Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Right, we're going to pivot to something a little bit different.
Speaker 2: So the UK, we know heavily reliant on the private
Speaker 2: sector for development of UK infrastructure. For the property firm CBRE,
Speaker 2: it means opportunities in investments for healthcare, for accommodation and
Speaker 2: for the much talked about data center build out. But
Speaker 2: this with the backdrop of global bond yields rising, particularly
Speaker 2: UK guilt yield they spiked on Friday. Does that dent
Speaker 2: the sector? Really pleased to say that we have CBRE
Speaker 2: UK CEO Rishi Buka with us. Good morning, Really great
Speaker 2: to see you, Thanks for coming over you you spoke
Speaker 2: to my colleagues on TV, so I'm really glad that
Speaker 2: I've got you on radio as well. You've released a
Speaker 2: report about the rise of infrastructure capital, how important it is.
Speaker 2: Where is the fastest growing sector in amongst this infrastructure
Speaker 2: build out? Are your clients making active investment decisions now
Speaker 2: for the U Ken Island?
Speaker 3: So a couple of comments, Carlin.
Speaker 1: Firstly, we're seeing a very interesting trend at the moment
Speaker 1: where we are seeing real estate investors invest in alternative
Speaker 1: asset classes, healthcare, data centers, which I'm sure we'll come
Speaker 1: on and talk about, and living which is broadly student accommodation,
Speaker 1: flats and single family homes. And at the same time,
Speaker 1: we're seeing more traditional infrastructure investors, those that would have
Speaker 1: invested in tolls, bridges, motorways, investing in real estate which
Speaker 1: have infrastructure like characteristics. So those assets have got high
Speaker 1: barriers to entry long leases in today's environment inflation linked leases.
Speaker 1: And the reason that's interesting is, and I heard you
Speaker 1: talk about guilt prices earlier. Infrastructure investors typically have lower
Speaker 1: leverage or no leverage versus a typical real estate investor,
Speaker 1: which means they should be able to pay more. So,
Speaker 1: going back to your question, we are absolutely still seeing
Speaker 1: lots and lots of real estate transactions closing. I think
Speaker 1: we're day eighty of the war today. What we have seen, unsurprisingly,
Speaker 1: is a modest price reduction for those deals that we're
Speaker 1: getting close to getting done. But we're seeing no shortage
Speaker 1: of demand right now for real estate and real estate
Speaker 1: adjacent assets.
Speaker 4: Richie, good morning.
Speaker 5: I wonder where you're seeing more demand for data centers.
Speaker 5: Does that mean you're seeing less demand for offices as
Speaker 5: workers are replaced by.
Speaker 3: AI morning, Lizzie. So I'll make a couple of points,
Speaker 3: you know.
Speaker 1: The first one is everybody's talking about AI and worried
Speaker 1: about what could go wrong. The way I like to
Speaker 1: think about it is what could actually go right. So
Speaker 1: in London right now we're seeing a huge number of
Speaker 1: AI tech engineers being hired.
Speaker 3: That's great for employment.
Speaker 1: Second point, we are expecting AI focused companies to take
Speaker 1: up to four million square foot off new office space
Speaker 1: here in London by twenty thirty three. We saw Anthropic
Speaker 1: take one hundred and fifty thousand square foot recently. Third
Speaker 1: point is on a global basis for corporate occupiers, non
Speaker 1: AI companies, but they employ a lot of people. We
Speaker 1: haven't seen them sign leases there any shorter than they
Speaker 1: were a decade ago. And the reason that's important if
Speaker 1: they thought they were going to have fewer people, or
Speaker 1: they were more uncertain about the environment, you would typically
Speaker 1: expect them to sign shorter leases. So we're not seeing that.
Speaker 1: And then the point around demand for data centers versus offices,
Speaker 1: in part you've got different buyers, so you're not cannibalizing
Speaker 1: one another. But where you do have real estate buyers,
Speaker 1: we are seeing a huge demand for data centers. If
Speaker 1: you just take London right now, on a pan European scale,
Speaker 1: London accounts for about thirty percent of data center live capacity.
Speaker 1: It's about eighty percent nationally. It is by far and
Speaker 1: away the largest city in Europe out of the big five,
Speaker 1: big five being Paris, London, Amsterdam, Dublin. And so we're
Speaker 1: not seeing any shortage in demand at all.
Speaker 4: Okay, and next us and Jamad.
Speaker 2: How quickly can you really build a data center in
Speaker 2: Britain given the power and water constraints, So.
Speaker 1: That is the absolute right question to ask. So West
Speaker 1: London right now will probably take you ten years to
Speaker 1: build a data center. That's two years to get planning.
Speaker 1: Albeit the government has designated data center's critical infrastructure, so
Speaker 1: maybe it's a bit quicker two years to build, but
Speaker 1: right now to apply friction, yeah, that's also hard availability,
Speaker 1: materials and cost. And then the big point that you
Speaker 1: are saying, Caroline up to six years to get power.
Speaker 2: Yeah, so surely that timeline you have to add a
Speaker 2: number of years to that because of government fragility, the
Speaker 2: change of leadership. Are your clients, you know, are they
Speaker 2: delaying any plans because of the fragility of the government.
Speaker 1: Now, look, we've to a certain degree since twenty twenty
Speaker 1: had some level of uncertainty every year, some more than others.
