WEBVTT - CBRE UK CEO Talks UK Property, Credit, Stability

0:00:02.520 --> 0:00:07.040
<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

0:00:07.960 --> 0:00:11.160
<v Speaker 2>Right, we're going to pivot to something a little bit different.

0:00:11.160 --> 0:00:14.680
<v Speaker 2>So the UK, we know heavily reliant on the private

0:00:14.720 --> 0:00:19.200
<v Speaker 2>sector for development of UK infrastructure. For the property firm CBRE,

0:00:19.680 --> 0:00:23.799
<v Speaker 2>it means opportunities in investments for healthcare, for accommodation and

0:00:23.840 --> 0:00:26.720
<v Speaker 2>for the much talked about data center build out. But

0:00:26.960 --> 0:00:30.560
<v Speaker 2>this with the backdrop of global bond yields rising, particularly

0:00:30.680 --> 0:00:34.400
<v Speaker 2>UK guilt yield they spiked on Friday. Does that dent

0:00:34.479 --> 0:00:36.639
<v Speaker 2>the sector? Really pleased to say that we have CBRE

0:00:36.960 --> 0:00:40.640
<v Speaker 2>UK CEO Rishi Buka with us. Good morning, Really great

0:00:40.680 --> 0:00:42.840
<v Speaker 2>to see you, Thanks for coming over you you spoke

0:00:43.080 --> 0:00:44.680
<v Speaker 2>to my colleagues on TV, so I'm really glad that

0:00:44.720 --> 0:00:46.680
<v Speaker 2>I've got you on radio as well. You've released a

0:00:46.720 --> 0:00:50.879
<v Speaker 2>report about the rise of infrastructure capital, how important it is.

0:00:51.800 --> 0:00:56.480
<v Speaker 2>Where is the fastest growing sector in amongst this infrastructure

0:00:56.640 --> 0:01:01.360
<v Speaker 2>build out? Are your clients making active investment decisions now

0:01:01.360 --> 0:01:02.280
<v Speaker 2>for the U Ken Island?

0:01:02.920 --> 0:01:04.200
<v Speaker 3>So a couple of comments, Carlin.

0:01:04.600 --> 0:01:06.960
<v Speaker 1>Firstly, we're seeing a very interesting trend at the moment

0:01:06.959 --> 0:01:11.479
<v Speaker 1>where we are seeing real estate investors invest in alternative

0:01:11.520 --> 0:01:15.640
<v Speaker 1>asset classes, healthcare, data centers, which I'm sure we'll come

0:01:15.640 --> 0:01:18.839
<v Speaker 1>on and talk about, and living which is broadly student accommodation,

0:01:19.480 --> 0:01:22.800
<v Speaker 1>flats and single family homes. And at the same time,

0:01:22.840 --> 0:01:26.319
<v Speaker 1>we're seeing more traditional infrastructure investors, those that would have

0:01:26.360 --> 0:01:32.119
<v Speaker 1>invested in tolls, bridges, motorways, investing in real estate which

0:01:32.160 --> 0:01:35.720
<v Speaker 1>have infrastructure like characteristics. So those assets have got high

0:01:35.720 --> 0:01:40.960
<v Speaker 1>barriers to entry long leases in today's environment inflation linked leases.

0:01:41.720 --> 0:01:44.840
<v Speaker 1>And the reason that's interesting is, and I heard you

0:01:44.840 --> 0:01:50.560
<v Speaker 1>talk about guilt prices earlier. Infrastructure investors typically have lower

0:01:50.720 --> 0:01:54.480
<v Speaker 1>leverage or no leverage versus a typical real estate investor,

0:01:54.520 --> 0:01:57.160
<v Speaker 1>which means they should be able to pay more. So,

0:01:57.240 --> 0:02:00.240
<v Speaker 1>going back to your question, we are absolutely still seeing

0:02:00.880 --> 0:02:03.800
<v Speaker 1>lots and lots of real estate transactions closing. I think

0:02:03.840 --> 0:02:08.079
<v Speaker 1>we're day eighty of the war today. What we have seen, unsurprisingly,

0:02:08.200 --> 0:02:11.240
<v Speaker 1>is a modest price reduction for those deals that we're

0:02:11.280 --> 0:02:14.799
<v Speaker 1>getting close to getting done. But we're seeing no shortage

0:02:14.840 --> 0:02:17.519
<v Speaker 1>of demand right now for real estate and real estate

0:02:17.560 --> 0:02:18.720
<v Speaker 1>adjacent assets.

