“Fundamentals are going to continue to be very strong in this sector in the near and mid-term for sure and I think some people will get burnt but that’s sort of the nature of an emerging sector you know, I think the mismatch of what’s been built and the rents that sometimes have been assumed for it I think you know, may, may materialise in a difficult way but that, that’s sort of a new and innovative sector which is finding its feet as to how it’s going to work in the longer term.”
Susan Freeman
Hi, I’m Susan Freeman. Welcome back to our PropertyShe podcast series brought to you by Mishcon de Reya in association with the London Real Estate Forum, where I get to interview some of the key influencers in the world of real estate and the built environment. Today, I am delighted to welcome Artem Korolev. Artem is the Founder and Chief Executive of Mission Street which he founded in 2017. Over a short period he’s built the company into one of the UK’s leading specialist investors and developers in science and innovation real estate with a committed development pipeline in excess of 1.5 million square feet. Building on an extensive track record across investment development and finance, Artem has overall strategic responsibility for the growth of the company, project delivery and management. Prior to Mission Street, Artem was head of UK Acquisitions and a member of the founding team of GreenOak Real Estate, now BGO. A major international real estate investment and asset management firm. He previously worked for Morgan Stanley in their UK real estate team. Artem graduated with an MA first class honours in land economy from the University of Cambridge and sits on the investment and development committee of the Institute of Cancer Research. So now we are going to hear from Artem Korolev on how he became a pioneer in what was the wild west of the UK’s life sciences and innovation development sector. Good morning, Artem, where are you speaking to us from this morning?
Artem Korolev
Good morning Susan, I’m speaking from our office in London.
Susan Freeman
Fantastic. Let’s just start a little bit you know, speaking about you and where you grew up because I know that you weren’t born in the UK so do you want to start us off with just a little bit of background on, on you and how you came to be in London?
Artem Korolev
How much time do we have Susan?
Susan Freeman
About two minutes.
Artem Korolev
Okay so I was born in Moscow when it was still USSR and then when the USSR was collapsing we, like many people, emigrated and we moved around quite a bit and ultimately ended up on the other side of the world in New Zealand originally. My parents both had PHD’s in metallurgy which was very, very useful in a very non-industrial country when we arrived there and then we ended up ultimately in the Netherlands where I went to high school and then from high school I applied to University here and I, and I stayed in the UK afterwards.
Susan Freeman
So how many languages do you speak Artem?
Artem Korolev
Very well, Russian and English. My Dutch is quite rusty because I don’t use it very much but those ones. None of them by achievement, just by virtue of my background really.
Susan Freeman
Okay, so you then studied land economy at Cambridge. What was your thinking? Why did you choose land economy?
Artem Korolev
Well I think you know, through my childhood and teenage years I sort of had two main interests in school; one was in the science direction so biology, chemistry and, and that sort of thing and then the other was the built environment. I was fascinated by cities and buildings and you know, how regional economics works through my teenage years. Actually when I was about 10 or 11 I was for some reason obsessed with buying a sort of closed down train factory in Lower Hutt in New Zealand which you know, my dad in particular really welcomed when after working multiple jobs and long hours I was waking him up at early hours on Saturday morning to convince him that we absolutely have to buy this factory. I wasn’t entirely sure what I would do with it then so there was an ongoing theme with that and as I was heading to university there was this sort of that direction and my interest in development or there was the direction on the scientific side and at the time the concept of entrepreneurship around science was not really something visible to me or known to me and so people I had spoken to you know, were sort of saying, well you’re not really going to enjoy being an academic of a pure research scientist which I think is true because I was doing all sorts of business bits and pieces since I was very young but the concept that since emerged which is a lot of our customer base of entrepreneurship around science really wasn’t that prevalent or certainly not in circles where I was. So that was the driver.
Susan Freeman
Did you buy the train factory?
Artem Korolev
No. I mean we wouldn’t have had anywhere near the money to buy anything let alone the train factory at that point in time but I don’t know what’s happened with it. I might do some googling after this.
Susan Freeman
Find out. So it was an interesting project. So when you finish your degree what, what was your thinking at that time? You obviously weren’t going to go straight out and start your own company but what was your thinking?
