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Structural change


2020 will be the year in which impact investment and ESG investment become mainstream.


Blackrock CEO Larry Fink has already published two letters calling on CEOs to behave with a sense of purpose, focus on sustainability and pursue long-term growth. He has been joined by several institutional investors calling for improved transparency and more responsible use of capital. The climate emergency and the new emphasis on social value builds a strong case for more impact-oriented investment decisions in real estate. Affordable housing delivery and the shift to net zero offer two obvious areas for attention. The 2018 Global Impact Investment Network (GIIN) survey was completed by 226 respondents managing US$228.1bn in assets, and these figures have undoubtedly grown since. However, the industry needs to agree on a standard framework to measure impact and to avoid the risk of green-washing. Impact investing was never designed to be a comfortable tick-box exercise.


Real estate will continue to become more ‘operational’, with landlords forced to spend more time curating buildings and consider the mix and needs of occupier businesses. Property used to be thought of as a ‘lazy’ asset. An investor bought a building with a 15-year lease to a strong covenant, then sat back and waited for the rent to come in. While those sorts of opportunities are still available for those who are prepared to pay, investors will increasingly have to take a much more active approach to their assets, curating the mix of uses and businesses, and adopting a more customer-centric approach. This will also involve understanding – and discriminating between – the businesses that occupy the space, perhaps using non-financial or ethical criteria.


New uses such as electric vehicle (EV) charging or large-scale bike storage could also be added to the mix. The growth of the alternative sector is perhaps the most obvious example of this shift, but it is gradually happening everywhere as leases shorten and occupier expectations change – even in office markets where landlords are introducing new models in response to the challenge of the flex space sector. At the same time, asset classes are becoming more fluid and blurred. In other words, as an investment class, real estate’s vital characteristics are gradually becoming less bond-like and more equity-like.


A new life sciences asset class will emerge.


Beginning in 2020 and continuing over the next few years, a more specialised life sciences real estate industry will emerge in the UK. This will be driven by the growing number of life sciences companies who find themselves with greater access to capital due to record levels of venture capital funding. And yet, for some of the larger pharmaceutical companies, property is increasingly being viewed as a strategic differentiator to help drive innovation and recruit the top talent.


Public funding has traditionally led development; however, the economics are changing giving life sciences property the potential to perform as an alternative asset class for property investors. Privately funded developments have been recently completed or are in the pipeline in many areas of the UK. The existing pipeline is impressive but will easily be exceeded by demand over the longer term. It will begin with urban developments – following similar models in the US – that specifically target the sector and its associated industries. There is a rising number of organisations aiming to capitalise on a growing industry by combining provision of space with incubation and investment.


UK Property Predictions 2020


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