Cushman & Wakefield RETHINKING: The Shape Of Real Estate 2040

SCALING UP

ENABLING CHANGE

Active asset management within the office and retail sectors in particular will be required to ensure that buildings avoid the increased risk of obsolescence. Assets in prime major markets where activity will increasingly concentrate may be better insulated from demand difficulties, but landlords will need to ensure that their offer is consistently fit for purpose in order to attract and retain occupiers amid strong competition. Read more on asset optimisation here.

Given the strong prospects for growth and the existing size of the markets, the logistics and industrial and living sectors are likely to attract the most investment through to 2040. The expected growth in these sectors will mean that competition for space increases following significant demand. Technological advancements will drive a significant increase in demand for previously niche sectors. For example, the move to electrify the energy grid and shift to renewable power will require substantially more energy storage capacity, resulting in real estate demand. The rise of Artificial Intelligence (AI) is also likely to have a visible impact on real estate demand through increasing efficiency across the economy, as well as increasingly the requirements for data centres. For, high growth sectors, barriers to investment include lack of expertise, and limited points of entry into the market. These issues will dissipate over time, and further development in smaller sectors will create more liquidity and opportunities for deployment.

Across all sectors, there are significant external factors that will weigh on the potential for real estate to respond, with the impact of inflation on borrowing costs and development viability being most pertinent at the time of writing. Government policies can also have a significant impact and are difficult to predict over the long-term. In addition, the environmental standards that are likely to be put in place to tackle the climate crisis not only via policy, but through an evolution of business standards, will be the greatest catalyst to obsolescence ever experienced by the built environment in the UK. Changes to Minimum Energy Efficiency Standard (MEES) alone, are expected to render approximately 90% of commercial real estate in requirement of improvement by 2030. As always, there are unknown unknowns, which have the potential to drive significant real estate demand and investment as well as presenting a degree of downside risk. Although the real estate market can move slowly, its scale means that there is always somewhere evolving, responding to the changes in the way we use space. As the number of properties grow, and the capital invested into them also grows, this rate of change only seems to increase. As such, looking out ahead to see where real estate is moving towards in the years and decades to come has never been more important.

RETHINKING: THE SHAPE OF REAL ESTATE IN THE UK

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CUSHMAN & WAKEFIELD