Artem Korolev
Yes I mean look, I think there were a few, a few drivers of things back at that time. So when I was in University I tried to get work experience or work or sort of get exposure to stuff in the industry pretty much every free bit of time that I had, whether that was parallel to things or during all my holidays and you know, I’d sort of, I’d experience things more on the surveying side. I had interned in real estate investment banking, I’d sort of dug into the different routes in. I also had a, which really is my big driver in life, you know, having a very immigrant mentality and always being drummed into me of you need to have a trade, you need to have a basic skill set, how are you going to earn a living and that sort of thing so I think I was very focussed very quickly on jumping into that and my longer term strategic point you know, I wanted to do my own business from very early. I wanted it to have a sort of a strong development focus as well but what I was picking up on is that you know, it’s a very capital intensive business and so you know having a very good understanding of the capital side of things and you know, how debt financing works, how equity financing works, how you raise money, all of these key elements to do a business at scale I thought were critical and so I, I felt that the right route into me would be, for me I should say, would be via a finance route. So I ended up in Morgan Stanley which was in quite interesting times heading into the global financial crisis so that was really that initial step.
Susan Freeman
That must have been amazingly valuable learning because a lot of people have to go through a long cycle before they come to you know, something as challenging as that?
Artem Korolev
I think it’s in a way fortunate if the start of your career is grounded in when things are going very, very wrong because it puts what happens after when there’s a recovery and there’s lots of upside trajectory like we’ve had for quite a long… a number of years in the real estate world. It puts things in perspective. It highlighted to me a lot of the consequences where people were getting a little bit too clever with deal structuring and debt and hedging and that sort of thing because most of the start of my career we were advising on restructurings or on things which had failed often where the underlying real estate play was actually really good. So I think that framed how I think about risk and then I guess the other point in that is I was quite lucky with the exposure I got and my ability to step up because unfortunately this was a time when teams were thinned out and I was relatively cheap compared to lots of people within the organisation so it got me more exposure and I did lots of jobs essentially and one, it was a very, very intense period with very limited sleep but it was a very good grounding.
Susan Freeman
And do you think that that makes you more cautious you know, having been exposed to how wrong things can go? Does it make you more cautious in making decisions?
Artem Korolev
I mean I think it’s important to always be cautious about making decisions because you are responsible for large amounts of money that’s ultimately money from pensioners and from you know, ordinary people so I think you need to take that very, very seriously right. Whether you, you know, and can invest a lot of my own money but then beyond that it’s a big responsibility on a wider basis. I think on the other hand though if you’re being entrepreneurial you need to have a certain amount of risk appetite and I think you need to back the team and back yourself in being able to work your way out of problems by you know, being creative and problem solving and adjusting to realities because I think if there is a zero risk appetite and somebody is just terrified of making decisions without full clarity, it’s very hard to do any kind of business really.
Susan Freeman
And from Morgan Stanley you moved to GreenOak. What was the reason for the move?
Artem Korolev
It wasn’t called GreenOak yet back then actually so I’d been at Morgan Stanley and I started off on the real estate banking side and I wanted to shift towards the investing side from that but also you know, it was good grounding in a very intense way in a large organisation and back to the original point you know, I’d been trying things since I was in my early teens and I wanted to be in a smaller, more entrepreneurial environment that suited my personality really and what, what I was good at and so I had been introduced to a recruiter to, it was called Alpha at the time so it was John Carrafeill who used to run Morgan Stanley’s real estate business and he was setting up Alpha and it was, I can’t remember, it was three or four people at the time in a sort of a flex office and I thought that was really, really exciting because you know, my, my ambition and interest was in building a business. I wasn’t particularly aiming to build a very big corporate career so my mentality was quite suited to what they were looking to do and I wanted to join and help and so that was, that was the next move and then Alpha turned into GreenOak with John’s other two partners and then GreenOak grew and then GreenOak became BentallGreenOak after I left there.
Susan Freeman
And you are still involved in joint ventures with BentallGreenOak I think?
Artem Korolev
Yeah we have a very large joint venture, one of our big areas of focus is Mission Street in the sciences space in the UK so that’s, it’s good to have kept that trust and those relationships and of course it cuts through a lot of issue that inevitably happen when you know the individuals and they know you and they know your attitude to things and to problem solving and to getting results so yeah, we have, we have a very good joint venture with them which is about a million and a half square feet committed pipeline at different stages so it is quite a large undertaking we have with them.
Susan Freeman
And we’ll come to some of the projects shortly. So I think that takes us to 2017 when you decided you were going to start Mission Street, your own company and you know, as you’ve said, you had worked through various roles in this real estate cycle. Did you see a gap in the market then for life sciences innovation?
