The Future of Real Estate with Richard Pickering

What’s Next for UK Real Estate?

To close this season of Property Perspectives, we zoom out and look ahead. Richard Pickering, Foresight Director at Cushman & Wakefield, joins us to connect the dots across every real estate sector we’ve explored—from residential and industrial to retail and the office.

Alongside NatWest hosts Ashley Toy and Tom Sharman, Richard unpacks the megatrends shaping the built environment, including ageing populations, hybrid working, AI-driven supply chains, and the evolving role of cities.

Bringing together insights from across the series, this episode explores how UK real estate could fundamentally change over the next 10–20 years—and what that means for investors, occupiers, and communities.

Transcript

SPEAKER_01 0:00

You know, there's a there's a lot of kind of doommongering about AI and what it's going to do to the world. I I um I I've been through a cycle myself of thinking, oh God, we're all doomed. Now I've come through the other side and I can see how that plays through economically. Um and I I think actually we're not. Um there'll be some choppy waters in in in the short term. But I think the more interesting thing about AI is the other capabilities that are unlocked.

SPEAKER_02 0:22

Welcome back to Property Perspectives. I'm Ashley Toy, I'll be your host. Um this series we're looking at the main sectors across real estate, um, and in this episode we're doing a look future forward across all of the episodes with Richard Pickering from Cushman and Wakefield. Uh, this series I'll be joined by Tom Sharman, who's our head of research and strategy. So, Richard, uh, you started your life as a solicitor briefly and then hopped into surveying. Um, and you've been at Cushman for about 20 years now. Um, but I think it might be helpful for everyone if you could just, I guess, explain a bit more about what your role is and what I guess we're going to talk about today.

SPEAKER_01 1:02

Look, I like interesting and different things. So I've been at Cushman's for 20 years, as you said, um, but I've had five very different jobs in that period from agency through consulting, I manage strategy for our UK business, innovation for our European business, and then this latest uh job is as director of strategic foresight and intelligence for our IMIA and APAC businesses. So it's about thinking long range, thinking about beyond the cycle, uh thinking about the things that could impact on uh the value of our clients' assets or how they should compete or operate in their markets. Uh never a dull day, uh lots of things to think about at the moment, uh particularly. Um, and yeah, great to be invited to this podcast. Thank you, Ash.

SPEAKER_02 1:40

Well, you win the competition for best title. Thank you. Big business card. It is too long. So I guess if we could start on Resi, and I uh I guess I'll hand over to you. So let's fast forward 10 or 15 years. Yeah, what are the trends and big themes that you think we're gonna see in residential?

SPEAKER_01 2:00

Yeah, um, so I mean there are a number of ways we could we could look at this. I mean, I think one is you could look at underlying demand, um, and Resi is a very close proxy to population uh trends. Um, and I think we are gonna see, even on a very slow burn change, some changes to demographic and population over, did you say 30-year horizons?

SPEAKER_02 2:21

10 or 15. We'll take any horizon. We'll go to 30 years, yeah.

SPEAKER_01 2:24

I mean, certainly over that longer horizon, um, you know, we've got um uh you know quite a significant challenge brewing globally, I think, in that population, natural population growth is declining, and that uh is you know say a close proxy for residential demand. Uh meanwhile, we're seeing immigration uh still high, particularly on kind of major global cities like uh like London. Um and so that kind of balances out. Um whether we see additional migration through climate challenges and things like that remains to be seen, so that's that's something certainly to watch for. Uh, but within that kind of category, we're also seeing the demographic change, so people uh shifting towards an older population who have different housing needs to those who are a younger generation, particularly kind of when uh combined with like operational care needs, etc., in that older age bracket. I think I I I read recently about 80% of housing wealth is held by people over 55 years of age. Um, and that that's not you know, it kind of shows that silver buying power, but it's obviously very relevant to that sector. Now, whether we see that wealth recycled again is another interesting question. So that that's kind of the underlying frame of demand, but then I guess there's other um factors to overlay onto that. I've sort of hinted at one, which is the more operation operationalization of residential, uh, you know, growth of institutional um residential, uh, but also kind of specific care, student, and other and other products, uh co-living products that we I think will will all continue to grow in scale over that period.

SPEAKER_03 3:52

Yeah.

SPEAKER_01 3:52

And then beyond that, you've got the kind of the um how does it work? How does it inter how does the how does the the kind of market trade? Yeah um, what uh you know, what how what does liquidity look like? What's the length of tenure that people hold housing for? Obviously in the UK we're we're quite different to a lot of our continental European colleagues in terms of how that market structure works.