0:02:19.080 --> 0:02:20.000
<v Speaker 4>Richie, good morning.

0:02:20.760 --> 0:02:23.840
<v Speaker 5>I wonder where you're seeing more demand for data centers.

0:02:24.080 --> 0:02:27.639
<v Speaker 5>Does that mean you're seeing less demand for offices as

0:02:27.720 --> 0:02:29.440
<v Speaker 5>workers are replaced by.

0:02:29.320 --> 0:02:33.120
<v Speaker 3>AI morning, Lizzie. So I'll make a couple of points,

0:02:34.320 --> 0:02:34.520
<v Speaker 3>you know.

0:02:34.560 --> 0:02:36.880
<v Speaker 1>The first one is everybody's talking about AI and worried

0:02:36.919 --> 0:02:39.440
<v Speaker 1>about what could go wrong. The way I like to

0:02:39.480 --> 0:02:42.840
<v Speaker 1>think about it is what could actually go right. So

0:02:43.320 --> 0:02:46.200
<v Speaker 1>in London right now we're seeing a huge number of

0:02:46.280 --> 0:02:48.399
<v Speaker 1>AI tech engineers being hired.

0:02:48.600 --> 0:02:49.680
<v Speaker 3>That's great for employment.

0:02:50.320 --> 0:02:55.320
<v Speaker 1>Second point, we are expecting AI focused companies to take

0:02:55.520 --> 0:02:58.680
<v Speaker 1>up to four million square foot off new office space

0:02:59.120 --> 0:03:02.280
<v Speaker 1>here in London by twenty thirty three. We saw Anthropic

0:03:02.400 --> 0:03:06.120
<v Speaker 1>take one hundred and fifty thousand square foot recently. Third

0:03:06.160 --> 0:03:10.000
<v Speaker 1>point is on a global basis for corporate occupiers, non

0:03:10.040 --> 0:03:13.360
<v Speaker 1>AI companies, but they employ a lot of people. We

0:03:13.600 --> 0:03:17.160
<v Speaker 1>haven't seen them sign leases there any shorter than they

0:03:17.200 --> 0:03:19.880
<v Speaker 1>were a decade ago. And the reason that's important if

0:03:19.919 --> 0:03:22.120
<v Speaker 1>they thought they were going to have fewer people, or

0:03:22.120 --> 0:03:24.800
<v Speaker 1>they were more uncertain about the environment, you would typically

0:03:24.880 --> 0:03:28.560
<v Speaker 1>expect them to sign shorter leases. So we're not seeing that.

0:03:29.080 --> 0:03:33.200
<v Speaker 1>And then the point around demand for data centers versus offices,

0:03:34.240 --> 0:03:37.680
<v Speaker 1>in part you've got different buyers, so you're not cannibalizing

0:03:37.720 --> 0:03:40.200
<v Speaker 1>one another. But where you do have real estate buyers,

0:03:40.200 --> 0:03:43.680
<v Speaker 1>we are seeing a huge demand for data centers. If

0:03:43.680 --> 0:03:47.120
<v Speaker 1>you just take London right now, on a pan European scale,

0:03:47.520 --> 0:03:51.720
<v Speaker 1>London accounts for about thirty percent of data center live capacity.

0:03:51.840 --> 0:03:55.600
<v Speaker 1>It's about eighty percent nationally. It is by far and

0:03:55.640 --> 0:03:58.520
<v Speaker 1>away the largest city in Europe out of the big five,

0:03:58.680 --> 0:04:03.280
<v Speaker 1>big five being Paris, London, Amsterdam, Dublin. And so we're

0:04:03.280 --> 0:04:05.200
<v Speaker 1>not seeing any shortage in demand at all.

0:04:05.400 --> 0:04:06.560
<v Speaker 4>Okay, and next us and Jamad.

0:04:06.560 --> 0:04:08.520
<v Speaker 2>How quickly can you really build a data center in

0:04:08.560 --> 0:04:12.080
<v Speaker 2>Britain given the power and water constraints, So.