Artem Korolev
Yeah so I did but in the very early starting point we were not you know, we or I at the time was not fully, fully only zooming in on that which I think has been a big lesson learned for me in building a business. I think it was certainly a gap in the market because of lots of data points that I was seeing so you know, for example we looked at what was the old Arlington business which has now morphed into Arc quite seriously and GreenOak and I think just seeing the rental growth that was going on in what was then called the Oxford Business Park from Science occupiers and sort of digging into that and seeing the merging impact of what is now all we see in Oxford and more spin off creation right and there were various data points like this coming up with a greater focus of you know, world class universities in the UK in this instance, zooming in on commercialisation right and recognising that actually translating research into the real world and not purely just licensing it to larger companies is something worth doing and I think then looking into the real estate you know, the real estate fundamentals around that and seeing that you know, there was a lack of product, there was a lack of quality product in the right locations and also the operational element of that real estate, it was a very traditional real estate mentality still of, well here’s my office building or my industrial building, take a long lease and then you can fit it out as you want and by the way at the end please reinstate it to what it was before. So I think there was definitely a gap in the market on that but in the early days we also looked at other strategies in parallel to that because of course when boot strapping a business the focus always, you sort of are inevitably tempted to try to diversify and hedge your bets in terms of strategies you tackle because you need income to come in and then after a while we teamed up with Kadans as a local partner to them so they are a big European operator in our space. They were still relatively small, they were nowhere near their current size now so they were a private business which Oak Tree had acquired and was scaling them and so we worked with them on various things in the UK and that gave us more sector exposure and sector track record that period of time and then I sort of took the view that we have to not take on deals or projects in other areas and just focus and really back ourselves in this thesis. So that was the big shift.
Susan Freeman
And where did the name come from, Mission Street? Was there any sort of meaning behind that?
Artem Korolev
Yeah so there is contrary to what some people may guess. It has nothing to do with San Francisco, I’ve not actually been to San Francisco so that, that would be a strange choice. Mission Street is a street that’s located in, in Lower Hutt in New Zealand so it’s again sort of going back to my roots and what drives me in life so because when we left the Soviet Union you weren’t allowed to, well you were kind of very limited with what you could take out of the country and you also had to renounce citizenship when you were coming out so it was a very tough period for us when we just came into New Zealand and my parents grafted very hard and ultimately the first house that we had as a family that they bought was in, on Mission Street so it’s just my big driver from my past and what pushes me on now.
Susan Freeman
That’s a great story, I like that. So you started Mission Street and you must have been you know, pretty much a pioneer in the sector. Who was already there in the sort of innovation medical life sciences sector?
Artem Korolev
So you know obviously in the US it was a mature market already right because there was quite a big head start and you had the likes of Alexandria who are a very large listed REIT BioMed etcetera., so you sort of had proof of concept in the US real estate world which was also underpinned by you know, the commercialisation and venture funding and the sort of underpinning that might also have been a lot more mature earlier than in the UK. In the UK itself it was still relatively thin right so you had certain science parks which were in existence which you know, were managed by for example MEPC around Milton Park and a few of these but they were not a sort of specialist science platform, they were an operator which had science parks. You had the emerging sort of Bruntwood SciTech dynamic in the North and Citylabs, the first bit of it had just been built and then you had Kadans who had built up a portfolio in the Netherlands but were also relatively early on in their journey and then you had, well BioMed were here in terms of Granta Park but it was, it was a very niche market and I think when speaking to investors at that time, presenting a speculative layered project was very challenging to lenders and buildings with labs in them often the question was, well could this be an office so it was a sort of complete other direction to what the discussion has been over the last few years but so it was very niche.
Susan Freeman
And looking at the sector now it gets labelled as life sciences but as you and I have discussed, it really covers an awful lot more than that. How would you describe it now as a sector and are different scientific areas clustering in different locations? Is it taking shape?
Artem Korolev
So I think, I mean we avoid the term life sciences as a general umbrella. We like to describe what we do as innovation real estate, so essentially we, we are building a platform from a real estate and operational stand where we are supporting companies that need sort of technical space or a certain type of space typology that allows them to grow innovation focussed businesses and you know the big attraction of that from a real estate stand point is that you know, you are backing sematic areas ultimately with good tail winds behind them right, whether that’s life sciences and you’re talking about biotechs for example or pharma or whether you are talking about robotics or quantum or cleantech or any of these other areas so I think you are backing the them and then you’re creating the kind of space that you, you can’t do as a work-from-home concept and that’s the bit that underpins it from an investment stand point. From an occupational stand point I think if you use the term life sciences properly your issues are going to be one, is you’re narrowing down the geographic locations where you can actually operate as a business but secondly and I think importantly, there’s a lot of evidence of convergence between different areas right. I mean the impact for example, AI can have on drug discovery can be massive in terms of you know, the pace or ultimately potentially in terms of synthetic biology and design. So I think trying to cut things in a very, very need boxed off way is wrong and it doesn’t really align with the way the UK or Europe actually, work you know because you look whether you are talking about where we are in Oxford or Cambridge or Bristol, you have biotechs there but you also have cleantech businesses, you also have in Bristol, robotics, you also have quantum, you also have lots of other really interesting areas of activity. I think the bit that you do need to be cognisant of though is as you lease our buildings that you are building up an environment where there, you know, it’s curation is probably not necessarily the right word but you are piecing it together where there is a logic to the type of occupiers which are coming into your, your building or your cluster because that’s what creates the right environment for these businesses.
