companies, the ABPI remarked that the plan "falls short of investing in innovative medicines" and that the UK life sciences sector has been "struggling to remain competitive and attractive to investment." Concerns persist, with speculation that AstraZeneca may consider moving its public listing to the U.S. stock exchange, which would represent a significant economic blow to the UK.

Outlook and Key Considerations

The UK life sciences sector stands at a critical juncture. The continued divergence in commercial attractiveness between the UK and the U.S. remains a dominant theme, influencing investment decisions by global pharmaceutical giants. While the UK government's new sector plan aims to reverse these trends, its effectiveness will depend on addressing core industry concerns regarding drug pricing and the broader regulatory environment. Investors in UK-listed pharmaceutical companies and related property REITs will closely monitor policy developments and company-specific investment announcements, as well as the actual impact of new government initiatives on R&D investment and job creation in the coming quarters.