16 Trends To Watch From Property's Sharpest Minds
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Making real estate a force for good rather than evil. Making sure Brexit doesn't undo the effects of U.K.'s booming tech sector. The likely path of Asian investment into the U.K. capital.
These are just a few of the topics occupying the minds of some of property's brightest brains, as the city reaches what feels like an epochal period in its modern history.
All of those topics and more will be discussed in depth at Bisnow's London State of the Market event on 1 November at Twentytwo. The event brings together speakers from the worlds of real estate, technology, government, city making and beyond to discuss how London will fare in 2019 and for years to come.
Here are the trends and themes to watch out for from 16 of the stellar speakers who will be at the event.
Alison Nimmo, Chief Executive, The Crown Estate
Drive To Diversify
“As we look to the future, macro trends are having a fundamental impact on the future of work, and the way in which people live, work and play. This poses both risks and opportunities for our sector as these translate into new and different requirements, and behaviours, from our customers and our customers’ consumers. We need to get our businesses ready for this new world and to cope with constant change and complexity. Most importantly this means diversifying our skills base well beyond traditional real estate professions and deep into customer relationships, placemaking, data, digital and creativity. That also means inviting fresh and different views, backgrounds, gender and experience and cultivating them as our next generation of exceptional business leaders.”
Collin Lau, founder, Bei Capital, and former Head of Real Estate at China Investment Corp.
"Here's what I think people need to watch:
1. Interest rate rises where the U.S. takes the lead, and it's a combination of factors, including the Federal Reserve's intent to neutralise interest rate level, the U.S. running a $1 trillion a year fiscal deficit, accumulating to over $21 trillion, and has no choice but to issue more T-bills with rising rates to be attractive, and unwinding quantitative easing. There is no question, the rate increases, risk appetite decreases and this is a negative factor for real estate.
2. Frontier market volatility — while Asia has learnt from the 1998 Asian financial crisis, some other emerging markets elsewhere in the world, which borrow cheap U.S. dollar credit, or over-rely on commodity trades, or suffer from political impasse, will suffer from U.S. dollar-denominated liquidity withdrawal. News of debt-laden country illiquidity will catalyse stock market volatility which may cross contaminate the investor confidence of investing in risk assets including real estate.
3. Demographic and lifestyle pattern changes and significance of the operational side of real estate. Bisnow wrote an article on 2 October quoting UBS as saying "Core Real Estate Investment Is Dead". I have been championing over the last three years a move to more sophisticated operational real estate in the form of live-work-play all-in-one, effectively positioning real estate as a consumer service, by operating to fit the lifestyle preference of people today, and integrating accommodation, coworking, F&B and experiential retail and amenities together in one place. This is a disruptive force to conventional investment strategy, for example, single office, or big retail spaces that put tons of inventory on the floors, or plain-vanilla apartments."
David Partridge, Managing Partner, Argent
Rebuilding Faith In Real Estate
“Apart from the obvious issue of reacting to the 'tussle with Brussels' (whatever comes of that) the property industry needs to consider how it can realign the perception that it has of being no more than a bunch of 'greedy landlords' who line their own pockets and never build enough affordable housing. Our voice will only be listened to by government and the public if we can convince them that real estate can provide part of the solution to the disaffection and lack of social mobility which caused (amongst other things) the Brexit crisis, rather than being a blatant manifestation of the problem.”
Eugenie Teasley, Head of Cities, South and East of England, Uber
Conversion Of Parking
“At Uber we want to be part of the movement to liberate cities from private car ownership — not only reducing congestion and pollution but also freeing up large areas of real estate currently dedicated to parking. We’d love to see imaginative repurposing of these spaces — they occupy 16% of central London right now — to the benefit of residents, workers and tourists.”
Harry Badham, U.K. Head of Development, AXA Investment Managers - Real Assets
Coworking And Tech Domination
"Coworking and tech are the answers to everything. We are working hard to find out what is the question. It feels like there is still a lot of change to come.
Both corporate workspace and London as a hub have a lot of focus among large businesses. London is still a growth centre worldwide for a variety of business and employment and competition for staff is still strong. Workspace is an area of focus not just for cost efficiency and some flexibility, but also productivity and corporate transformation and differentiation."
Charlie Green, Co-Founder, The Office Group
New Flexible Office Competition
"The really interesting piece is that right now, we’re seeing a surge of new operators coming into the flexible office sector, some from incumbent real estate players, some new from the digital sectors trying to break into a new asset class and other less sophisticated entrants with little to no experience in real estate. With the volume of new operators, the dynamics of the market will shift, with an impact on pricing, quality and the need to deliver on brand and create loyalty like never before. There will be no place for complacency and there will certainly be winners and losers."
