ULI UK Conference: Brexit, Business, and Build to Rent

Millions of newspaper inches and gallons of ink have been spent discussing the prospect of Brexit over the past few months, so it was perhaps fitting that Urban Land Institute UK held their inaugural annual conference on Fleet Street on Tuesday, 24 May.

With just under a month to go, the impending referendum – and its effect on the property world – was the hot topic of the day. But drawing on expertise from all over the world, the assembled panellists discussed everything from perfect placemaking, Build to Rent, Germany’s “Slough”, smart investment and, after consulting their crystal balls, how they think London will look in 25 years.

The day kicked off with ULI UK chairman and partner consultant at Linklaters, Simon Clark and Dame Judith Mayhew Jonas, conference moderator and special adviser to Tishman Speyer, welcoming the 258 attendees, followed by chief executive of Grosvenor Britain & Ireland, Peter Vernon. Setting the scene, Vernon told the audience that by 2045, nine in 10 people in the UK will be city-dwellers, which sets a challenge to create “great places that are both dense and liveable”.

Thankfully Vernon sees the government’s devolution agenda as “creating incentives for more aligned partnerships between business and city governments” which will be “vital if we’re to solve the housing crisis.” The man from Grosvenor views the purpose-built rental sector as a key part in fixing this crisis, but called on newly elected Sadiq Khan to be a “muscular, more interventionist mayor” and set out a “clear, unambiguous London-wide planning policy for Build to Rent”. He also encouraged the Greater London Authority to move from being a body that sets strategy and policy to one that drives the delivery of more homes.

The economic and geopolitical outlook came from Kevin Daly, senior European economist at Goldman Sachs. Daly underlined three key points throughout his presentation: global growth has been broadly stable around three per cent since 2011; housebuilding in the UK has picked up significantly over the past few years; and the UK’s economic and financial landscape has been dominated by the ballot on the 23rd June. Daly attributed the weakening of sterling to the uncertainty around Brexit this year, but said that oil prices were ultimately one of the most important factors in driving economic development, and that the fall in prices is “almost entirely driven by the shale revolution in the US”.

Daly made the point that lower mortgage costs meant buying a house is now cheaper than renting as a proportion of income – something which Jeremy Plummer, head of EMEA at CBRE Global Investors, later said was largely “theoretical” if you can’t afford the deposit! “Whether you buy or rent a house, it has become much more expensive to purchase housing services”, Daly went on to say, while also expressing doubts that a bubble is forming as it’s “symptomatic of the chronic housing shortage.”

Next up to the plate was Jon Zehner, global head of client capital group at LaSalle Investment Management, who moderated a panel on how real estate was responding to the economy as a whole.

Dennis Lopez, global chief investment officer at AXA Real Estate Investment Managers, thought the referendum was having a big impact already: “Sellers don’t want to lower their price, while buyers want a discount, so transactions in the market have fallen.” Plummer said “foreign capital has no incentive to deal before the vote. We’re seeing a complete seizure, which will stay for the next month”, while Lisette van Doorn, chief executive of ULI Europe, thinks if the UK votes to leave “the money will flow elsewhere, which is a big risk.” According to Plummer, the referendum isn’t helpful for international attitudes to the UK as a place to invest – “we’re putting our reputation at risk.”

Lopez added that the French were licking their lips at the prospect of bringing London’s financial sector over the Channel. A straw poll from Zehner asked the audience what they thought was the biggest risk: Brexit or an asset bubble caused by perpetually low interest rates? The prospect of Britain leaving the EU won “by a nose”.

The conference next posed the question of how businesses are dealing with these issues. Vanessa Hale, partner at Strutt & Parker, presented four key trends that businesses should focus on: health and wellbeing, technology, demographics and the workplace itself. Hale revealed that 3.8 million people in the UK live alone, putting a strain on the housing market. There was good news for the emerging Build to Rent sector though: 45 per cent of 18-29 year olds would consider living in a rental-specific scheme.

Nick Mansley, executive director of the Cambridge Real Estate Research Centre at the University of Cambridge, chaired a panel looking at how businesses should respond to the changing landscape. Peter Vernon said “diversification by city, country, currency and sector is important”, while Nick Jopling, executive director of property at Grainger, said they’d “moved to a focus on Build to Rent” with private renting the fastest growing tenure in the UK. Richard Spencer, managing director at Goldman Sachs, talked on the peculiarities of running operations in student housing, with high-speed Wi-Fi more of a necessity than hot water! “Student housing was very much a real estate business, but we’re moving from that to one where the value is created through the service we provide.”

A question from the audience asked the panel what the lifespan for these new products would be, to which Vernon replied that unlike the for sale market, with Build to Rent and student housing, you can take back control of the building and refurbish it when you need to. Spencer agreed: “The ability to reconfigure it means it has a longer lifespan than you might think.” To which Jopling added: “The difference with PRS, as with student housing and hotels, is that they’re operating buildings, unlike for sale. The spec and layout is relatively simple, but it’s about durability as every time you have to refurbish it, you diminish the operating returns.”

A following question asked if Build to Rent will include the right mix of people. Jopling thought a scale of discounted market rent provides a variety of different people. Vernon countered that “you have to remember that most renters in London are between the ages of 25 and 35” and the main aspiration is to “create a neighbourhood that people want to live in.” Spencer thought the maturity of the US multifamily sector, which Build to Rent is modelled on, shows there is a deeper market, catering to a mix of people.

With so much talk about Build to Rent, it made sense for chair of the ULI UK Residential Council and partner at Argent, Richard Meier, to present the second edition of the Best Practice Guide, following its successful launch in March.

Together, these sessions took attendees on tour of the UK, across to Europe, with opinion from across the Pond thrown in for good measure. The clock is ticking down towards the referendum date, but the looming prospect of Brexit may be taking up a fair few more column inches before the 23rd June.

This article was written by Harry Curtis and Tyron Wilson, Blackstock Consulting. For more information on ULI UK, please visit uk.uli.org.