SPEAKER_00 4:12

Well, how does so you so one of the trends that's that's that's been quite global and quite clear over the last hundred years, I guess, is is urbanization, populations gravitating towards the largest urban centres. Does that change in a world where you know the population perhaps not a world, but in this country, for example, where the population is getting older? Do you think that's that's something that will change? Do you think an older population is less likely to continue urbanisation?

SPEAKER_01 4:37

Yeah, it's an interesting question, Tom. I I mean I think there are there are two different kinds of perspectives on that. Um some people are actually saying actually urbanisation, uh elderly populations promote urbanisation and that we're seeing kind of return to uh CBD markets for older generations who want amenity access in that kind of later, later kind of life stages. Um I think what's really interesting, because I completely agree with you, if you looked on any global mega trends report, urbanisation is going to be right up there. And that's dominated by you know the Asian, uh, South Asian populations, Africa certainly.

SPEAKER_00 5:10

Okay.

SPEAKER_01 5:10

If you look at uh the UK, we're about 85% urbanised. So 85% of people in the UK live in what we classify as an urban area.

SPEAKER_00 5:18

Yeah.

SPEAKER_01 5:18

And that's right at the top globally, really, of uh we're one of the highest urbanised countries, and some academics at least theorise that we that's kind of at an upper limit, uh, that we couldn't go more so. I think um the Maldives is 99% urbanised, but you know, other than or Vatican or so, but in a major mature market, 85% is a is to say some a theoretical upper limit. Okay. Now, interestingly, you know, I said before, um population, natural population growth going down, immigration going up. Immigration tends to be focused on cities.

SPEAKER_03 5:50

Yep.

SPEAKER_01 5:51

Uh people don't come into our countries and live in villages typically. Um so so that might push towards greater urbanisation. But against that, we've seen some level of de-urbanisation following kind of COVID and the ability to you know uh work at more uh live at more distance from your workplace.

SPEAKER_00 6:07

But there's a kind of and anecdotally, and again it's I guess dangerous to use anecdotes, but you but anecdotally there's been a reverse slight reverse of that de-erminisation. So you had a lot of, for example, people moving out of London buying houses in the countryside and you know living the good life and then realizing actually it was a bit of a pain in the backside to get back into London for work, etc. So is that do you do you think that was just a temporary blip driven by the pandemic?

SPEAKER_01 6:31

For some, certainly. Uh yeah. I mean I think there was there was a reactionary spike from some people who um thought this opened up a new kind of you call it life in the kind of the yeah uh uh you know in in in kind of leafy kind of um uh kind of countryside. Um and that has reset as the world normalised. I think it's easy to forget. People actually thought COVID was going to last forever, right? Uh and it obviously didn't, thankfully. Um I think for some it's it's it's more permanent. I mean, I think we're seeing now a permanent subset of itinerant uh workers who are basically foot loose and could move not just to the countryside but to another country or anywhere. And they're much less geographically tied, I think. Um now again that you know it could it kind of juxtaposes with the whole discussion about the future of work, etc. But I think for some people um that will become a more persistent state, and and and I think the reason for that is that particularly the large global cities are are failing some of their citizens. I mean, I I think we all love cities for the kind of the um the kind of uh excitement and the amenity that cities bring, the agglomeration, serendipity, those kind of uh impacts. But we have been systemically failing to deliver the right amount of infrastructure in our cities, whether that's transport, schools, hospitals, other things, that um uh that particularly when you combine increased density in those cities, which has been another trend, not just urbanisation but densification of cities, it kind of clusters that um activity into a very narrow pool of supply, which means that um our infrastructure is overloaded. Okay. Um and I think that some people are making an active vote to live differently. Um, if you were someone who was working five days a week in the office in 2019, that you're very tired by those commuting patterns. If you're now working two or three days a week, you probably can say to yourself, well, I can take a longer commute on those days that I'm gonna be in. So I I I I don't don't get me wrong, I don't see any massive de-urbanised, I don't think we're all gonna live as hermits in villages going forward. But I think it just does temper some of those previous growth trends and urbanization trends we've seen. Is it going to combine with that limit?

SPEAKER_00 8:37

How does sorry Ash, how does, you know, so you mentioned that sometimes the in some ways cities are failing their citizens. How do you, when ownership of kind of land and real estate is often very kind of disaggregated, how do you create the infrastructure that's required and reshape the cities in the way that works for the future?

SPEAKER_01 8:58

Yeah, I mean obviously the prevailing uh theory has been densification. That's what uh that has been best practice for the last kind of 50 years, pretty much. Um and actually in Europe we've been more in advance of that trend than the Americas, for instance, who are still kind of plagued by urban urban sprawl, you know, Australasia similarly. Um so you know, densification was the right strategy. I th I still maintain that. I don't think the way we've delivered densification has always been the best way. We've we've delivered it through large towers, typically, with then swathes of land around them to kind of balance. I think the the best examples of densification are that kind of mid-rise you see in like maybe if we're in London today, obviously, maybe areas like Bayswater, etc., or if you're in Paris, that's a great uh example of kind of five-story densification.

