It’s not always the case during an interview with a politician that you sense a firm grasp of the matter at hand, much less a deep understanding of the audience they are trying to reach.
A conversation with a housing minister is no guarantee of insight, for instance, given how frequently they come and go. There are notable exceptions, however. In recent years, mayors have mostly added meaningfully to debate, bringing a deep understanding of their constituency’s needs and often a CV with berths beyond the political bubble.
But in Westminster it can happen too. When a new Office for Investment was announced by the prime minister in November, responsibility was given to Lord Grimstone (pictured above). There are few inside – or outside – government with stronger credentials than the former chairman of Barclays Bank, Standard Life Aberdeen and financial services body TheCityUK. So when he tells EG how the UK, and the real estate sector, must reposition itself to draw inward investment post-Brexit and post-Covid, it’s worth paying attention.
Stand still at your peril
First, however, the investment minister wants to shoot down the notion that this sector, from an investment point of view, has a problem. “I disagree with you that it’s not well understood,” he says. “I think in some ways you could say that real estate is one of the easiest investment classes to invest in because you have security, you have substance and when you have tenants you have sustainability.”
More on that later. But the minister warns that this sector cannot afford to stand still. “Our need for infrastructure is always changing, and real estate has to evolve to match that change,” he says. “And when I talk to investors around the world at the moment, I’m seeing considerable investor appetite in real estate, for life sciences real estate, for logistics real estate. That’s just part of the pattern of the cycles of economic activity.”
Of course, as a government minister he is optimistic about life after Brexit, and convinced the UK remains a priority investment destination. “I’m sure it is,” he says emphatically. “We all know the advantage of the UK in terms of the skill sets here, the innovation, the opportunities, our low tax rates, etc. But I think people are excited about the UK that is emerging post the European Union and, for example, the network of free trade agreements that we are putting together.
“We very much see the United Kingdom at the centre of that web of free trade agreements going forward, providing great opportunities for business and great opportunities for real estate.”
Our need for infrastructure is always changing, and real estate has to evolve to match that change
Importing innovation and productivity
Grimstone’s investment brief straddles two offices: the Department for International Trade and the Department for Business, Energy & Industrial Strategy. He wants to draw domestic capital as well as international investment. But clearly he favours one over the other.
“We have the largest stock of foreign investment of any country in the OECD, and it’s very important to us in three ways. One, because of the economic flows. Two, because foreign invested companies tend to be more productive than non-foreign invested companies. And three, because foreign invested companies are a source of innovation.
“So effectively we get three kickers when foreign investment comes into the UK. And once an overseas company has been here for a while it becomes so assimilated into the UK that it almost feels like UK investment.
“Of course, we want UK companies to invest as well. But I come back to the point that overseas companies are also a source of innovation and productivity.” The Office for National Statistics agrees; it says foreign-owned businesses in the UK spent more on R&D (£13bn) than domestically owned businesses (£12bn) in 2018.
Scan the horizon
With the UK a leading destination for foreign direct investment from Europe and the US, as well as from China and India, does Grimstone see sources of finance changing? “We have to recognise that the investment landscape is going to look very different post-Covid.
“One of the things that we’re doing here is pulling together our investment strategy, to scan that landscape and identify where there are investable funds that want to invest or that could be encouraged to invest in the UK. And that comes from many, many parts of the world. It’s a question then of matching the funds from those places to the opportunities.”
Where it’s headed is changing too. “People have now become absolutely attuned to the fact that many of the best investment opportunities in the UK are outside London,” he says. “It’s not that London isn’t a great city, but we have many other great cities as well.
“The cost structures may be different in those other cities. The skill sets may be different. You often find in these cities absolute pockets of innovation, often built around a strong university or further education institution, and that gives you diversity. And, of course, investors also love diversity, and they love investing in different parts of the UK because of the portfolio effect that diversity gives them.”
A key UK industry
It’s refreshing to hear Grimstone make the case for real estate being just as important as more commonly championed sectors of the economy.
“A lot of the money that has come into the UK traditionally has gone into real estate,” he says. “And that’s very important to us because it provides jobs. The construction industry represents about 2.4m jobs in the UK and contributes 6% of our GDP.
“We always think of financial services as being one of the absolutely key industries in the UK. I would like to suggest on those figures that the construction industry, too, is one of our key industries. Real estate investment is one of the quickest ways to bring an economic benefit.”
Should it be an explicit part of the government’s levelling-up strategy too? “At the end of the day, all investment, and all productivity, is located in a place. And what does a place need to become a home for investment? It needs real estate. So there is a very, very strong symbiosis between real estate investment and other forms of economic activity that come in its train.
“You have to balance within what you might call the realms of practicality. You can lead a horse to water with investment, but you can’t make it drink.”
We always think of financial services as being one of the absolutely key industries in the UK. I would like to suggest… that the construction industry, too, is one of our key industries
More certain times
He hopes the new year will bring positivity for investors – or at least a dilution of negative forces. “The main thing that I am hoping for is a progressive removal of uncertainties, and if there is one thing that holds back investment, it is uncertainties,” he says.
“We have all been living through a particularly uncertain time over the past two or three years. Part of that has been geopolitical. A lot of it, of course, is health related owing to the shocking Covid-19 pandemic – the worst thing that has happened to the world in my lifetime. And part of it is just due to the fact that the world has been in transition and now hopefully is going to settle down again. But my wish is for those uncertainties to be progressively shut down, because the removal of the uncertainties would increase the propensity of people to invest.”
Here real estate can seize its moment. “I have no doubt that one of the impacts of the coronavirus pandemic has been to accelerate trends that were perhaps already present in the economy,” says Grimstone. “I would put among those trends matters such as working from home, the use of technology and, perhaps most of all, the attention towards net zero, sustainability and green investment.
“The slogan ‘build back better’ slips easily off the tongue, but I think it has absolutely real substance because the business people I talk to are committed to making sure that, as we come out of the pandemic, things are better. And there is nowhere where that is perhaps more important than in the built environment.”
To send feedback, e-mail damian.wild@egi.co.uk or tweet @DamianWild or @estatesgazette