0:04:12.080 --> 0:04:14.600
<v Speaker 1>That is the absolute right question to ask. So West

0:04:14.680 --> 0:04:18.000
<v Speaker 1>London right now will probably take you ten years to

0:04:18.000 --> 0:04:21.120
<v Speaker 1>build a data center. That's two years to get planning.

0:04:21.279 --> 0:04:24.800
<v Speaker 1>Albeit the government has designated data center's critical infrastructure, so

0:04:24.839 --> 0:04:28.000
<v Speaker 1>maybe it's a bit quicker two years to build, but

0:04:28.400 --> 0:04:32.120
<v Speaker 1>right now to apply friction, yeah, that's also hard availability,

0:04:32.240 --> 0:04:34.800
<v Speaker 1>materials and cost. And then the big point that you

0:04:34.800 --> 0:04:37.520
<v Speaker 1>are saying, Caroline up to six years to get power.

0:04:37.839 --> 0:04:42.800
<v Speaker 2>Yeah, so surely that timeline you have to add a

0:04:42.960 --> 0:04:45.760
<v Speaker 2>number of years to that because of government fragility, the

0:04:45.880 --> 0:04:50.520
<v Speaker 2>change of leadership. Are your clients, you know, are they

0:04:50.560 --> 0:04:53.799
<v Speaker 2>delaying any plans because of the fragility of the government.

0:04:53.839 --> 0:04:57.640
<v Speaker 1>Now, look, we've to a certain degree since twenty twenty

0:04:57.760 --> 0:05:01.440
<v Speaker 1>had some level of uncertainty every year, some more than others.

0:05:01.800 --> 0:05:04.800
<v Speaker 1>Real estate's clearly a longer term commitment, so people do

0:05:04.880 --> 0:05:10.080
<v Speaker 1>look through short term political volatility. The bigger issue was

0:05:10.120 --> 0:05:12.360
<v Speaker 1>going to be interest rates. You know, real estate buyers

0:05:12.360 --> 0:05:15.720
<v Speaker 1>are typically higher levered, so the high the guilty yields go,

0:05:15.800 --> 0:05:19.560
<v Speaker 1>the more expensive real estate becomes. But real estate investors

0:05:19.640 --> 0:05:22.760
<v Speaker 1>generally can invest in any environment, but what they do

0:05:22.880 --> 0:05:27.760
<v Speaker 1>need is certainty, stability and predictability, which is a bit

0:05:27.800 --> 0:05:31.200
<v Speaker 1>of a challenge right now within the UK. You know,

0:05:31.279 --> 0:05:34.320
<v Speaker 1>things will get resolved. It's a long term commitment. We

0:05:34.360 --> 0:05:38.080
<v Speaker 1>don't expect in the short term, sorry, in the longer

0:05:38.160 --> 0:05:40.440
<v Speaker 1>term that to really influence the amount of real estate

0:05:40.480 --> 0:05:41.800
<v Speaker 1>investment there is in this country.

0:05:42.360 --> 0:05:44.320
<v Speaker 5>But what if the AI bubble bursts and you get

0:05:44.400 --> 0:05:49.320
<v Speaker 5>hyper scale of capex cycles slowing down reshe.

0:05:49.000 --> 0:05:52.240
<v Speaker 1>So's it's a question that everybody's asking the amount of

0:05:52.360 --> 0:05:55.000
<v Speaker 1>capex that's being spent and why does that matter for

0:05:55.120 --> 0:05:57.080
<v Speaker 1>real estate? It matters because you've got an awful lot

0:05:57.080 --> 0:06:01.760
<v Speaker 1>of real estate debt being lent against this capex. Look

0:06:01.960 --> 0:06:05.480
<v Speaker 1>I'm not an AI specialist, but you know, the earnings

0:06:06.640 --> 0:06:11.120
<v Speaker 1>forecast for some of these big data center businesses is enormous.

0:06:11.200 --> 0:06:12.800
<v Speaker 1>But I can tell you right now, the fact that

0:06:12.800 --> 0:06:15.240
<v Speaker 1>everybody's talking about it, the fact that everybody's worried about it,

0:06:15.279 --> 0:06:18.159
<v Speaker 1>means that people are aware of it and hopefully taking

0:06:18.200 --> 0:06:19.600
<v Speaker 1>account of it in their underwriting.

