Adam Challis

Adam is a Global Director leading on Strategic Insights for JLL. His role brings together a best in class team covering insight, analytics and client advisory as part of a 500+ personnel global structure. The team covers all real estate sectors to deliver solutions for investors and corporate occupiers. Adam also works internally to drive business line and corporate strategy.
 
 Adam’s experience spans over 20 years of real estate advisory with both public and private sector clients. He is regularly cited in national and international media as a commentator on the factors that shape real estate markets. He provides public policy advice, with a particular focus on the role of real estate as a catalyst to sustainable prosperity in cities. 
 
 Adam holds an MBA from London Business School, an MSc Urban Regeneration from the Bartlett, University College London and BA Economics from Western University (London, Canada). He is Chair, Board of Trustees at World Habitat and a member of the Shelterbox Philanthropy Advisory Committee.

Transcript

SPEAKER_01 0:04

Welcome to Market Watch, a real estate podcast produced by Mishkon Duraya. In this series, we will, through conversations with some of its key players, take an in-depth look at some of the opportunities and challenges facing the real estate sector. For this episode, I'm delighted to be joined by Adam Challis. Adam is a global director leading on strategic insights for JLL. Adam is widely recognised for his thought-provoking commentary on the forces shaping real estate markets. With a background spanning research and strategy roles across JLL, he brings a valuable big picture view of where the market is heading and what it means for investors, occupars, and the wider built environment. So now we're going to hear from Adam Chalice for an expert view on where the UK real estate market really stands right now, what's driving investment, where the opportunities are, and how global capital is viewing London. Let's go straight in.

SPEAKER_00 1:25

Great opportunity to be able to share our views on what is seemingly yet another time of heightened uncertainty and volatility, which I'm sure we'll come on to. But to answer your question very directly, I think, notwithstanding that point, the market mood or the market backdrop is improving. I think still holds. I would suggest that we're more in a phase of risk-on. There's more opportunity emerging as the cycle gains momentum as we recover than what we'd seen in the rear window, which was a little bit more risk-off and a little bit more caution than optimism.

SPEAKER_01 2:11

And how are the UK economic indicators looking compared to the rest of Europe at the moment?

SPEAKER_00 2:19

It's a really good question. There was, of course, a phase where we would argue that the UK was the least worst of a challenging European picture overall, which isn't a particularly compelling story, but in a in a risk-off environment that uh it's certainly relative, you know, relative outperformance or relative stability was was positive. We've got a labor market that has seen a modest uptick in unemployment, but still relatively low levels, uh, you know, give or take, around about five, five percent. But at least there's a there's a forward trajectory that is that is upward moving, and and wage growth remains elevated, which of course means more folk have more money to spend uh when they feel confident to do so.

SPEAKER_01 3:00

But of course, we do have um the backdrop of what's going on in the Middle East at the moment. Are you able to say how that's likely to affect the market? I know it it depends on how quickly things are resolved, and we don't really we don't really know that at the moment, do we?

SPEAKER_00 3:18

No, well that's right. And I think it's important to say first and foremost, it it's a human tragedy, uh, you know, once again to be seeing a uh a conflict uh in in that region of the world. And uh we've got colleagues and and clients, of course, that are directly affected. I think that's an important call-out before we get into the the economic transmission points, which of course are are varied and uncertain as you imply. Uh, but we need to think through the the potential invocations of uh either a relatively shorter resolution to the conflict or something that appears sustained and elevated with respect to the cost of oil, which is now uh, as we speak, somewhere around$110 a barrel, moving from the pre-conflict level of around about 70. That has real implications for uh for economies around the world, for people around the world. And that's where I think you see that heightened concern overlaid by clearly a pretty complex web of geopolitics. There's a lot to unpack in there, and I don't know that that's necessarily the form to do all of it. But the the takeaway is clearly that as the conflict endures, the risk to global economic activity and the transmission points into uh real estate investment uh remain elevated and uh and a and a greater greater concern.

SPEAKER_01 4:45

So, against that backdrop, let's talk a little bit about how overseas investors are viewing the UK real estate uh market. And you know, I know that you've been working with Opportunity London to promote inward investment. And I just wondered what are you hearing from those overseas investors? Because obviously that is um so important to our market.

