Life Science Reit (LABS ) manager Simon Farnsworth has called the start of a recovery in the property market after the company’s tough first year, but says trusts will have to be ‘creative’ about funding new acquisitions.

The £253m specialist portfolio of medical research laboratories, manufacturing and testing facilities, offices and data centres in the ‘Golden Triangle’ hotspots of Oxford, Cambridge, and London’s St Pancras, made it onto the market in November 2021, just before IPOs dried up.

It suffered a tough beginning as 2022 brought the largest property sell-off since the financial crisis but Farnsworth, the managing director of Ironstone Asset Management which runs the fund, is confident a turn-around is beginning.

He said he was ‘bold enough’ to say a recovery has ‘started’ but noted that it would ‘take time to flow through in the share price’.

The performance of the real estate investment trust (Reit) in the first half of 2023 backs up Farnsworth’s confidence, as the portfolio valuation increased 0.8% or £15.3m to £402m over the period. However, the EPRA net tangible assets (NTA) slipped back from £315m to £306m. The shares have also not kept pace with the rise in the portfolio valuation, dropping 5% in the first half of the year, and the Reit is currently trade at a 17% discount.

Farnsworth said when the property market bounces back it ‘will do so quickly’ and LABS will be ready initallity to fund new purchases but the manager is worried that the steep discount poses a future funding problem.

‘We are unlikely to raise money this year,’ he said. ‘We wouldn’t raise money at a discount…but there is talk [in the property sector] about [Reits] becoming more creative in their funding.’

This includes joint ventures with other companies, which Farnsworth is not opposed to. ‘We would look for like-minded, sticky long-term capital with a similar philosophy [to us],’ he said. ‘It is not going to be private equity, more likely sovereign wealth or long-term institutional money.’

However, for the time being the market is stagnant due to illiquidity, particularly in life sciences-focused properties, which Farnsworth said is an ‘embryonic sector’.

‘It is illiquid at the moment because people aren’t selling,’ he highlighted. Plus when properties do come to the market competition ast there are a ‘huge range of buyers’ interested, including pension funds, sovereign wealth funds, and large property names such as US behemoth Blackstone, which snapped up Industrials Reit (MLI ) this year.

With the life sciences property market at somewhat of a standstill, Farnsworth has focused the first half of the year on managing the assets he already owns. Two new lettings were achieved in the Oxford Technology Park, which now counts Oxford Ionics and Arcturis Data as tenants, and planning consent has also been received for the final phase of the site.

A rebranding of the Cambourne asset to the Cambourne Park Science & Technology Campus was completed, while a refit was completed at Rolling Stock Yard in Kings Cross, with a new let agreed with Beacon Therapeutics for a rent of £110 per square feet, which is a record for the life science space.

Overall rent roll was £14.2m at the end of June, up from £13.8m at the end of December, and occupancy was increased to 89%, although Farnsworth said ‘we like to have a bit of vacancy – around 5-10% - as this is how we capitalise on rental growth’.

When the uptick in transactions happens, Farnsworth is ready to move back into acquisitions, with the Golden Triangle, ‘which has key hospitals and universities’ for life sciences, remaining the focus. However, he is not adverse to buying assets in other major cities such as ‘Liverpool, Manchester, Leeds and Edinburgh’.

‘Those areas are doing really well [in terms of life sciences] but at the moment we do not have the same demand-supply imbalance [that we see in the Golden Triangle],’ he said.