SPEAKER_00 9:44

Kind of Edwardian Georgian era kind of building was the right way to do it.

SPEAKER_01 9:48

Exactly. And you know, there's a there are various kind of um uh academic theories which which say that uh at that level of density, that kind of five-story with kind of enclosed spaces, people feel more ownership over the city than they do with kind of you know vast towers and and kind of then swathes of open land. Uh and that vests them in the future. And it also creates communities at that point, identifiable communities, which anchor people to place. So I think that's important. But I'm I'm afraid I think probably the answer is that we just haven't delivered the right infrastructure. And now, and here's the here's the challenge, right? Because often infrastructure sits at grade level. You know, you can't make, well, you can make roads at underground and above ground, but it's not it's much more expensive and it's it's challenging to deliver. You can't make a park above ground level, you can have roof terraces and things, but so so a lot of the infrastructure we need to make is at ground floor level, which means it's very difficult to deliver in a world that's densifying. And I think either we've got to get used to a more uh a culture and a philosophy more like the Asians who are who are happy to work at multi-level um structures, um, otherwise um we just need to spend more on infrastructure. Um, and um, you know, I guess um the the I think perhaps we've not been good enough. We were actually chatting about this earlier, right? We we need to think about what investments do we need to make for the long term and what and what is the immediate pressing need today. If we make the right long-term investments, they will return to us uh in due course. Um, but that sits against political cycles and investment cycles, which are always challenging, right?

SPEAKER_02 11:19

So if I could just take us back, I guess, to something you mentioned at the beginning of this, that I guess this the silver pound or retirement as as we brought up the sector. So we're probably at the first throes of how we think about that. I get in the long term, other sector uh other countries like New Zealand are probably much further ahead. But do you I guess do you see us getting more to that kind of model where you have an all-encompassing um provision for sort of later later living?

SPEAKER_01 11:48

Um I think that later living will be more operationalised, certainly. Um I think whether that needs to be in a central care structure or whether it can be in a more decentralized model, I think is debatable. Um most people don't want to leave their home, is the is the kind of uh truth of the matter, um, unless they have you know acute care needs. Um and and so therefore I think a model that um anticipates aged age aging but allows people to live not in designated care homes is probably a good solution. And that could be retrofit on existing real estate, or it could be uh bespoke products as we've seen in uh some sections of the market, but they need to increasingly be embedded with the technology infrastructure that links back to a central operation. Um, I I think that's probably where where we are going with it. Um obviously, people are living longer in retirement now uh than they used to all of the retirement ages, steadily creeping up, it seems. Um but um people are living longer in retirement as they live for longer, and uh as they hold the wealth, I think they'll be willing to spend some of that on uh bespoke kind of age products. But but I would say it's not just the bricks and mortar, it's the technology infrastructure, it's the operations, it's the service provision that sits alongside that. And unless I think unless you look at it as a bundle, you're not looking at the full picture.

SPEAKER_02 13:07

Yeah. And I guess part of that market might function as the rented market. And so the rented market, as I guess, has featured more in recent years as house price dynamics have moved around. Do you do you see that as a long-term trend? I guess thinking about our European peers and how they think about residential.

SPEAKER_01 13:28

Yeah, I mean certainly. I mean, I I think, you know, particularly the you know, if you look at the generation who would be going into aged care now, they're a generation who paid off their mortgages probably some time ago, uh, and they've benefited from house price growth in that period. Maybe some of them haven't downsized yet, they're still living in a family-type home. Uh, and I think having more tailored products that uh then allow them to release cash for the next generation who are increasingly facing those capital pressures is uh attractive and obviously then makes investment and and inheritance planning um more fluid. Um so yeah, I could see how rented products in that uh upper edge bracket would certainly be more um more suitable and also that allows you to then predict uh you know it allows you to have um a central um delivery of some of those kind of uh capital spend that are needed to upgrade those properties without having to own that and deliver it yourself within your own home. So I I could certainly see the attractiveness of that.

SPEAKER_02 14:25

Um I guess we butt up against the infrastructure point you were making earlier. There's I guess there's single family, but as you use the American phrase, the multi-family model, which is tends to be the high-rise towers, and that will bring with it the infrastructure challenge.

SPEAKER_01 14:38

So indeed, yeah.

SPEAKER_02 14:39

Okay. I mean I guess we've talked about urbanization, densification of cities. Industrial feels like a a next logical place maybe to go, and how the industrial market has kind of evolved in recent years to service the last mile a bit better. And um so I guess how do you see that panning out over the same kind of time horizon?