SPEAKER_00 5:09

It really is. Um so worth first just giving some some headline figures around the overseas investment story. So as you think about the closeout on 2025, overall investment into uh the UK was up about 26%. And in London, that was uh 16%. Uh so round about uh 16.8 or just shy of 17 billion um went into London real estate, direct real estate investment. So that's excluding MA and development. Of that, international investors, so non-domestic, made up 52%. Um and that is not a typical proportion. Uh international investors are a critical part, as you well know, of the overall investment mosaic in London. And um, in many respects, sort of the uh the important point is that the domestic market returned with uh, and particularly sort of uh core core plus capital returned with with real momentum through last year. And we saw a real uptick in larger lot size investment deals. Uh, there were 24 uh 100 million plus deals last year that compares with 12 in the year prior. But coming back to your question, the the international story, of course, has a a different perspective on London than we often think about as uh as Londoners. The mood music of political uncertainty has been challenging, uh, going back to HS2 decisions, and I suppose even Brexit as far back. So that remains, I think, an a heightened concern for international investors. And you know, do we have the political stability and that you know flow through to policy stability and real estate that is important to enable confidence in our city and our country? Alongside, I think, uh an overweight concern, I would argue, of the uh relative crime or safety statistics. And you know, you've cited Opportunity London and London and Partners. I think Laura Sitron's doing some really fantastic work trying to counter that narrative, um, which frankly is um is false. I mean, bonding crime uh is coming down in London, albeit some of the uh more day-to-day crime, phone thefts and so on, has been been elevated over the recent past. But my my overall point is that that message is perhaps uh overplayed in a negative way internationally. All that said and set aside, international ambassadors remain very confident on London, uh on the London opportunity, on the UK story. I think the extent to which the UK and London in particular is able to harness the evolving nature of technology and AI in particular, infused economic activity is really, really exciting. We'll, I'm sure, come on to the energy infrastructure and data centers component of that story, but it's driving some really exciting change, I think, in the city and the country. And of course, investors love to see the opportunity for change where you see some price dislocation um and room for growth. So there's a lot, I think, to get excited about with that benign stable backdrop. A little bit more positivity, of course, would always help.

SPEAKER_01 8:19

And it's interesting you mentioned the um perception of crime because Tom Slay, who chairs planning and transportation in in the City of London, was talking about it and said he feels that there's some orchestrated campaign to show London as having high crime statistics. And you know, we obviously need to counter that. So your research shows that investment volumes are going to be picking up hopefully quite meaningfully in 2026. And an interesting point in your Outlook report is that offices are really re-emerging as you know, leading investment sector again, which is a you know is a real shift from the narrative over the last few years. What sectors are you you know, you've mentioned obviously data centers, energy, and infrastructure, but do some investors from different parts of the world focus more on different sectors? How does that work?

SPEAKER_00 9:20

I think that the glib answer, not to be evasive, is that it it clearly depends. Uh, you you've got a range of uh of strategies and profiles that uh are all converging on London, and because of that mosaic of opportunities across sectors, across different points in the capital stack, you see different strategies being deployed. I'll pick up the offices point first. You know, just over 60% of investment last year into London was into the offices sector, and you're right, the last few years have been more challenging for what traditionally has been the dominant sector in beta-state investment, uh, particularly in comparison with living. I think the story around return to office, hybrid working is largely settled in rear window now. We're much more focused on the quality of experience, the uh attractiveness of the working environment to drive collaborative behaviors, to bring colleagues together to drive productivity. And that focus on the experience is, I think, central to the drive towards prime, the drive towards higher quality, up rating of demand for high quality space. And that's really driving a big part of that um that recovery in rents um in prime locations. So you'll be aware that the city has now hit yet another record rent, uh, which I think is is fantastic at 22 Bishopsgate. And you see, uh, as Tom I think would point out um uh in the city planning committee, Tom Slay, that uh there clearly has been an overall need to drive more supply to meet this overweight of demand for high quality product. Um so that's I think a really strong and positive story for traditional real estate investors in the largest segment. As you move around the other sectors, interestingly enough, hotels was a real uh strength last year. And you'd often think of hotels as a fifth or a sixth ranking on uh overall volumes. But I think the strength of demand in that space and real growth in RevPar has been now met by some uh important trades as uh as uh investors look to renew the quality and upgrade the quality of uh of the hotels offering right across the city. So there's some, I think some really interesting tactics and strategies there. And uh living, as many know, has been through a pretty challenging phase. And I think if you look elsewhere, the story around industrials was much more stable, although it's albeit less a direct London story, it's much more stable. As you think about last mile that's had a uh a bit of an overweight uh uh supply response post-pandemic, which I think is largely washed through. And you see some great uh trades, I think, now happening in that space. And high quality retail um has been another really important bright spot where you've seen brilliant best-in-class providers of consumer goods creating fantastic experiences for shoppers, and whether that's in uh high street or or large format, you see some great prospects, I think, going forward in in the retail space as well.