Susan Freeman
So how did the market change during Covid because there seemed to be the realisation as to how important medical research was. Did you find that a lot of people who hadn’t previously been interested in the sector started to look at it?
Artem Korolev
Well it’s quite a big question so I will try to tackle that in terms of how the, the sort of the real estate market in terms of meeting the needs of occupiers has evolved and the sophistication on that side and the investment market because the two are related but not perfectly related so I think starting with the investment aspect, I think that there were a couple of things which took place simultaneously so there was as you say, this realisation that there are these underlying themes around research and solving the big global problems particularly in that case, Covid inspired lots of focus on, on the medical side and this happened at the same time that there was unprecedented impact on traditional real estate asset classes right. How does retail evolve, it obviously impacted logistics very heavily in terms of how that works, work from home impact on offices, so I think there was a lot of flux on this and so on one hand you had sematic interest in the sector and very strong fundamentals in terms of supply and demand being very favourable for investment and on the other hand you had big changes in alternative sectors right and the point I made earlier about people’s confidence in the long-term prospects of this type of real estate and feeling there was more visibility there and I think what investors, large scale investors identified in the UK was that there is this potential for investment on one hand and on the other hand you have the precedent in the United States where big companies in the real estate sphere had been built up so there was a proof of concept elsewhere and so suddenly there was unprecedented investment interests coming into the UK from all sorts of very large investors of all kinds. What that translated into was very aggressive bidding on land, buildings etcetera., and I think part of the challenge that investors discovered when going into this is that most of the strongest locations in the UK are fundamentally relatively small cities with constraints in terms of land ownership, in terms of planning, in terms of heritage, power etcetera., and so you had this very large volume of capital tackling things and I think in some cases it was being done without digging into the granularity of what is being built, what is the product that is being built, where is that product being created and just working backwards from the eco system. So we touched on earlier this concept of definition of the sector and sort of the bit to add there I think is that it is important to work backwards right, so when we look at a location it’s working backwards from what is the university, what are the research strengths of the university, who do they collaborate with, how good are they at commercialisation, what is the funding environment like, are there big companies around and thereby working backwards and framing what the real estate thesis is for a particular location. What happened in that period was there was a sort of a battle for scale where the thesis was, we’re coming in early, we’re going to replicate the dynamic in the US and we’re going to grab market share in a favourable market and so there was a lot of buying without looking into that granularity and without really digging in and understanding the underlying customer in some cases and so I think there was this period of boom that took place and it took place at a time when investment in the underlying companies was peaking right, it was peaking even more in the US example and actually somewhere like Boston went through a similar trend where there was a really, really rapid real estate response to the demand for space led by funding. The big difference is in the UK versus somewhere like Boston is that we are dealing with much smaller cities, we are dealing with a tighter planning system so delivery cannot respond as rapidly as it did over there and so we are not experiencing some of the issues that are being experienced in those markets where there was a very big jump in response to demand. What I think has happened since then from an investment stand point is you know, all of the themes are still there right, all of the tail winds are still there, the sector is still one I think that has a massive future in the UK and changes in the UK or evolution in terms of available money to allow scale up of companies like the Mansion House Compact and the impact of that may have a transformational impact on the underlying demand in the UK but I think we are reaching a certain degree of maturity where specialist platforms are evolving where they have the expertise, they have the team, they have the sort of the layer around the real estate to work with these kinds of businesses and understand they grow it and how that translates into real estate but there is less of the craziness that has happened which I think is a good thing because you know, the sector is becoming more mature and more institutional with more scale. Occupationally again I think with specialist platforms the degree of sophistication and understanding of the occupier has changed because for one thing, there is more space coming forward so occupiers have more of a choice right, it’s not the dynamic that was present when I started when you had companies having to lease you know, Post Office Depots and repurpose it at their own cost and planning risk. There is now product coming forward from specialist operators and a good example of that evolution has been the nature of space delivery right, so in the early days a lot of what was being discussed was you know, lab enabled, lab ready, these, these kind of terms which you know I find quite annoying because very often they are sort of meaningless. It’s essentially building an office building with a bit higher slab to slab and maybe some slightly bigger rises and even if you are going to deliver space as shell you need to understand how the businesses you are targeting specifically in terms of their research typology work and therefore design out the space and then decide what you actually build they want and so I think this has sort have shifted right because for a lot of these companies what they want is space that is actually ready that they can use and operate right and so most of the leasing in Oxford and Cambridge right now is going on fitted space where people are actually building laboratories that can be used by occupiers. I think just the nature of understanding leasing, understanding specification has evolved in the market.