SPEAKER_01 15:00

Yeah, I mean industrial I think is quite a unique asset type in uh real estate in that it's primarily not a people place, it's primarily a product place, it's somewhere um to stock inventory, and for that reason it becomes very focused on operational efficiency. Uh, you know, supply chains are essentially just complex flows of products across you know multiple uh nodes in a system. And I think if you look at the trends that might shape that going forward, we we haven't spoken about it yet, but you know, AI is going to be massively impactful. AI is very good at managing complex systems like supply chains. So I I think um if you think through the kind of things that that might unlock, you know, certainly greater visibility of infrastructure, uh, sorry, of inventory across the supply chain. You know, we've had attempts at that through our RFID and other kind of systems, but it hasn't ever been um comprehensive. Um and it hasn't really been um, yeah, it hasn't had the insights that sit around it that allow um a system to remap a network in real time. And I think that's the really interesting opportunity going forward is can we move to a truly dynamic supply chain where uh we're not reliant on constant buffering of inventory and warehouses, and we have a much more fluid flow that is rerouted in real time through it through AI. So I I think that's certainly a possibility. I think the the other trend you you point to is kind of um last mile logistics and the kind of uh it's obviously driven by e-commerce, and um and I think we'll AI will unlock greater prediction in those markets. So, you know, um at the moment what happens typically, or traditionally what's happened, is the customer sends a signal, I want the product, uh, eventually it gets to the manufacturer, the manufacturer says, right, make product, and by the time the manufacturer's made the product, shipped to the customer, the prop maybe the customer doesn't need it anymore. And and that creates overstocking, understocking, etc. Increasingly AI will allow us to predict with accuracy what the customer will need in the future. One of my colleagues, our head of uh logistics, actually gave a really neat example of this to me recently, which was um uh about marathons and uh shoes. Uh we all know where the global marathons are, and therefore sensibly you would ship shoes to those places uh within two weeks of that marathon happening. I thought it was a really good example. Um but that could apply to many, many things, uh, and particularly those who have the data infrastructure and platforms, and name a few of them obviously, um, they will get much more sophisticated at pre-positioning inventory closer to the consumer such that they can satisfy demand quickly when it arises without having to overstock in expensive locations.

SPEAKER_02 17:42

So, I guess what does that then do to values and leases? I I as you're talking, I'm trying to think. Does do the big boxes suddenly become less attractive because you become more efficient with mid-sized boxes and the leases become shorter because you're trying to be a bit more nimble with kind of where you're locating kit on the last mile?

SPEAKER_01 18:01

Yeah. Well, I think if you play it through, I I think certainly last mile becomes more important and therefore has value accretion. Um I think for the uh for the for the kind of the mega sheds, the big boxes, I think it's very much location dependent. So what will happen if the network re-optimises, as it probably will do, it's happened before, is that some locations will grow in value and some will reduce in value. Um and therefore, if you're in the right location, um you probably see a doubling down of value, and then there may be some that suffer locational obsolescence because they're not in the right spot anymore. Um, so I I think we haven't seen that play through yet to know which ones are which, but that would be, I guess, a thesis for a bifurcated market would be a would be a thesis. I think I think also you know, those sheds won't just serve the same purpose that they've done historically. It won't just be a case of, well, let's just drop a load of inventory there and then decide where we ship it next. There'll there'll be more intelligent nodes that are more dynamic, there'll be inventory coming and going much more regularly. Um they may even become like live fulfillment uh-led platforms. So, you know, no longer lease to one operator, but or to it to one customer, but maybe at least to an operator who is filling by the pallet on a live basis. Uh, where you then the kind of you know it's not a lease anymore, it's a kind of fractional kind of uh use of the space. And it and it and it's not just real estate, it's the whole fulfillment service, the packing and robotics and all of those kind of things. So uh again, I mean, and and I think this is a broader theme actually across multiple sectors, but I think what new technologies like this do are they they focus value. So they don't they don't destroy value, they refocus it. So some assets will rise in value, uh, the ones that can fulfil the new demand and those who who can't will um will struggle with with relevance.

SPEAKER_00 19:53

Yeah, the challenge always, I guess, is with with the last mile element is that the the timing um and the location obviously is at the whim of the end consumer. So it's it's I guess e even with with AI you can help to predict patterns, but essentially if you're offering next day or even same day delivery, then it's up to the whim of the customer exactly when and where that goes, which makes it hard. Retailers are I think slightly pushing back, so multi-channel retailers are slightly pushing back on on the I guess era of having everything delivered and everything available and delivery for free, trying to get people either to pay for delivery or to to kind of come out to shops and get it themselves. How how do you think do you think that there's it's inexorable that more and more goods will be fulfilled online? Or do you think we'll end up at a kind of um I guess uh a happy medium, I suppose, where people are still going out to shops and picking some stuff up themselves?