SPEAKER_01 12:25

Yes, and and just talking about living, people are just talking about viability, the numbers don't stack up, construction costs have gone up. So, apart from you know all the the concerns you mentioned, it's it's just difficult to make it work, and we still have a housing crisis. So something to talk about another another time. I did notice in your report that you expect that over the next five years, data centers are going to overtake offices in terms of the amount of investment. How do you see that happening?

SPEAKER_00 12:59

Well, isn't I mean the rise and rise of data centers is pretty extraordinary. Um, and there's of course a lot to break down in that story to really understand how that space is evolving. The the focus naturally is on the role of large language models and subsequently inference-based requirements for compute and how that is driving real need for data center capacity. Clearly, underpinning that story is the continued growth of cloud computing and the demands that, frankly, underpin a huge proportion of uh of overall compute need. Uh, so that the combination is uh as a pretty powerful tonic from a demand side perspective on data centers. The real bottleneck remains, you know, in the UK and in London, uh, remains the same elsewhere. And that's one of uh power availability of the growth in energy infrastructure. And many real estate investors, of course, have had to get used to thinking about real assets, thinking about energy infrastructure as uh not just uh an important endgame requirement to quote unquote plug into the grid and um and bring a building uh to life, but ultimately from the outset, powered land now becomes a more critical component of creating the prospects of a viable data center program for for development than than even the planning commission itself. And that the power availability is the real bottleneck for growth in that space. But otherwise, it's of course a huge um a huge growth segment.

SPEAKER_01 14:30

And where do you see these data centers being built? Because presumably, I mean, some of them are huge. They're not going to be going into central London.

SPEAKER_00 14:39

No, you're right. And and there is some really important differentiation, as your question implies there. So those data centers that are being driven by the hyperscalers and are largely speaking about um the training models, the large language models that underpin the AI growth story. Well, they broadly speaking are moving uh and have moved towards the power base where power resilience, where energy resilience uh exists, you think about those location opportunities and then um and then connecting back into places of consumption. That contrasts with low latency data center demand, which uh is a different way of saying you need to be co-located with market usage, where consumption comp powers is required. And those data centers need to be very close to their places of commercial enterprise. So, in and around London is where you see a lot of the low latency requirement data center um existing. So, Slough, of course, is uh the largest cluster of data centers in in Europe and will continue to remain a critical component of London's overall data center uh capability. And you'll see continued growth uh all around London where where sites become available and ultimately, as I said, where where power becomes available. One of the real nuances, if I can just extend that a little bit, is as you think more fully around uh cybersecurity and data security, there is uh an emerging need for on-prem data centers. So, you know, 15 years ago and 10 years ago, big corporates like JLL and elsewhere moved their data centers out of the buildings and into, broadly speaking, the cloud and away from on-site to uh to maximize uh space to be used for humans and desks. And that need to think differently about cybersecurity and to think about uh resilience of particularly sensitive uh proprietary data in an AI world means that you'll see on-prem becoming a much more critical consideration for particularly large, large organizations and those that are oriented towards quite sensitive data usage.

SPEAKER_01 16:53

That's really interesting. And and what sort of size on-site data center would a big corporate need?

SPEAKER_00 17:02

Well, it's a really, again, a really good question. And and the reality is, of course, it it evolves uh with the technology. Uh, and clearly there will be an offset against uh how that space would otherwise be used for um for desk space.

SPEAKER_01 17:16

It's very interesting. I mean that it really shows the direction of travel. So, you know, we'll we'll watch that. And you know, while while we're we're talking about you know data centers and data, uh it's probably a good point to talk about you know AI and the effect that is going to have on the way people use their space, whether they're gonna need less space, whether they're gonna need more space. I mean, what are your thoughts on that?