0:06:21.000 --> 0:06:25.280
<v Speaker 2>In terms of other things that we are thinking about

0:06:25.440 --> 0:06:28.520
<v Speaker 2>and maybe that you're thinking about. If you talk about

0:06:28.560 --> 0:06:33.320
<v Speaker 2>the kind of the attractiveness of building this kind of infrastructure,

0:06:33.440 --> 0:06:36.320
<v Speaker 2>of basing it here in the UK, how do you

0:06:36.360 --> 0:06:40.919
<v Speaker 2>defend against competitors JNL Kushman Wakefield and again with the

0:06:40.960 --> 0:06:45.919
<v Speaker 2>backdrop of yields? Is that not making investors think twice

0:06:46.160 --> 0:06:49.560
<v Speaker 2>as yields continue to rise, but especially here in the UK.

0:06:50.120 --> 0:06:52.839
<v Speaker 1>So I can only tell you what we're seeing aside

0:06:52.920 --> 0:06:56.599
<v Speaker 1>from the amount of domestic capital under the Mansion houseer

0:06:56.680 --> 0:07:00.000
<v Speaker 1>called that's where you've had a number of defined contribut

0:07:00.000 --> 0:07:03.480
<v Speaker 1>You should providers commit to invest ten percent of their

0:07:03.480 --> 0:07:06.920
<v Speaker 1>capital in the UK in the private markets by twenty thirty,

0:07:07.279 --> 0:07:07.799
<v Speaker 1>so you've.

0:07:07.600 --> 0:07:09.720
<v Speaker 3>Got a wonderful pool of domestic capital.

0:07:10.360 --> 0:07:13.520
<v Speaker 1>We have seen a huge increase in the amount of

0:07:13.560 --> 0:07:17.000
<v Speaker 1>overseas capital. Look at the UK predominantly out of Japan,

0:07:17.800 --> 0:07:21.680
<v Speaker 1>the United States and Australia, So there is something going right.

0:07:21.800 --> 0:07:24.960
<v Speaker 1>People are looking to diversify away from other parts of

0:07:25.000 --> 0:07:26.960
<v Speaker 1>the world, you know, and we can forget sat here

0:07:27.000 --> 0:07:29.280
<v Speaker 1>in London. We've got Ruler Law, some of the best

0:07:29.360 --> 0:07:34.280
<v Speaker 1>universities in the world, a great tech infrastructure business, a

0:07:34.360 --> 0:07:37.960
<v Speaker 1>relatively stable currency and time zone in a global environment

0:07:37.960 --> 0:07:41.160
<v Speaker 1>that's really valuable. It's really easy to forget these things

0:07:41.200 --> 0:07:43.840
<v Speaker 1>sat here with the day to day manushev to duel

0:07:43.880 --> 0:07:46.040
<v Speaker 1>and gloom. But when you travel around the world like

0:07:46.120 --> 0:07:49.280
<v Speaker 1>I do, actually London is one of a handful of

0:07:49.320 --> 0:07:53.040
<v Speaker 1>places that are still viewed as very attractive with stability

0:07:53.200 --> 0:07:55.640
<v Speaker 1>in the long term. Obviously we've got some short term

0:07:55.720 --> 0:07:56.640
<v Speaker 1>challenges right now.

0:07:56.760 --> 0:07:59.240
<v Speaker 5>Yeah, and what if there is a change of prime minister.

0:07:59.400 --> 0:08:01.880
<v Speaker 5>If you get more left wing prime minister, is there

0:08:01.920 --> 0:08:05.480
<v Speaker 5>any particular policy issue that worries you could slow down

0:08:05.560 --> 0:08:06.800
<v Speaker 5>investment in your sector.

0:08:07.720 --> 0:08:10.040
<v Speaker 1>Look, without getting to the individual name, So there are

0:08:10.080 --> 0:08:12.800
<v Speaker 1>clearly the bond markets would if there is a change

0:08:12.800 --> 0:08:15.800
<v Speaker 1>in prime minister. There's clearly the bond markets will favor

0:08:16.160 --> 0:08:17.680
<v Speaker 1>certain candidates over the other.