SPEAKER_01 20:51

Yeah. Yeah, I don't see it as binary, certainly. I I and I guess I would look at the role of those facilities. You know, um logistics last mile delivery is servicing a fulfilment role. It's servicing the delivery of the product to the customer, but that's not what retail is, that's a small subset of retail. You know, the retail encompasses brand engagement, uh product awareness, intention to buy, you know, uh the the uh uh like contract itself, after sales services, a lot of retail is services still. Um so I I think you've got to look at it in that broader context, and and I think, yes, it it stands to reason that um some of that fulfilment will continue to be delivered by the online channel because it comes it's convenient typically, and people do default to convenience as a as a uh a kind of axiom. Um so I I think it that will continue to play a role, and I don't think that trend has fully played uh through yet. Um but I think um I I mean I think each format needs to play to its relative advantages.

SPEAKER_03 21:57

Yeah.

SPEAKER_01 21:57

You know, I I I think that the mistake that some stores make. Try to position themselves like essentially as a website that you can walk into. And that's a mistake because the website will always win. So if you think through what a store has been always good at, I mean the big thing it's been good at historically is product placement and also immediacy of product. You can go in and you can that got it, pick it up, gone. Most people don't value that immediacy if the alternative is a day. So that's that's an interesting point. But stores have also been good at you know the actual engagement with the product. You know, you can actually try it on, you can feel it, you know, it's the kind of the um squeezing the avocados, tests, and you know, the things like that. Uh and and also the learning about the product and the brand and deciding whether you want to be a part of that. You know, if you look at the end-to-end like value chain of a retailer, like a big cost is customer acquisition. That's nothing to do with the uh sale of a product. It's the idea that that customer might buy from you repeatedly in the future. And and I do still think stores have an advantage on that. And then if you start to play through some new trends here, um so uh you know, one of the things that I think has made online attractive in recent years has been actually it has a personalization advantage over stores. So if you go onto Amazon and you well, you've already logged in and got cookies in your browser, it says, you know, Tom, hey, welcome back. You know, uh here are five products you bought from us recently. Here's some new ones you might want to buy from us. Like you go into a shop and someone might kind of say hello or might not, and there's no chance they're gonna give you that kind of level of engagement. But we are seeing some retailers now you know increasingly deploy apps that ping when you go in, that's got your back catalogue of stuff, uh data that's been through your online dealings with that, with that uh organization. And I think what then gets really exciting is what AI now unlocks in store. Because previously, you know, there was it's a one-size-fits-all approach. You know, now it can be an approach where you go in, you get you ping uh one of the beacons, it says, um, you know, a screen comes up in front of you. Hey Tom, good to see you again. Here's what you bought online last time. Would you like to show me some of the products that you can buy in store? Or hey, um, I've got your sizing from this previous uh uh discussion we had. Would you like me to drop this clothing into the changing room for you for you to try it to try on your size? And you won't get that level of nuanced interaction online. And also then the data from the store could be much more. You know, you're clicking online, you're you're experiencing, you're smiling, you're doing other things in store. Obviously, there's data privacy issues there. But I I do think that's the role of the store going forward is that kind of high-value customer engagement. And I think that won't suit all stores, but it it will provide an accretion of value to the ones that can deliver that.

SPEAKER_00 24:41

Um, that enables, I guess that kind of processing of the data enables the stores to stop the appropriate things for the for the catchment area in a more accurate way.

SPEAKER_01 24:50

Com completely. I I mean to kind of reverse back into our previous discussion, I do actually think the store may have a role in in the fulfilment, the logistics side. I mean, they are urban logistics, and there's a lot of back-of-house space in stores that's become quite low value in recent years. And I and I do see stores that have you know access logistical potential suddenly being able to retain value in that backspace, particularly I think on not just on the on the outbound, but also on the returns um side of it, uh, and you know, around after sales and other things. Um, we could even see, I think, in in retail, a level of personalization that we haven't seen historically uh again enabled by by AI. Um, whereby um well, certainly I've talked to you about how I think the experience could be personalized, but even we could move into a world where the where the product now starts to be um uh personalised. I mean you see that with in a very small scale with like screen printing t-shirts or baseball caps. You know, why couldn't you go into a uh jewellery store and design uh a new ring with the the jeweller and then maybe there's maker space on site that could uh even customize that for you, particularly with robotics? I think that in some in some SKUs that might be a uh a possible possible thing going forward.

SPEAKER_02 26:04

How does this um I guess progress with virtual reality, augmented reality, glasses? And I guess we're still in the like figuring it out stage, it's still pretty expensive, but over a 20-30 year horizon it should become materially less expensive, technology gets better, more engagement from retailers. Do you still think you get that trend regardless of how I guess that product set evolves?