Cody Bradshaw, Managing Director, Head of International Hotels, Starwood Capital
Hotels: Artificial Price Inflation
“Opco/Propco structures in the hotel sector are putting many traditional investors at a distinct disadvantage. These structures create a synthetic bond-like instrument (often with limited covenant strength), which when coupled with record low interest rates, can further suppress cap rates and artificially inflate the value of real estate.”
Chris Grigg, Chief Executive, British Land
Increased Pressure From WeWork
"Retail will stay in the headlines early next year but just as interesting will be how ‘conventional’ landlords react to the competitive pressure from WeWork."
Lorraine Baldry, Chairman, London & Continental Railways
Ignore The Temporary
“In these uncertain times it is important to focus on real estate fundamentals and not be seduced by temporary phenomena.”
Despina Katsikakis, Partner, Head of Occupier Business Performance, Cushman & Wakefield
Everyone Is In Hospitality
"Today if you are in real estate you are in hospitality — value is no longer linked to square feet but to the user experience."
Faisal Durrani, Partner, Head of Research, Cluttons
Digital Infrastructure Limiting Change
“Commercial property market total returns in the U.K. still continue to outperform equities, gilts and shares, and this is expected to persist. Whilst commercial assets will continue to appeal to overseas investors hungry for a piece of London real estate, there are underlying trends changing the demand dynamics in the market. Agile working, remote working and coworking are shaking up the industry. However, digital infrastructure limitations are likely to continue limiting the pace of change, especially for older stock where physical challenges on delivering fibre connections will drive innovation and the adoption of mobile solutions.
The other important thing to remember is our expectations and use of work spaces are changing. They are, more than ever, a shop front for businesses, which will be critical in attracting and retaining the right staff, especially as the war for talent continues to ratchet up, so expect workplace wellness to bubble up to the top of board room agendas in an even bigger way.”
Patrick Weiss, Property Acquisitions Manager, Deliveroo
Industrial: No Space, High Rents
"Over the last five years, online retailers and restaurateurs have been fighting for inner city industrial space in order to reduce last-mile delivery time as much as possible. This has increased the demand for industrial space while residential developers have been reducing supply. As a result we are seeing warehouse rents getting higher and higher. For us this has made it harder to secure longer-term tenancies as landlords seek flexibility while they actively explore a residential redevelopment option."
Mathieu Elshout, Senior Director of Private Real Estate, PGGM
Sustainability Will Pay Off
"Having a well-diversified core, global real estate portfolio today is even more important than ever, with uncertainties looming in many places. We maintain a very disciplined investment approach, further improving the quality of our portfolio with selective sales, while at the same time creating core product to hold for the longer term. We believe sustainability pays off, [and] continuing to improve the sustainability performance of our portfolio make[s] it climate resilient."
Chris Taylor, CEO Real Estate and Head of Private Markets, Hermes Investment Management
Less Focus On Individual Buildings
"As a long-term, responsible investor we are increasingly focused upon delivering not just attractive financial returns to our beneficiaries but also investing in a manner which also has a positive impact upon the environment and society at large. Our programme of major urban regenerations schemes, such as King’s Cross and Paradise Birmingham, create places which attract and retain talent and contribute towards a sense of belonging for their wider communities.
In this way, we focus less upon individual buildings and benchmarks but investing in great places, seeking to capture those profound longer-term trends affecting occupational demand associated with technology, environmental risks, urbanisation and demographic lifestyle patterns."
David Hawkins, Partner, Norton Rose Fulbright
Wait And See Until March
“We are still seeing strong flows of international capital into the market but the concern is that there will be a 'wait and see' approach from investors as we approach March next year."
Helen Murcott, Partner, DAC Beachcroft
End Of The Cycle
"Everyone in the market is aware that we must be at or very close to the end of the current real estate cycle. It has already gone on longer than anticipated. Whilst no one wishes to talk the real estate market into a downturn, there's a general acceptance that a pricing correction must be coming. It's a question of when, not if. The more sophisticated investors know that the extent of that pricing correction will vary significantly depending on sector and will be watching carefully to take advantage of price falls in the real estate sectors which nevertheless have strong fundamentals."
Join Bisnow at the London State of the Market event 1 November at Twentytwo for more insight into what London property execs can expect next year.