0:08:17.720 --> 0:08:18.760
<v Speaker 3>But like I said, before.

0:08:18.800 --> 0:08:24.600
<v Speaker 1>From a real estate investor perspective, they're very comfortable investing

0:08:24.840 --> 0:08:29.400
<v Speaker 1>at higher rates of interest rates. That's not a problem,

0:08:29.720 --> 0:08:32.520
<v Speaker 1>done that for years. The issue is just having some

0:08:32.559 --> 0:08:34.360
<v Speaker 1>stability back. So if we do end up with a

0:08:34.440 --> 0:08:38.240
<v Speaker 1>change in PM, you know, arguably some stability comes back

0:08:38.280 --> 0:08:40.440
<v Speaker 1>and investors will look through it and invest.

0:08:40.920 --> 0:08:42.960
<v Speaker 2>Okay, I'm going to press you a bit, fir, what

0:08:43.040 --> 0:08:46.320
<v Speaker 2>about renationalizing various industries?

0:08:46.520 --> 0:08:48.400
<v Speaker 4>What about rent controls.

0:08:47.920 --> 0:08:50.320
<v Speaker 2>That we'll discussed only a amount of days ago by

0:08:50.360 --> 0:08:53.800
<v Speaker 2>the Chancellor Rachel rees. That would surely spook investors who

0:08:53.800 --> 0:08:57.080
<v Speaker 2>are trying to build, as you say, long term investments

0:08:57.200 --> 0:09:00.800
<v Speaker 2>with rents for you know, older peopletudents or whatever it

0:09:00.920 --> 0:09:01.320
<v Speaker 2>might be.

0:09:01.480 --> 0:09:03.640
<v Speaker 4>Rent control, it would be a huge deal for this.

0:09:03.720 --> 0:09:06.520
<v Speaker 1>To a certain degree we've had if you just take

0:09:06.640 --> 0:09:09.559
<v Speaker 1>let's talk about residential just let's look back over the

0:09:09.640 --> 0:09:12.600
<v Speaker 1>last five to seven years of what's happened. You can

0:09:12.640 --> 0:09:16.839
<v Speaker 1>no longer claim back mortgage in just relief on your

0:09:16.840 --> 0:09:20.480
<v Speaker 1>tax returns. The amount of legislation rightly that's come in

0:09:20.520 --> 0:09:25.280
<v Speaker 1>to protect renters, most recently the Rents Act. Having said

0:09:25.280 --> 0:09:30.360
<v Speaker 1>that it's in a way it's institutionalizing the asset class

0:09:30.760 --> 0:09:34.720
<v Speaker 1>individual private landlords of finding it too expensive, too complex

0:09:34.800 --> 0:09:38.920
<v Speaker 1>to invest. We've seen a huge uptick in the amount

0:09:38.960 --> 0:09:41.120
<v Speaker 1>of institutions looking for living and actually, if you end

0:09:41.200 --> 0:09:45.440
<v Speaker 1>up with more institutional landlords, arguably that's better for the

0:09:45.559 --> 0:09:47.280
<v Speaker 1>tenants renting the space.

0:09:48.240 --> 0:09:50.200
<v Speaker 4>Okay, Rishi, very good to see you.

0:09:50.200 --> 0:09:51.839
<v Speaker 2>Thank you so much for coming in and speaking to

0:09:51.920 --> 0:09:55.240
<v Speaker 2>us here on Bloomberg Radio. That is Rishi Bukar, who

0:09:55.400 --> 0:09:59.040
<v Speaker 2>is the CEO of cbre UK, giving us some interesting

0:09:59.080 --> 0:10:01.719
<v Speaker 2>thoughts on data set is on the infrastructure build out,

0:10:02.000 --> 0:10:05.080
<v Speaker 2>saying no, you know, investors not deterred as yields rides

0:10:05.200 --> 0:10:07.520
<v Speaker 2>or even really by the political situation. But I think

0:10:07.559 --> 0:10:10.600
<v Speaker 2>a kind of clear message on stability, Lizzie.

0:10:10.720 --> 0:10:12.600
<v Speaker 4>I mean that was what we were talking about during

0:10:12.679 --> 0:10:13.440
<v Speaker 4>the general election.