SPEAKER_01 26:31

Yeah, I I mean I think the in-store trend isn't reliant on uh spatial computing, AR, etc. I think I think that um people will like the real-world experience, but but with probably with digital screens that can kind of display personalised media essentially in the same way.

SPEAKER_02 26:45

So it's interactive in-store rather than sit at home on your sofa, put some glasses on type.

SPEAKER_01 26:50

I think so, yeah. I mean I I I I mean I default when I kind of get questions like I think, well, what would I what would I want? Um and I I I I think I'd probably speak for you guys as well to say it would feel a better experience. Retail, if you need to meet, yes. If if the you know if the point is I want to buy, I don't know, some pencils and I click online, I'm just gonna do that online. No, no point going to buy some pencils. If it was a a kind of something that was a high value purchase or something that's very personal to me, I think I'd want to still still feel and touch it. I I mean I do think AR has a role to play, certainly going forwards, um, in in many sectors actually. Um, but I think um you know it feels a bit clunky today. You know, I know Meta are doing some great work on glasses, and obviously Apple have kind of moved into that that space also with their kind of um spatial headsets. I think where we'll start to really see that becoming seriously interesting is when that moves to contact lenses. And there are some contact lens prototypes that are essentially heads-up displays, like the Terminator, if you imagine that. Um, but um but they're not commercially viable yet at scale. And and I but that's presumably a matter of time. I mean, whether you all want to have a heads-up display, like I don't know. I don't know. Um but but yeah, I I just don't I don't think the experience of AI is good enough yet. That's not to say it won't be.

SPEAKER_02 28:14

No, absolutely. I guess the unknown is like what are our children going to be doing as they go through school that becomes way more normalised to the experiences we have that there'll be the one and the ones shopping in kind of 30 years' time. Sure, I agree. Um so we've we've kind of got quite deep into retail there. There is one bit of I guess industrial, I just wanted to make sure we didn't skip over. So the spec of an industrial unit, I guess, in any sense, and the power requirement, yeah, it's already being talked about today, but I guess to what extent do you think we need to be looking way further forward in the future now to make sure all of these places are ready for what's to come?

SPEAKER_01 28:52

Look, I mean, I think as a general comment, I think you always should be looking forward into the future because um you know that is a critical determinant of the obsolescence rate of your asset if you haven't uh predicted something. And I think I mean the obvious trend that I think I would pick up from your question is all is automation, robotics. Um, and yeah, I mean that feels obvious to me. Uh that feels very obvious. I mean, already you know Amazon have got fully automated warehouses. I think many other um logistics providers have that potential also. Um and you know, in some cases it's more political than it is technological, whether you have uh human staff in those centres. But I I think we should get ready for a world where warehouses are fully 99% automated and there's a skeleton crew there. And so if um I I guess the question is you don't need the power today, but you need the ability to connect to it in the future. And so if I was an investor or lender, for instance, thinking about well, future obsolescence risk, I'd be looking at how how uh how capable is this asset of um uh of of connecting to power or other infrastructure going forward. It doesn't need it today, but um, but how capable of it of it, how capable will it be in the future? And and I guess we shouldn't assume it's always capable, right? I mean, we've seen um big kind of redevelopment projects across the UK and other countries being turned down because of lack of power. Um, so this is a hard constraint going forward. It's not a theoretical one anymore.

SPEAKER_00 30:20

Yeah, because it's not just warehouses, it's data centres, obviously the hugely key one at the minute, and AI increases that kind of demand exponentially, as I understand it. But also all new housing where kind of gas boilers are going out and you know, electric kind of heating's coming in, electric cars, etc., there's a huge burden on power that we don't seem to have the kind of um the pipeline for at the minute. Like how you know, 30, 30, 20, 30, 40 years out, how do we manage what seems to be you know an inexorable increase in demand for power?

SPEAKER_01 30:51

I mean, I think we'll see a massive uh restructuring of our power networks in the next 10 years. I think it's going to be one of the biggest themes actually. Um so I I mean you're right to say data centres are driving an element of that AI, obviously, driving data centres to some degree. Um but you know, it sits on the back, of course, for uh greater renewables anyway. Um, and I think this may be the precipitative driver of actually the the um need to invest in that, uh in transforming the grid. So that would be largely a tr a transformation from fossil energy to um sustainable sources, which are becoming more viable in many cases. Again, I think AI maybe has a role to play in that. Um you know, renewables uh are fine when it's like 10-20% of the grid, when it's 80% of the grid, that's a problem because they're not reliable enough. Um whereas AI can help kind of smooth those peaks and demands of power and increase the reliability of the system. Um, but you know, longer term renewables have a total life cost that's much lower than fossil energy. Uh, and therefore, you not only do we we will see increased power capability, we'll see it at a lower output of carbon at a lower cost to the consumer. And I think that's got to be one of the amazing things that's gonna come out of the next decade. I I do believe that will happen. Um, you know, I I think AI is a bit of a balanced equation on this. You know, AI is obviously driving demand for energy right now, which is kind of you know uh uh a negative trend to towards power consumption, but um but over the long run I think it has immense potential as part of a package of activities to support um reliable, sustainable, cheap energy.