Susan Freeman
And if there’s been this sort of race to get into the sector, are there local strategies on what is actually needed or is there a possibility that there are all sorts of planning applications going in around Oxford and Cambridge and there may be that too much in one sector not enough you know to serve another part of the market. How does that work?
Artem Korolev
So, you know I am not a big supporter of having a sort of very top down rigid approach like this because I think Planning Authorities are not necessarily the you know, it’s not the area of expertise, they are not resourced in a way where they can in a very granular way monitor the evolution of research typologies and I think even for us as a specialist operator the big challenge we have to deal with of course is from purchase to stabilisation a reasonable sized real estate project takes four or five years if things go your way and four or five years for a lot of these businesses in the UK is a very, very long time and you are delivering space speculatively usually because again unless you are doing a deal with GSK which you can sometimes but it’s not the bulk of take up in the UK market, you will not get lots of forward commitments from companies that don’t know where they are going to be in two years’ time frankly right and the bulk of leasing we see happens towards the end of construction or after construction is completed. So the trick really is to design space with very deep knowledge of what’s going on in a particular location and that’s both desktop knowledge; we do an awful lot of analysis of funding internally within our team you know, we have an advisory board who are leading investors and founders with a lot of the UK success stories we have a very close relationship with so we are sort of trying to focus and pre-empt on one side but we are also ultimately designing multiple uses of a building such that it is very flexible and can adjust and evolve and obviously the issue with a very rigid top down strategy is it won’t deliver that sort of flexibility and it will deliver space that may very quickly not actually be the area where there is demand. I think the time it takes to bring forward developments in the UK is, is naturally controlling the sort of flood to market. I think pipelines in the core locations in the UK are going to be less than what they are at face value given timing and given just market reality so I think fundamentals are going to continue to be very strong in this sector in the near and mid-term for sure and I think some people will get burnt but that’s sort of the nature of an emerging, emerging sector you know, I think the mismatch of what’s been built and the rents that sometimes have been assumed for it I think you know, may materialise in a difficult way but that’s sort of a new and innovative sector which is finding its feet as to how it’s going to work in the longer term.
Susan Freeman
The sector has attracted a lot of attention from owners of secondary offices who hope to be able to repurpose as life sciences and what you said earlier, I think really hit the nail on the head, the sort of uses that you are developing for are uses that can’t be carried out at home, people need to be in the space to carry out their work which isn’t always the case for offices but what sort of buildings lend themselves to being repurposed for this emerging market?
Artem Korolev
I think the first question is where is the building because especially during the hot market before the current micro economic corrections that are being experienced globally, there were buildings in very, very well, in locations where there was no fundamental thesis why innovation focussed businesses would want to be located there right because the well documented dynamic which is at a very micro level globally is a clustering effect right. I mean there have been academic studies where you know, over the course of heading out beyond a mile is already impacting the density of knowledge here for example right so if you look at successful global examples you are talking about geographically concentrated clusters and so if you are going to build something in the new location you need to have a sort of a thesis around that new location; whether that’s you know, the anchors there right, is there a university, is there a catapult, is there a teaching hospital and, and beyond you know, just looking at a map and seeing there is some sort of institution it’s digging into that institution as to do companies need to co-locate with them, do they spin out companies and we’ve seen a few examples in the UK where we’ve dug into it where on the face of it it looks good on a map but then you realise that they don’t actually collaborate with anyone and beyond the fact that they are there, there is no particular reason why you are going to get some clustering of companies in that location. So I think that’s the first point and I’ve been introduced to some very strange failed office schemes where there is no one size fits all and it is kind of slightly illogical that if you have a wider net where you are targeting all sorts of uses and you are failing to lease it, if you narrow that net then you will suddenly lease it. If you do happen to have a building like that in a particular location then you are looking at the bones of the building right and you are looking at do deliveries work, can you get at a quick riser space, can you get at a quick back of house space which is very important for research uses. Again this depends on the type of research again back to our earlier conversation which will have different parameters. Can you get power, what is the drainage like, are there height constraints if you need to have flues for example coming out of the top of the building. So there are the physical bits that the first gating issue is actually where is it and is there particular scope to build something up like that.
