Property looks beyond Brexit at MIPIM UK

The UK’s economic and political future may well be determined by Brexit, but according to some on EG’s MIPIM UK panel to discuss the future of the country’s real estate, the industry is already bored of focusing on the B-word and is trying to determine its own future. Mat Oakley, Savills’ head of European commercial research, said that although Brexit is having an impact on investment volumes in the UK, which are down by 29% year-on-year, deal making has dropped elsewhere in the world too, including in Brazil where volumes have halved. This, Oakley said, meant that “we probably can’t expect any Brexit bounce”. He added that Brexit was not the only hot topic for property professionals, pointing to investors’ questions over the price of real estate globally due to the lateness of the cycle, as well as rising concerns over whether retail is “doomed”. Savills estimates the average reduction in shopping centre rents over the past 12 months to be about 33%. In addition, WeWork’s ditched IPO has left investors wondering whether the recent surge of the serviced flexible office market is coming to an end. Naisha Polaine, senior adviser for large capital at the Department for International Trade, agreed that Brexit is not the be-all-and-end-all issue for real estate, pointing out that “there are potential economic threats and shocks from all over the world”. “A lot of the investors that we work with say ‘well, you should see where we come from in terms of the things that we’re dealing with’,” she added. Corporate confidence James Evans, head of offices for Manchester at Savills, said that there was a “degree of boredom” from the industry when it came to Brexit. “I don’t think there’s any sense of urgency or doom from landlords who feel that they need to lease space at bargain-basement prices, because the occupational markets have actually held up relatively well,” he said. “There are still overseas buyers who will invest in the UK largely as a consequence of what’s happened to sterling.” Evans added that there was corporate confidence, particularly in Manchester, where there were “numerous overseas businesses seeking to set up UK HQs or second offices” and that conversations were around infrastructure investment in the region and which universities offer the best opportunity to recruit talent from. Meanwhile, Pete Gladwell, head of public sector partnerships at Legal & General Investment Management, contended that there was “a real risk that we see Brexit as some sort of ventriloquist that controls our market and we somehow play to its tunes”. Gladwell added: “Actually, if we look at what our industry produces, London still needs affordable housing, Newcastle still needs start-up space for those coming out of universities, Birmingham still needs a children’s hospital. There are huge needs for our industry to step up around the country and those have not been diminished by Brexit at all. The money exists within this country, never mind overseas investment. So actually it’s about controlling our own destiny and stepping into this, rather than sitting back and pretending that we are some kind of puppet that Brexit controls.” Joe Sarling, head of research and analysis at Homes England, estimated that there would be around 4m extra households in the UK by 2041 and that, in terms of housebuilding, “from an institutional investment perspective, the demographics and market fundamentals absolutely remain”. Sarling said: “It’s a solid position, a solid place to invest with a growing population, growing household numbers. I think that’s a strong base. That’s a real positive for us.” Exponential sustainability change For sustainability consultancy Evora Global’s managing director, Chris Bennett, Brexit is being superseded by more important global considerations as a result of the recent global focus on climate change, which has sparked protests worldwide. He added he had “never been in demand so much”. Bennett believes the industry is at the start of “exponential change” and commented that he was seeing a lot of investor pressure, which leads him to believe that market force and not legislation will be the driver of change in the industry. In September, 23 of the UK’s leading commercial property owners committed to delivery of net-zero-carbon real estate portfolios by 2050. “Effectively they have put a line in the sand,” Bennett said, adding that this will give asset managers something to “panic” about as many of their buildings will require complete retrofits. Polaine agreed with Bennett that it will be investor pressure that pushes sustainability change in property and not the government. However, she pointed out that it may be not be the commercial side of real estate in which any resistance lies, but household consumers who baulk at paying premiums on their homes to mitigate climate change risks. She added that developers have told her of installing fake radiators in homes simply because consumers “can’t cope with the concept that there isn’t a radiator in their house because it’s thermally efficient”. Polaine also highlighted that during her time working in social housing, some tenants were so outraged over the installation of reduced airflow taps, which reduced water flow, that they used spanners to change them. If experiences like those are anything to go by, Polaine added, a sustainable future in real estate will require the education of consumers as well as companies. Main image : Shutterstock The panel Chris Bennett, managing director, Evora Global Pete Gladwell, head of public sector partnerships, Legal & General Investment Management Mat Oakley, head of European commercial research, Savills Naisha Polaine, senior adviser, large capital, Department for International Trade Joe Sarling, head of research and analysis, Homes England James Evans, head of office, Manchester, Savills Chair: Fiona Bruce, broadcaster To send feedback, e-mail louise.dransfield@egi.co.uk or tweet @DransfieldL or @estatesgazette For more on sustainability in real estate, visit EG’s Sustainability Hub