Real estate research is the essential platform from which industry professionals make the most important decisions.
Analysis defines sentiment of assets, how capital moves and where it is deployed. Yet as the blurring of real estate and real assets continues, a blended place approach is required to future-proof the vitality of our spaces and places.
If the fabled words of Karl Marx weren’t enough to whet your appetite, then consider this quip from self-professed “urbanophile” Aaron M. Renn: “The mark of a great city isn’t how it treats its special places – but how it treats its ordinary ones.”
As our relationship with the built environment has evolved in recent years, we are in danger of losing sight of the most important aspect of our places. So how do we master this in practice?
Now, you might think that, in election season, this is a piece peppered with manifesto one-liners and who’s-promising-what for the property industry. On this occasion, however, it is worth exploring the fundamental landscape of real estate research, and what it now needs to encapsulate.
Having worked in the built environment for almost (gulp) fifteen years, I’ve been fortunate enough to spend time in commercial property research bridging the three siloed pillars; Offices, Retail and Logistics. The holy trinity! The three core real estate sectors that power growth and drive industry.
Critical research into specific assets and geographies underpin the release of capital and economic prosperity across the country. It has, however, become clear over recent years that treating one asset class in isolation, is like trying to play the guitar with five strings.
The way we move through, use and interact with the built environment has evolved immeasurably since the pandemic. The continuation of hybrid working arrangements is the greatest example of this. Remember when we all had to go to the office five days a week? Whatever your view of the WFH debate, the toothpaste is out of the tube.
This has impacted not just how often we are in the office, but what we want to do when we get there, and what we do when we aren’t. The result? Consolidation in the office markets; occupiers downsizing or rightsizing, investors sheepish, and organisations really having to earn the commute. We know that the largest city markets are actually bucking this trend, lease lengths are down, yes, but take-up has fared well, predominantly in the Grade-A market.
Yet as one sector evolves, another tends to shrink. This is likely to be the case across the regions as despite all the positive news stories about rents increasing and investor confidence returning, office buildings outside of the big-six UK cities are at serious risk of obsolescence.
With these changes true in office markets, the industrial sector continuing to be “darling of real estate” after decades of being the ugly duckling – alongside retail’s sluggish revival – is it not time that the research industry recognised that the cause and effect of supply and demand is as much rooted in the cultural, social and economic changes within the country as it is with the performance of any one sector? Real estate is greater than the sum of its parts.
There is an element of Groupthink to all this – can you tell I’ve been reading?
The silos in which we allocate research bandwidth follow a familiar path. How much has take-up gone up by? Where are rents headed? What does this mean for the pipeline and where are yields? It’s the same cross-sector.
Yet conversations I have with investors and developers always end up with them saying “we are investing in this space, but moreover, this place.” Yes, market dynamics are crucial, but investing in a vision for an area is just as critical as rental return.
As investors look beyond the traditional data sets for best-in-class opportunities, isn’t it time the research fraternity does the same? The financial fundamentals that drive the success of an office building are determined by proximity to retail, to infrastructure, green space and a whole host of other metrics. Betting on future gazing supply dynamics alone could leave you unstuck if the market shifts on its axis as it did during COVID.
Our industry is full of the best and brightest. Using those great minds in unison, instead of in isolation, has to be the way we really get the best out of our reimagined, repurposed cities.
So, the mark of a great city isn’t how it treats its special places but how it treats its ordinary ones. We, as real estate researchers, need to recognise the importance of the tapestry of the built environment. It has evolved, will continue to change and understanding what that might look like in the future will be determined not only by yields, but instead by clear understanding of the tapestry of place.