SPEAKER_00 17:43

Yeah, and obviously there's again quite a lot that we could unpack on the uh the AI story, um, but really moving it to uh I think this last five or six weeks. I think the net position, um, and you would expect uh uh an aged advisor to say this, but I mean this in all seriousness. I think the net position is very opaque. It's very hard to determine the shifts in in a gentic or AI task usage or or consumption relative to what would have been a human consumption and and how that impacts uh the number of people needed, and of course, death space uh as a corollary, alongside what I feel is a really overlooked part of this overall story, which is the opportunity set. Uh, you know, it's natural for us to think about loss aversion. It's a human nature thing to think about the risks to change. And so that translates in this conversation to one around um uh jobs and uh and desks and space uh in a negative sense. But I think the conversation through this year will absolutely evolve to one where you begin to explore the opportunity set that is enabled through uh artificial intelligence. And if I think about our firm and the way that we can explore a range of new business lines or a range of new markets that hitherto might have been uneconomic because of their scale or because of nuances or complexities, where AI is able to create market share uh growth potential or to create new market growth potential, the net impact on the human requirement is uh is uncertain. Certainly our global chief executive Christian Olbrich has talked about a net neutral position overall, but there is no question that there will be changes uh at an individual level with respect to task needs, with respect to to skills and retraining. The limital space between what was and what will be will be one of um of heightened uh heightened change. And I think it's something clearly we're all coming to terms with and getting getting prepared for.

SPEAKER_01 19:54

Yeah, exactly. And things are moving so so fast. So we focus quite a lot in this conversation on on London. I just wonder which parts of the UK market, I mean outside of London, are attracting the most interest from overseas investors.

SPEAKER_00 20:12

As is often sort of glibly uh said, the overseas investor often bounces from London into regions once it sort of has developed a critical base um in the capital, it then you know we'll we'll look elsewhere. And I think that's a fairly well entrenched uh expectation. But when I think that story becomes really uh really important in the current context is when you can see those traditional sectors and traditional markets uh in you know regional locations reflecting you know good solid uh recovery or the hallmarks of recovery and and therefore opportunity. So the natural obvious starting point would be regional city uh office recovery. And we have seen real improvement in rents, but up until that point, at least over the last uh several years, the weakness in high quality new supply in offices has been a real challenge. And while we think about it in a London context, of course, in in regional cities, the uh the volume of new supply converges towards nearly, nearly zero. And uh, of course, that's part of the reason why uh prime rents are moving in in regional cities. But as you see that opportunity tipping into viable territory, I think you'll see a you know really exciting new wave of high quality offices in our regional centers. And that would be a natural starting point for I think many, um, many internationals. If you then build a little bit uh of a broader definition to the the regional city story and think about advanced manufacturing, you think about where you know traditional heartlands in in the UK, where traditional heartlands of growth have been, the West Midlands, of course, is an economic. uh engine from advanced manufacturing, the wider Bristol area from uh aerospace and from a from a tech standpoint. I think those are also locations where you see significant opportunity and where internationals can get comfort, not just with the the sectoral proposition or often these days it's very asset specific. I think you're also needing to see from those international investors a clear exit. And that's been a little more challenging over the recent past, but I think is coming good now. And so the extent those larger lot size offices and industrial deals uh begin to stack up uh is is the extent to which you see international investors literally moving out uh from London up the motorways to uh to discover them and to to take advantage of those opportunities.

SPEAKER_01 22:48

And do they do they tend to start in London first? They invest in London first and then look further afield or do do any of them actually just leap straight in outside of London?

SPEAKER_00 22:57

Yeah it's a pretty typical um move to start in London where you've got greatest liquidity uh greatest diversity of opportunities and very often of course uh uh an existing capability understanding of the the market dynamics it's clearly a much more complicated and uh and competitive environment but but if you're looking to uh get initial exposure into the UK that first move or primary move into London is a very typical starting point for an international investor before they discover and move elsewhere. Often that can be the the beachhead that uh underwrites um a domestic platform so where an international investor is able to set up shop in in the UK and then begin to think about greater deployment elsewhere.

