{"id":1575,"date":"2023-07-11T13:07:57","date_gmt":"2023-07-11T13:07:57","guid":{"rendered":"https:\/\/steinkrug.co.uk\/magazine\/?p=1575"},"modified":"2024-05-09T21:24:54","modified_gmt":"2024-05-09T21:24:54","slug":"cambridge-not-broke-but-you-can-see-the-cracks","status":"publish","type":"post","link":"https:\/\/steinkrug.co.uk\/magazine\/2023\/07\/11\/cambridge-not-broke-but-you-can-see-the-cracks\/","title":{"rendered":"Cambridge – Not Broke, But You Can See The Cracks"},"content":{"rendered":"\n
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A Winter’s Chill at Cambridge’s 1000 Discovery Row – Could this Silicon Valley style address fall victim to a San Francisco style property crisis?<\/figcaption><\/figure>\n\n\n\n

It was Joseph Kennedy who was credited with suggesting during the run up to the 1929 Wall Street crash that if shoeshine boys are giving stock tips, then it is time to get out of the market. So perhaps investors should start worrying when estate agents begin to sound like experts in Life Sciences.<\/p>\n\n\n\n

Cambridge\u2019s leading estate agent and property manager, Bidwells, believes there is a 1 million square feet shortfall in laboratory space in the city. Carter Jonas have made similar claims, and these are backed up by stories of scientists forced to carry out world class research in their kitchens. But is this really the last sector of the property market left standing?<\/p>\n\n\n\n

Commercial property bubbles are usually decades in the making, but Cambridge\u2019s has taken centuries to fully inflate. When a group of theologians and their students arrived in the city in 1289 \u2013 they had been evicted from Oxford on the pain of death \u2013 it appeared their stay in the small market town might be short. Local traders overcharged for food and building materials, and a business model centred on strolling around inside walled gardens contemplating the nature of God was unlikely to make the nascent university rich. Salvation came by way of an alumni richly rewarded by the royal court for a translation of heavenly dictates into earthly laws that confirmed a monarch\u2019s divine right to rule. Some of these riches found their way back to Cambridge, the reason the most iconic building in the city is called \u2018Kings\u2019 college chapel.<\/p>\n\n\n\n

Not all the money the university received was used to construct new buildings, some bought farms providing a reliable supply of food and some enabled the purchase the land on which Cambridge\u2019s thriving port and industrial centre was housed, both of which were demolished resulting in the city becoming economically dependent on the university. Come the enlightenment this dependency increased: God started moving in mysterious ways, only observable with the help of scientific instruments which local artisans were required to build.<\/p>\n\n\n\n

While by the 1970s some had started describing the partnership between the university and scientific instrument manufacturers as the Cambridge phenomenon the local economy would only become phenomenal after Alison Richards was appointed vice chancellor. Richards realised the balance of power was gradually shifting from \u2018gown\u2019 to \u2018town\u2019 and the artisans entrusted with building scientific instruments were helping themselves to the University\u2019s lunch. Evidence of this was Cambridge\u2019s first billion-pound company ARM Plc. The University earns money from revellers flocking to the O2 arena and containers passing through the port of Felixstowe – Trinity College owns the land on which both are built – but nothing from billions of ARM microchips used by smartphone manufacturers each year. This despite the mighty ARM having grown out of a computer company called Acorn which took root in Cambridge University\u2019s Computer Laboratory during the 1970s.<\/p>\n\n\n\n

Richard\u2019s solution was to ensure what happened in the Cambridge University stayed in Cambridge University. Technology developed in its laboratories would be deemed the property of the university and would either be made available to manufactures under license or exploited by startups in which the university retained a share. For some this move was controversial as some the intellectual property sold or retained was the fruits of taxpayer funded research.<\/p>\n\n\n\n

One of the challenges for the new Vice Chancellor was where to find the money to fund the startups. The answer, again, was from its alumni and the university raised close to a billion pounds in donations from around the world. As well, Britain\u2019s water companies were not alone taking on large amounts of debt. A second problem was where to locate its spinout companies as some quickly outgrew the university\u2019s laboratories in which they were founded. The answer was to accelerate the building of science parks, which proved relatively simple: remember all that farmland purchased centuries ago to ensure the universities theologians and students did not starve.<\/p>\n\n\n\n