SPEAKER_02 32:27

And I guess just taking us back into I guess residential there, one of the one of the theories, I guess, about the future is that your car will become your I guess last meter storage for for your energy. Um and uh how do we make sure we integrate that into the home and how we think about parking? Uh we're probably not there yet, but it feels like it might be a feature of the future.

SPEAKER_01 32:51

You know, I'd never heard that, but it sounds a really interesting idea. Um, I mean, I think battery storage is certainly a part of the future, and particularly if you if you're playing with renewables, which don't which tend to be variable, obviously the central storage, but then I think decentralized storage through batteries is going to be a big thing. Obviously, Alan Musk backed that trend a long time ago, and he he's usually pressing about these kind of things. Um and obviously one of the biggest batteries people have in their homes tends to be their car now if they've got an electric or hybrid car. Um so so I I do I do definitely see that um as um as a trend. Um I think some level of off-grid uh power capability is also an option. Um we have seen kind of pilots of that where uh local communities perhaps generate solar and then trade it locally with blockchain, and I think that provides another um, particularly where there's a good source of local renewables, um, I think that provides another uh another option for that. Um now whether people will own cars in the future, that's a different question. Um it's the um second biggest asset most people buy, and it's the least used.

SPEAKER_00 33:56

It's incredibly inefficient, isn't it, for everybody to have a car effectively be right. So on the technology point and the efficient use of of assets, I guess. Officers, you know, we we've been through a period of time post-COVID where there's a lot of kind of navel gazing about offices, and you know, do people need offices in the future when you can work anywhere? You touched on it before. Digital nomads, you can you can work anywhere. We seem to have coalesced in the short term at least around the kind of you know, people will be in the office two, three, four days a week to to work together with the team and they'll be remote elsewhere. So do you do you think though, given how much video conferencing technology has come on in the last 10 years, projecting forward 10, 20, 30 years, are we going to just come back into this argument again at some point?

SPEAKER_01 34:40

Well, um first of all, I agree with your your um assessment there, Tom. I think you know it feels I mean the data shows that hybrid has seemed plateaued at about three days a week, is what most people seem to think. And um so that the shock is now kind of taken out of the market on that. Um I would say, and and you'll have seen the data on this, like it there's quite strong variance between regions, and there's also very strong variance between function, functional roles within businesses. So uh that that kind of you know three-day figure disguises some ups and downs in there. Um now, why has that happened? Well, I think I think two main reasons. I think one is that people have, you know, we all none of us knew anything about this like five years ago. Uh we all went through this experiment. I think most of us have now settled on a kind of level of work that we think is the optimum for ourselves, particularly if you're in a senior incentivised role, you know, you you do what is going to maximise your productivity. Um so that's certainly a part of this. I think the bigger part though, let's be honest, is that the negotiation, the implicit negotiation between employer and employee seems to have found its natural uh uh kind of touch point. Um, you know, most employers still value the control function that an office provides and um haven't got comfortable yet with the um idea that remote can provide that same level of control and coordination. So so it's kind of plateaued there for now. So that that was kind of the initial piece. Um your your then your then question relates to like what how will technology maybe change that in the future? Um so what I mean, I mean, I think it will require a step change, is what I would say. So having slightly sharper webcams or you know, quicker internet, or that's not going to be enough, I don't think. I I think most of us don't really care if the person on the other end of the team's call is blurry a bit. I I don't think it increases the um the benefit of the call. Um I think probably you know back to Ash's point earlier about kind of AR and and other technologies like that, that's probably where you'd be looking to for the step change. And and and what people are trying to do here is people are more likely to switch if the virtual world um represents higher fidelity to the real world. Yeah. Um now, what I would say is I think that bar is probably higher than maybe some technologists assume it is. Um I think we've all found that you know there are just things that have better social chemistry in person. Um and and and I don't think I don't think that is going to be well, sorry, long long term, yes, maybe. Um but that would require significant technological um uplift. In the shorter term, I don't think I don't think that's the case. There is another technology angle here, I think, um, which again is AI. Um AI is the answer to most things these days. Um but I think that that angle is the kind of jobs, kind of tasks, should I say, that we do in an office is going to change uh in the next 10 years. Um, you know, increasingly our work activities are gonna skew away from the execution of uh cognitive output and they're gonna skew towards things that are more uh human in nature, sales, uh decision making, judgment under uncertainty, those kind of things. So if you say, well, actually the role of the office in the future is gonna be more those kind of things, in fact, you need to probably be in for those kind of things. Um, you know, I've heard a lot of people say AI is gonna be dehumanising on work. I think they've got it completely wrong. Like AI is gonna take out the deep the unhuman elements of work, the factory kind of work processes, and it's gonna focus on the more human interactive uh roles. And I think the economy will rebalance around those and the floor space will rebalance around those principles.