SPEAKER_01 23:42

That that I think is a fairly uh as I say a fairly typical uh route to deploy in the UK you start and build a base and then and then explore elsewhere where the opportunity set uh reveals itself and Adam you've talked about shifts to real real asset capital sources and I just wondered if you are seeing new money coming into real estate uh investment or whether it's the sources that we're used to seeing uh I guess there's a it's a couple of different points that I would pull apart there.

SPEAKER_00 24:14

There's a there is a big story around energy infrastructure that is important to important to call out that uh is directly related to uh growth in AI and the data center piece but it's also broader than that it's about the electrification of everything we're driving around in ever increasing proportions of electric vehicles that need to be hooked up um somewhere uh the electrication of buildings as we continue our energy transition towards cleaner and greener uh consumption of uh of energy that that becomes really important i mean the overall global energy transition investment story was something like$2.3 trillion globally last year um it's an absolutely staggering sum of money and clearly the UK uh is a part of that that story and in even in the US which people sort of cite as as having rode back on some of its uh sustainability commitments from uh the current administration well something like 80% of uh of investment into uh into energy last year was around transition was around renewable solutions so there's a there's a lot in that space but where it where it comes back to a real estate story is um perhaps best uh laid out by that point I made earlier on on data centers. Connectivity with power is perhaps the most important proxy for whether you can get a data center stood up and said more generally the need for greater resilience in in consumption of power at asset level be that offices, advanced manufacturing that have high energy requirements, life sciences is another subsegment with with particularly large energy requirements. Where you've got that need, you know really important need to drive your your operating model as a, as an occupier, the energy resilience becomes a critical question. And that's of course availability of energy but also the pricing and pricing continues to move in the wrong direction if you're a high energy consumer. So where you can think about distributed energy resources or DERs as they're referred to on-site energy creation co-located perhaps with battery storage, the BSSs as they're known, that becomes a fairly resilient sort of structure at asset level at local level that complements what you might draw down from the great at times of of high demand. So this criticality of energy as it interfaces with with property is a really important new topic and uh expanded definition of what we see to be real estate to include real assets are the energy component of that asset.

SPEAKER_01 27:05

That's so interesting. And do you think we are investing sufficiently in this because it's clearly quite key to everything.

SPEAKER_00 27:14

Well sufficiently is uh is a big shroud and the truth is is no we're nowhere near the the projected demand and of course you're now trying to use as a proxy the growth in AI consumption and the growth in AI models and how we're um going to you know be driving that energy consumption through it and uh and so on alongside the points I made around electrification of of buildings and uh and and cars. And there are some other really important themes within the energy infrastructure space that also deserve calling out the of course the traditional grid or Trad energy has needed to be upgraded and UK energy there have been some really important uh government announcements around uh grid renewal around improving the grid but of course as you have a whole new range a whole new generation of distributed energy solutions at asset level or uh clean energy solutions like on and offshore wind or solar arrays uh in farms type setups you need to create entirely new grids uh so I know this is taking us a long way from real estate or it feels like it but it all spins right back to asset level power generation and consumption and where you can create an efficient dual flow, where you can create an efficient pricing model to perhaps sell that which you're not off taking from your local generation to uh to drive an additional revenue stream this is all kind of new frontier stuff for uh for mainstream real estate investors but it's critical as a part of the overall operating of the the asset resilience and ultimately flowing through to its value.

SPEAKER_01 28:57

And does it mean that we're going to see our fields covered in um sort of solar panels to provide this power? Because I've seen a bit of that.

SPEAKER_00 29:07

Yeah I mean of course and I think you'll see a little bit more the you know the proportions still remain um and you know rather puny in comparison to green verdant land. And so I don't think there's a a direct risk there. Where I'd like to see some real innovation is in how we're more efficiently using the existing grid, the existing capability there are some you know sort of staggering statistics around the energy loss between generation and consumption through transmission lines. And my point that I was making a moment ago about localized generation and consumption enabled by DERs and by BESSs by the batteries will reduce the amount of wastage that takes place between generation and consumption because you've got localized markets that that of course can be more efficiently priced. So there's a lot around the traditional grid that needs to be modernized that needs to be improved. And in so doing it isn't necessarily just about overall base load improvement, improving energy capacity full stop across the country. We can use our existing infrastructure far more efficiently with some of that investment.