Susan Freeman
Interesting, these are quite complex matrix isn’t it actually bringing all this together because you think about London and there are you know, quite a few teaching hospitals and you know, universities but then actually if you dig in deeper it may not always translate into a good location for the innovation and medical, medical research. So let’s talk about some of your developments. Do you want to give us a bit of an overview and then maybe we’ll talk a little bit about some of the specific projects so I think at the moment you are largely in Oxford, Cambridge and Bristol, so tell us a little bit about what you, what you have going on there?
Artem Korolev
So look I mean the sort of the stepping back before zooming in again I think that the underlying theme of all of our portfolio has been not just to tackle the under supply but to tackle the under supply of the right sort of quality and to do it in a way that responds with the needs of the specific eco system where the project is so one of the things that we noticed when the business was in its early days beyond the quantity was the quality where a lot of the UK science stock was you know, essentially 1980s, 1990s business parks with limited public transport connections, with no amenities around them. It was very much that model and looking internationally you do have precedent of this migration from those types of locations into more urban locations where you essentially have a part of the city that has science in it not a science park and you know, it doesn’t mean there’s no future for the science park. A well run science park will work very well for certain companies and we do have these types of locations as well but the underlying trend was to build you know, more urban innovation districts where you are building up scale within a city that is host to an appropriate mix of innovative companies. So I think that was the one thing right and the big drivers of that is, is recruitment, particularly recruiting younger people who, many of whom don’t want to drive or don’t drive being next to public transport modes so you have a wider net in terms of getting people in, being next to amenities, housing etcetera right, so it’s a shift in model fundamentally is one of the USPs of the Mission Street approach to things and so sort of stepping forward from that example, when we were looking at Oxford a number of years ago we had this overlap where we realised that you know, Oxford does not have an urban innovation district. Oxford did not have any urban science. It was concentrated in the traditional business park type locations at that point in time and similarly to that we identified that you know, within a sub 10 minute walk to the central railway station you had retail warehousing and it’s you know, it’s a location which you would not have developed as retail warehousing now because of the principles of wanting to densify cities around public transports modes which is logical from a sustainability stand point and so we acquired a significant area of that location to sort of kick off this urban innovation district. So initially be bought an old Argos and Oak Furniture Land retail warehousing unit which we’ve now finished building and it’s called Inventum. Really exciting specialist lab and research building which we finished a couple of months ago. We have commitments on about half of the space already at the moment and I think the driver all the chief execs of these companies to moving there is that they really see this vision of science in the city and they see this vision of this being the, the sort of the Oxford Kendall Square and the ability to recruit and the ability to be part of the city itself so that’s going in a very positive way despite a more challenging fund raising environment at the moment and then we got consent for phase 2 which is called Fabrica, last December and we are finalising a building contract on that project that’s 180 square foot new build so it is the first large specialist lab building to be delivered within Oxford itself and really again just illustrating the approach, you know our thought process was that Inventum which we could bring to market more quickly would really be targeting grow on companies coming out of the likes of the bio escalator and another earlier stage locations in Oxford as they were raising money moving into much larger scale space but they then have a trajectory of growth into Fabrica where either they can grow into or we can co-locate bigger businesses there. I think what’s really important for these companies if that there is an emerging cluster around them and there is emerging critical mass around them and so you know we are very keen to promote this wider area which is evolved together the Council’s own strategy and the university into the West end of Oxford because eventually the university will build around Osney Mead, there will be projects around the Oxpens on the other side of the river and then other landowners in our area and subsequent phases are sort of following what we’ve kicked off so we, we have unleashed the beast in that part of Oxford and I think ultimately there will be over 2 million square feet of innovation in that part of the city which I think will fundamentally shift the way the city works and where research takes place in that city so we are really excited about that and we are seeing proof of concept which is always great. The anecdotal and the surveys in the analysis plays out in reality as it is there now. In Cambridge we have two very different projects and again this sort of illustrates our mind-set of how we are trying to fill gaps in the eco system and also provide a partnership with companies as they scale up. So we have one which is called The Press which is right on top of Foxton Railway Station which is going to be directly linked in to Cambridge South on the rail which is the station on the biomedical campus where Addenbrookes and a lot of the research institutes are and so it’s partly, it’s repurposing an old printing press, the old Burlington press and then partly it’s a new build as well which is onsite so we have just finished the first phase and we are on site with the second phase already and really where that one tends to fit in is really targeting companies that are sort of scaling up because what you see in Cambridge is companies can spin out of the university, they then spend time using some of the labs and for example, one of the research institutes on the biomedical campus you know, the Milner or the Cancer Research Institute and then they have that next step of growth and really what we are doing there is at a more attractive rental level but very, very high quality purpose built lab space providing a home for these companies that are still collocated with that. And then we have a huge project which is our biggest which is a million square feet where at the moment coming up with its forever name but it’s an entirely new urban science district which is 10 minutes from the Cambridge Railway Station and that’s going to be really unique because we want to create a district in Cambridge with science, not an urban science park and we want to build real scale where it’s amenitised, it’s a real heart of the city that’s open to the local community as well as the people working there and it allows companies to grow all the way from incubation to you know, large scale corporates in one location which doesn’t exist in that way in Cambridge today. And then we have a really, really exciting project in Bristol which is an old printing press that we are converting into research and development.
