EDITOR’S COMMENT The real estate industry was doing a good job of putting out positive vibes this week. As thousands gathered in a very sunny Leeds for the inaugural UKREIIF event, the chatter was positive. Lots of talk (too much talk?) about levelling up, building place and investing in ESG.
And there are reasons to be positive. We saw good results from both Landsec and British Land this week, with swings back into the black, and at UKREIIF regional representatives from across the country gathered around Leeds Docks and were showing their wares with gusto. And let’s face it, there are massive opportunities in our regional cities, with huge amounts of investment needed to deliver new homes, new places and spaces for people to prosper. There is a lot to be done. And things don’t get done with negativity.
Huge opportunities have been put out to market here. L&G has teamed up with the West Midlands Combined Authority, promising £4bn of investment in the region, Stockport showed off the latest piece in its £1bn masterplan, courting a long-term development partner, and there was lot of chat around “the King’s Cross of the North” the next – and hopefully final – attempt to bring a partner on board for the development of York Central.
But if you lean in a little closer and dig a little deeper there is a strong whiff of caution in the air. Yes, there is still a weight of capital targeting real estate, but it is now pausing before it jumps in. Some investors, who not so long ago were underweight in real estate, are beginning to say they are overweight.
Inflation is a fear for everyone and with figures now reaching a 40-year high of 9%, things are looking pretty scary. The recession that comes may well be more consumer-led than business-led, but its effects will still be felt hard in the real estate sector.
Trepidation was a word used with me this week about how investors are approaching the real estate sector at the moment. The desire to invest is still there, but it is becoming even more laser focused on the very best and the most income-secure assets.
What will this mean for the levelling-up agenda? What will this mean for real estate’s commitment to the ESG agenda? What will this mean for the war for talent?
I hope it will mean very little. That real estate will continue to invest in sustainability and social value, that the inevitable recession will not see the sector take its foot off the gas when it comes to ESG, like it has before. I’m not entirely confident though. Real estate investment is about managing risk. It may be more purposeful now, but it is, largely, purpose and profit, not purpose before profit.
The outlook may well be more favourable for the sector’s stance on the environment. The risks of flooding, fire and choking air quality cannot be denied and have just as big an impact on the viability of a building as more financial risks.
But when it comes to the S in ESG, I’m less confident. The “risk” associated with not dealing with social inequalities is less visible to many of us, so much easier for many of us to turn away from.
In a risk-averse environment, investors will look to protect their profit and we will see, for certain, whether the rhetoric around purpose is authentic. I hope it is, but there is a danger some investors will hide behind saying they are “stewards of other people’s money”. With even BlackRock – for many the poster child for at least talking about purposeful investing – recently saying it would support fewer investor proposals on ESG issues because it did not consider them “consistent” with its clients’ long-term financial interests, I wouldn’t be happy to put money on it.
Times will be tough. But they will likely be tougher for others than they are for any of us reading this. Caution and trepidation are fine. Protecting profit is fine. But we must, even in the face of turbulent times, remember the power this sector has to change lives, to make life better for others. Take a little pain so others don’t have to suffer intolerably.
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