SPEAKER_01 30:16

And where is the investment going to come from is this public sector or is it private sector or is it a combination of the two?

SPEAKER_00 30:24

Yeah invariably it um it is a combination of the two and I think you've seen big announcements from from government around uh you know the UK government's plans to direct investment to in in the grid and grid module that the standing up of GB energy I think is really important as a part of that overall story. But equally I think the uh private sector innovation to create those efficiencies there are are our brands that I um I can call out like Octopus or or Schneider that do really important work to improve the the technology that that drives grid efficiency you can see fantastic fantastic investment from the private sector in in those sort of solutions alongside of course direct generation and capacity there's lots in the data center space around the hyperscalers that have been uh desperately seeking their own you know private power lines and private generation capability and while I think it's still a little bit fanciful to think about the the small modular reactors the SMRs the small nuclear route to generation at a local level there is now plans for that in in the UK and and plans in equally in the United States for for localized nuclear and that's largely private sector led. So you know the the wider story around infrastructure investors uh flowing um pardon the bond uh into uh energy uh uh is you know is one that's been been around for some time many traditional real estate investors of course are are also augmenting their uh their fund profile to be able to uh to take advantage of this this shift very interesting so we have almost run out of time so I'm just going to ask you Adam what are you most optimistic about and what worries you most at the moment gosh those are I guess questions I should expect and um and probably never never have a clean or clear answer to her say pass if you like. No I'm afraid I wouldn't be employed very long if I said pass. The conversation we were just having around energy efficiency and cleaning the grid but also using it much more effectively that is an area of real growth and exciting growth that I think aligns with perhaps my own personal views of what's important in this in this world, but one where I believe we'll we'll genuinely be you know doing good, driving purpose into real estate investment. And I think that capital P purpose is um something that we all kind of aspire to as a part of our our day job. So I would love to see continued support for uh that green clean energy infrastructure that will be just the seedbed for uh the next wave of UK economic growth. And I can see just so many exciting opportunities that stem from a high quality uh high volume energy infrastructure capacity. So that's that's a good one to call out. Also as you you well know I hail from a a long uh a long history of working closely with residential and the the living space and I would absolutely love to see you know greater institutional investment enabled into dealing with that challenge that you called out earlier that the lack of supply and the need for new homes. And so that's the bit that maybe worries me the most there's complications around policy and I think perhaps if I'm being honest, a lack of trust between both the private and the public sector to genuinely resolve the challenges that have prevented supply from coming through in the volumes that are required. And where that can be put right there of course is a huge opportunity for real estate investors to deliver high quality homes across the distribution, across the tenure spectrum, so affordable and rental as well as for sale property that benefits UK households up and down the country. The real dividend is exactly there though is you know a lot more people having a lot more choice for the homes that they desperately want and need. And I see that being a space that is entirely solvable with the right sort of thinking at policy level and the entirely solvable with the wall of quote unquote capital that would love to deploy into that space. So I guess I try to turn that into a positive or at least an opportunity set while it it it concerns me perhaps more that we we just can't quite get there. So it sounds as if you have a solution, Adam Well you know the housing market doesn't have a silver bullet to solve its challenges it's um you want more private sector delivery because you get more affordable homes as a byproduct. And that's really the the the structure that we now have. Understanding that and understanding what it means to then work with the market mechanism to deliver stability in that space, deliver more homes is something that I think the private sector frankly could do a better job of articulating to policymakers and to the the public actors that that can enable some of the change. But in so doing I'd love to see the the public sector find some greater trust in what I know to be a an industry of very, very well meaning developers almost 201 really want to see their homes lived in and used and active and vibrant and are deeply frustrated by their inability to to get to a rival state to to do what they they really want to do, which is to build more homes.

SPEAKER_01 35:59

Absolutely let's hope some of these policymakers are listening Adam so thank you so much. I really appreciate it. Oh Susan it's been such a pleasure thanks for having me thank you so much Adam for some incredibly useful insights into our ever shifting real estate investment landscape. Obviously a number of imponderable geopolitical factors at present so we look forward to further reports. This podcast is brought to you by law firm Mish Contrea, which has one of the largest full service real estate teams in the UK acting for clients who are shaping the market. I hope you enjoyed the podcast please join us for the next Market Watch podcast coming shortly