It was not long before the Cambridge University\u2019s money-making machine was firing all cylinders as in a period of low interest rates rapidly growing spinouts became a magnet for private investors. This would have unforeseen consequences as while the fruits of the university\u2019s research had once been shared by companies throughout Britain it was now horded in a very small part of Cambridgeshire. This saw young workers from across Britain forced to relocate within commuting distance of the city, joining researchers and students flocking to Cambridge from around the world. The university now had a new use for its redundant farmland, housing. The value of what had once been the University\u2019s principal asset rose exponentially thanks to a building boom and sky high rents were being earned from land that had once produced only wheat and barley or was used to graze cows and sheep. What could possibly go wrong? Almost everything, as it turned out.<\/p>\n\n\n\n

First came Brexit which in which Cambridge University played a small part in bringing about. Britain\u2019s thriving life sciences sector took an immediate hit when the headquarters of the European Medicines Agency was relocated from London to Amsterdam: the long-term implications of this move are slowly becoming clear. Another bitter pill, equally difficult to swallow, was the UK\u2019s exclusion from the Horizon EU R&D program following the botched negotiation of the Northern Ireland protocol. While the EU Medicines Agency will not be coming back we may get associate, or third country, membership of Horizon, however believing is a substitute for the real is a mistake. The EU regulatory framework shapes the EU R&D framework while latter informs the former. As Britain no longer has any influence over the development of the regulatory framework associate membership of Horizon would result in British institutions simply being paid to research new ways to increase the competitiveness of its closest, and largest, competitor.<\/p>\n\n\n\n

In the wake of the election of Donald Trump came one of history\u2019s periodic shifts from globalisation to isolationism. An early casualty was a close relationship the mobile technology giant Huawei, which collaborated with various departments in Cambridge University, along with plans by the Chinese company to build a European R&D centre on the outskirts of the city: these are currently on hold. The university also works closely with leading US high technology companies and now finds the enemies of its friends can, in some people\u2019s eyes, should no longer be regarded as friends. The sale of the university spinout Flusso to a Chinese owned company for \u00a3200 million proved a case in point: while the department of trade finds itself between a rock and a hard place Cambridge University is having its gonads squeezed between two continually shifting geopolitical tectonic plates.<\/p>\n\n\n\n

Then came Covid and the massive Chinese lockdown which saw 8% of Cambridge University\u2019s students staying at home and even ties with Chinese companies not frowned upon by the US state department severed. Cambridge emptied of Chinese tourists, which pre-pandemic had numbered tens of thousands a year. This impacted on shopkeepers and other local business owners who paid rent colleges. To date there is little sign these visitors are coming back in any great number.<\/p>\n\n\n\n

In something of a final flourish the grim reaper of international finance decided the emergence from the pandemic and a slight easing of geopolitical tensions was a good time to end the two decades of easy money which had made Alison\u2019s Richard\u2019s turnaround plan such a roaring success. Hard hit were the spinouts dependent on private investors for funding. The number of zombie company\u2019s shuffling around Cambridge\u2019s science parks started to rise. Other ventures are only kept alive by the hype surrounding generative AI. If your respirator failed to gain traction during the Covid pandemic, then it is probably worth, as a last gasp, trying to convince investors it is based on AI technology. However smarter investors are beginning to ask awkward questions and the days of using round A funding to pay for a smart office and the fifty staff to justify a sky valuation prior of round B are probably over. Cambridge\u2019s Silicon Valley looks set to follow the US original in weeding out companies faking it until they\u2019ve made it. So far Cambridge has been spared a Theranos but, even so, investors are getting more circumspect and even those still happy to fund startups are paying more attention to costs and revenue streams.<\/p>\n\n\n\n

In the life sciences sector there are some doubts about the number of companies working on genome based medical technologies: too many angel investors balanced on the head of single pin. Despite stories of miracles cures many of these relate to diseases and conditions which are comparatively rare. Even in affluent Cambridge the value of a human life, for actuarial purposes, rarely justifies a hard-pressed NHS spending a \u00a31million to save it.<\/p>\n\n\n\n