Susan Freeman
So when you start creating a new science district, do you also get involved with creating homes for the people that are going to be working there?
Artem Korolev
So in the specific projects we don’t have that because for various reasons they are suitable for commercial but not necessarily for residential however, we are looking at projects which are collaborations with house builders or with residential developers where it could be brought forward as a mixed use district. So I think if anyone has something like that in the right location I am very interested in speaking to them. I think you know, our remit and our, where we have the expertise in the team is very much bringing forward the innovation space but one of the challenges of successful locations globally like the cities where we are working is the lack of suitable accommodation and it is a real constraint both on the local population because it impacts affordability when you have such rapid growth and indeed on recruitment to these businesses because you know, getting staff is challenging if they have nowhere to live. So I think it is something we are very actively exploring but we are probably not the best party to be building mass houses.
Susan Freeman
And what about London? We hosted an interesting panel earlier in the year with Opportunity London really drilling down into innovation and life sciences in London. I mean is that something that you’re, you’re looking at?
Artem Korolev
Err yes it definitely is I mean, London is a really interesting location you know, it has amazing reasons back to our earlier conversation why there should be a bigger cluster or clusters in the London concept. This is both in terms of work, class, universities that do produce spin outs; the likes of UCL, Imperial and others in, in London plus adding on top of that the Crick and research institutes that you have there and adding on top that you know the majority of the investor universe is based here so there is that historic financial strength of London. I think the challenge that London has had really is actually building up that critical mass of both companies and space for these companies because you know, in locations like Kings Cross, building up that critical mass if you are acquiring as we are rather than delivering an existing portfolio is quite challenging and I think in the market to date pricing for sites has been such that to get this to stack up with the high bill costs of our sector has meant rental levels that are you know, double levels in Cambridge and pound equivalent to Kendall Square in Boston and so the challenge I think that has happened is there’s a really good thesis which I believe in fully but there is actually relatively limited evidence of transactions of scale coming forward. There are some big examples like you know, MSD taking a really big lease across from Kings Cross Station but it’s not an enormous list to date and so I think kind of breaking through that is going to be really, really important so you do establish this critical mass then you know, you are also cutting into the housing bit that we were talking about. The challenges you have in Oxford and Cambridge are arguably worse in, in London and many people you know, including PHDs in some of these businesses unfortunately their relative pay compared to what they would earn in the US is lower and so affordability becomes a bit of an issue so I think London will evolve but there’s a road that still needs to be progressed really before we are at the point where there’s big scale here.
Susan Freeman
At least in London we have a terrific public transport system so you can you know, be like 20 minutes away from work but you know, live further out.
Artem Korolev
Well especially with the Elizabeth Line which I think is making a big impact on London.
Susan Freeman
No it absolutely is. How do we unlock more investment into the sector because it is clearly a really exciting, vibrant growing sector and something that the Government, you know talks about as you know the UK as being world leading in but it seems that you know Europe and the US invest more into their innovation sector. Do we need to do more?