Speaker 1: Real estate's clearly a longer term commitment, so people do
Speaker 1: look through short term political volatility. The bigger issue was
Speaker 1: going to be interest rates. You know, real estate buyers
Speaker 1: are typically higher levered, so the high the guilty yields go,
Speaker 1: the more expensive real estate becomes. But real estate investors
Speaker 1: generally can invest in any environment, but what they do
Speaker 1: need is certainty, stability and predictability, which is a bit
Speaker 1: of a challenge right now within the UK. You know,
Speaker 1: things will get resolved. It's a long term commitment. We
Speaker 1: don't expect in the short term, sorry, in the longer
Speaker 1: term that to really influence the amount of real estate
Speaker 1: investment there is in this country.
Speaker 5: But what if the AI bubble bursts and you get
Speaker 5: hyper scale of capex cycles slowing down reshe.
Speaker 1: So's it's a question that everybody's asking the amount of
Speaker 1: capex that's being spent and why does that matter for
Speaker 1: real estate? It matters because you've got an awful lot
Speaker 1: of real estate debt being lent against this capex. Look
Speaker 1: I'm not an AI specialist, but you know, the earnings
Speaker 1: forecast for some of these big data center businesses is enormous.
Speaker 1: But I can tell you right now, the fact that
Speaker 1: everybody's talking about it, the fact that everybody's worried about it,
Speaker 1: means that people are aware of it and hopefully taking
Speaker 1: account of it in their underwriting.
Speaker 2: In terms of other things that we are thinking about
Speaker 2: and maybe that you're thinking about. If you talk about
Speaker 2: the kind of the attractiveness of building this kind of infrastructure,
Speaker 2: of basing it here in the UK, how do you
Speaker 2: defend against competitors JNL Kushman Wakefield and again with the
Speaker 2: backdrop of yields? Is that not making investors think twice
Speaker 2: as yields continue to rise, but especially here in the UK.
Speaker 1: So I can only tell you what we're seeing aside
Speaker 1: from the amount of domestic capital under the Mansion houseer
Speaker 1: called that's where you've had a number of defined contribut
Speaker 1: You should providers commit to invest ten percent of their
Speaker 1: capital in the UK in the private markets by twenty thirty,
Speaker 1: so you've.
Speaker 3: Got a wonderful pool of domestic capital.
Speaker 1: We have seen a huge increase in the amount of
Speaker 1: overseas capital. Look at the UK predominantly out of Japan,
Speaker 1: the United States and Australia, So there is something going right.
Speaker 1: People are looking to diversify away from other parts of
Speaker 1: the world, you know, and we can forget sat here
Speaker 1: in London. We've got Ruler Law, some of the best
Speaker 1: universities in the world, a great tech infrastructure business, a
Speaker 1: relatively stable currency and time zone in a global environment
Speaker 1: that's really valuable. It's really easy to forget these things
Speaker 1: sat here with the day to day manushev to duel
Speaker 1: and gloom. But when you travel around the world like
Speaker 1: I do, actually London is one of a handful of
Speaker 1: places that are still viewed as very attractive with stability
Speaker 1: in the long term. Obviously we've got some short term
Speaker 1: challenges right now.
Speaker 5: Yeah, and what if there is a change of prime minister.
Speaker 5: If you get more left wing prime minister, is there
Speaker 5: any particular policy issue that worries you could slow down
Speaker 5: investment in your sector.
Speaker 1: Look, without getting to the individual name, So there are
Speaker 1: clearly the bond markets would if there is a change
Speaker 1: in prime minister. There's clearly the bond markets will favor
Speaker 1: certain candidates over the other.
Speaker 3: But like I said, before.
Speaker 1: From a real estate investor perspective, they're very comfortable investing
Speaker 1: at higher rates of interest rates. That's not a problem,
Speaker 1: done that for years. The issue is just having some
Speaker 1: stability back. So if we do end up with a
Speaker 1: change in PM, you know, arguably some stability comes back
Speaker 1: and investors will look through it and invest.
Speaker 2: Okay, I'm going to press you a bit, fir, what
Speaker 2: about renationalizing various industries?
Speaker 4: What about rent controls.
Speaker 2: That we'll discussed only a amount of days ago by
Speaker 2: the Chancellor Rachel rees. That would surely spook investors who
Speaker 2: are trying to build, as you say, long term investments
Speaker 2: with rents for you know, older peopletudents or whatever it
Speaker 2: might be.
Speaker 4: Rent control, it would be a huge deal for this.
Speaker 1: To a certain degree we've had if you just take
Speaker 1: let's talk about residential just let's look back over the
Speaker 1: last five to seven years of what's happened. You can
Speaker 1: no longer claim back mortgage in just relief on your
Speaker 1: tax returns. The amount of legislation rightly that's come in
Speaker 1: to protect renters, most recently the Rents Act. Having said
Speaker 1: that it's in a way it's institutionalizing the asset class
Speaker 1: individual private landlords of finding it too expensive, too complex
Speaker 1: to invest. We've seen a huge uptick in the amount
Speaker 1: of institutions looking for living and actually, if you end
Speaker 1: up with more institutional landlords, arguably that's better for the
Speaker 1: tenants renting the space.
Speaker 4: Okay, Rishi, very good to see you.
Speaker 2: Thank you so much for coming in and speaking to
Speaker 2: us here on Bloomberg Radio. That is Rishi Bukar, who
Speaker 2: is the CEO of cbre UK, giving us some interesting
Speaker 2: thoughts on data set is on the infrastructure build out,
Speaker 2: saying no, you know, investors not deterred as yields rides
Speaker 2: or even really by the political situation. But I think
Speaker 2: a kind of clear message on stability, Lizzie.
Speaker 4: I mean that was what we were talking about during
Speaker 4: the general election.