The latest, and possibly greatest, threat to the Cambridge Phenomenon is political, levelling up or, as it is known within the university, levelling down. Cambridge is regarded by politicians, most of whom were educated at Oxford, as exiles more likely to produce a Soviet spy than a British Prime Minister (although recently it has become debatably which cause more harm to the country.) Fearing the threat of having its treasure redistributed throughout the land, Cambridge University commissioned a study to determine the amount of wealth it generated each year. This was ahead of Rishi Sunak handing out grants to various institutions as a temporary replacement for EU funding. However, the report struggled to identify much of the \u00a332 billion which had trickled outside of a fifteen-mile radius of the city: north of Peterborough there was little more than vapour. This was probably why, when Sunak announced the funding for East of England, a large part of the funding went on agriculture and life science research around Norwich.<\/p>\n\n\n\n

The dilemma for the government, in the run up to a general election which it is unlikely to win, is whether to continue championing Cambridge University as the country\u2019s economic powerhouse, despite the lion\u2019s share of the employment it creates being in China or on the West coast of America. Or does it accept the university is, in reality, merely a wealthy landowner which got exponentially richer thanks to a strategy devised by Alison Richards, a strategy which transformed Cambridge University into a vampire squid locked onto the face of Britain, sucking wealth from the poorest parts of the country and pumping it into the coffers of its own colleges, a strategy which is now slowly unravelling in the boardrooms of Barratt, Redrow and Thakeham homes.<\/p>\n\n\n\n

It was house builders who first realised the jobs of employees, whose principal role in high tech startups was crowding onto designer staircases in the atriums of million-pound offices during corporate photo shoots, might no longer be safe. It was also obvious rising interests would hit householders in Cambridge, one of the country\u2019s most expensive places outside London. Developers who could, Redrow and Barratt, slammed on the brakes and are sitting on land and half-finished house in an effort to main prices. Those that could not, such as Hills and a host of smaller developers, are compelled to carry on supplying houses hoping what lays over the horizon are sunny uplands rather than a cliff. This, rather than the planning constraints mentioned in Michael Gove\u2019s \u2018Cambridge 2040\u2019 report, has been responsible for throttling the supply of houses in Cambridgeshire. In previous crashes, the residential property market rearended the commercial market, this time it could be the other way around.<\/p>\n\n\n\n

While some retail properties and older offices in Cambridge remain empty, many are being repurposed as laboratories for the \u2018booming\u2019 life sciences industries. Railpen, the pension provider, is currently submitting plans for the conversion of the Beehive shopping centre into a multipurpose residential, office and laboratory complex. The nearby Grafton centre, another rather tired shopping centre, is set to undergo a similar conversion. Added to this are the number of other developers converting offices into science\u2019s equivalent of buy to lets who carry out contract laboratory work on behalf of life sciences companies. Pitching into this increasingly crowded market are some of the giants of REIT, including Blackstone.  It does not take long with a calculator to work out that the sum of all these projects equals the predicted demand for laboratory space.<\/p>\n\n\n\n

As in every other property crisis everyone is either convinced their assumptions even those based on anecdotal evidence are correct. Only Carter Jonas\u2019s Lucy Atkins qualified her view of the market with an acknowledgment the life sciences sector was \u2018challenging.\u2019 Cambridge based estate agent and property manager, Bidwells is being more gung ho, it still sees a one million square feet shortfall against a 7000 square feet availability: this despite Cambourne science park already advertising 25,000 square feet ready for occupation. Ask the owner of a life sciences startup how many square feet of lab space they will need next year and the figure they come up will be north of one thousand. However, it is probable and, given the currently mood of private investors, quite likely in twelve months\u2019 time that scientist will still be seeking funding and mixing potions on their kitchen table. For Cambridge appears that commercial property will be the last shoe to drop.<\/p>\n\n\n\n

It would be somewhat ironic that the land Cambridge University purchased to safeguard its future turns out to the instrument of its demise. Were those theologians who paced the walled gardens during the thirteenth century able to offer advice to Alison Richards they would have probably pointed her towards Sisyphus who discovered after expending much effort pushing a rock to the top of a hill there was only one place left to go.<\/p>\n\n\n\n

Peter Kruger<\/p>\n\n\n\n

Author of The Ghost In The Labyrinth<\/a><\/p>\n

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