Artem Korolev
So I think we’re sort of investment is quite a broad term so perhaps maybe the way to think about this is to tackle where there are the capital constraints on this. I think you know, there is increasing spin out creation going on in UK universities and indeed even in 2023 which was a tough year for fundraising there was still a healthy amount of really interesting companies being created at early stage. I think you know, clearly places like the US where they have you know, massive central Government and state Government grants supporting research which has a pretty direct impact as evidenced by statistics on research. It’s somewhere where we have a pretty big disadvantage because things are driven by market mechanism in many cases plus grants at the sort of the pure research stage, we don’t have National Institute of Health type funding that you have in the US but I think companies are created. I think where the challenge is that the sort of the scale up money that allows companies to get to a certain stage and to deliver a healthy ecosystem where you have companies that have made it and are big as well as start-ups and that’s where the UK struggles because you know there is not really an IPO market here so if you are going to list you are going to go to Nasdaq which is not a problem in itself provided the company’s research base remains in the UK and there is a much thinner amount of sort of funding post series A in the UK for companies to really get big and what that has developed into is a model where a lot of the UK venture sector and with a lot of them a lot of their limited partners are coming from overseas, not from the US, are essentially taking IP to a certain point in the most capital efficient way possible and then at that point in time they monetise their company by selling it on to an international investor and in many cases that is an IP grab, it’s also in the sense that they buy the company, they run it for a few years and then ultimately it is folded up and it’s transferred into wherever their existing research base is and so it’s a good business model but I think if we want to build up this global commercial sector, not just purely world class universities, we need to be able to build up that scale in the UK and the way to achieve that scale is that there is that money available because even if an investor would like to keep growing it, it is sort of weighing up the prospects of doing that versus doing a trade sale and there have been scenarios where companies have raised money and they have relatively rapidly thereafter also then been sold because they were getting an approach on the basis of their scientific progress. And all of that then has spill overs you know, one of the issues in the UK compared to the US is you know, getting for example, good sea suites 49.35 right. If speaking to relationships on the investor side what they are telling me is actually if they company is growing big the number of non US based or American chief execs who have taken a company public for example and who have that track record that gives that comfort to investors is relatively limited because exits happen quite early so you have less of these management teams you do have them but you have a lot less of them than you have in the US so I think building that critical mass is really, really important. I think initiatives like the Mansion House Compact which is a voluntary commitment from some of the largest pension funds we have here to investing in sort of unlisted innovation focussed businesses could be transformative you know, a figure of an additional 50 billion pounds available for the sector would be a step change right because we are talking about peak levels of sub 5 million you know during the Covid boom of investment and you know ultimately it is also just bringing more UK money funding businesses in the UK. So I think things like this are clearly a big initiative and I think only infrastructure point where we operate you know, I think there’s plenty of private capital to undertake innovation focussed project. I think where the challenge is is just in you know, and this hits all sectors not just our sector, just the infrastructure in the UK you know, getting East West Rail to move forward, dealing with some of the water challenges in Cambridge, dealing with issues on the power side of things so there are big constraints that probably do need Government intervention to be unlocked where competing countries don’t have them, they have a better functioning infrastructure and it is just one point against us if we are trying to compete internationally. So I think that’s probably where another area where Government support would be really useful.
Susan Freeman
And obviously we have got a General Election coming up; I mean whatever happens in the General Election I mean, will, will a change of Government potentially change that?
Artem Korolev
I don’t think so; I mean I think you know, having contact with both parties recently and also being involved in various organisations that are engaged on the policy side. I think both parties realise that if we want sustainable growth in the UK which for both of them is a part of their manifesto, then we need to promote science and innovation and technology because it’s an area where when there’s you know, lower productivity there is actually high productivity in those sectors and the UK has an international advantage and status in those sectors so I think you know, both parties recognise the importance of the sector which is, which is a big positive.
Susan Freeman
That’s great and I think probably a good place to end. Artem that’s been fantastic, I have to say it is like the first time I have sort of really understood what’s going on in your sector so thank you so much for that.
Artem Korolev
Thanks for inviting me Susan, I enjoyed the discussion.
Susan Freeman
Thank you so much Artem for talking to us about Mission Street, the rapidly growing UK science and innovation real estate sector and the key importance of collaboration and flexibility. So, that’s it for now. I hope you enjoyed today’s conversation. Please join us for the next PropertyShe podcast interview coming very soon.
The Propertyshe podcast is brought to you by Mishcon de Reya in association with the London Real Estate Forum and can be found at Mishcon.com/PropertyShe along with all our interviews and programme notes. The podcasts are also available to subscribe to on your Apple podcast app and on Spotify and whatever podcast platform you use. Do continue to subscribe and let us have your feedback and comments and most importantly, suggestions for future guests. And of course you can continue to follow me on Twitter @Propertyshe and on LinkedIn for a very regular commentary on all things real estate, Prop Tech and the built environment.