SPEAKER_00 38:27

Yeah, it's it's interesting you touched upon earlier cars and how how inefficient it is for everybody to own their own car, and it's kind of thing. So thinking about the same kind of themes in office space, if you you know you're using AI to effectively work out the optimum way to be together and times and tasks to do, that suggests a kind of ebb and flow of demand within an organization, which clashes then with the you know 20-year lease and a fixed amount of space. Yeah. So how how do you see that kind of evolving? Is that kind of some kind of subscription model like we see with you know music and and news, etc.? How does it how does it work?

SPEAKER_01 39:02

Yeah, I I mean I think there's two reasons why AI might drive that uh volatility. I think in the short term it's because no one really knows. Anyone who tells you they knows, I think it's probably can sell you something. But I I think um no one really knows what the impact of AI is going to be on offices yet. Uh, we can take some good guesses, but I think in the short term they'll be hedging against what might be a future position. And so that will create some level of uncertainty in the kind of portfolio strategy of occupiers. I think downstream of that, once we get into BAU, you know, the new world kind of arrives, um, I think that what AI does is it will in it will decrease decision cycles. So, you know, projects will get spun up quicker, they'll get spun down quicker, there'll be a higher level of contingent workforce within any business that'll play to that digital nomad trend. And so for that reason, I think, you know, not necessarily less space, but more volatile workforce and spatial needs. Yeah. And for that reason, I would see flex becoming a more structural component of portfolio composition for occupiers in the future. Um, not only because actually of the spatial flexibility, but also because of the operational bundle that comes with that. So, you know, particularly AI is going to bring new occupancy requirements to buildings. You know, how people use and work in buildings is going to be different. How the data is protected, the cybersecurity, all of these things work. I don't think a lot of occupiers will want to take on the full burden of that. I think there'll be some expectation of landlords to do that. And obviously that's more, well, sorry, it can be more uh deliverable in a in some sort of flexible product. So I I um yeah, whether it's you know, I mean, I remember, you know, uh back in the day there were kind of suggestions of like we go down to hourly bookings of offices, and I mean maybe again one day, maybe as AI kind of flexes that through, but I I think we'll see just a more steady growth in general flex, more traditional flex products as we as we move forward in response to that point.

SPEAKER_02 40:56

So we've talked a lot about AI, understand a bit. Is there anything about AI that you think we haven't hit on here that we should be talking about or should be thinking about at least?

SPEAKER_01 41:06

Yeah, uh I mean I think the thing that I would just guard your um listeners against is thinking AI is just a jobs story. You know, there's a there's a lot of kind of doom-mongering about AI and what it's going to do to the world. I I um I I've been through a cycle myself of thinking, oh God, we're all doomed, and now I've come through the other side. I can see how that plays through economically. Um and I I think actually uh we're not, um, though there'll be some choppy waters in in in the short term. But I think the more interesting thing about AI is the other capabilities that unlock. You know, it's not just automation. I mean, we talked about personalization at scale, for instance. That's I think a massive benefit of AI, and not just something that is improves efficiency, it's something that improves our lives, it makes everything more tailored to our our needs. Um that's that's um another huge benefit, and then just the computational benefit. Like we're gonna see things um being become possible that were science fiction historically. And I think particularly as we maybe move towards the end of the 10-year kind of horizon towards a period where quantum computing might become a more viable option, we're gonna see the radical reinvention of systems, uh, finance systems, certainly, um, also healthcare systems. Um, and there there are there are gonna be medical breakthroughs, for instance, that we just didn't think were possible uh as little as five years ago. Um and I I think that should give us a lot of cause for hope around the future. And then bringing that back to a kind of real estate perspective, all of those industries have supply chains that all need space in different offices, warehouses, shops, you know. So I I I I think when you look back at previous industrial cycles, like the Industrial Revolution is an example of that, um you you always tend to go through a kind of choppy water, like a period where reskilling, the market adjusts. And then in every single previous cycle, we've seen a greater GDP at the end of it, uh, eventually we've seen a rebalancing of the distribution of that GDP, um, and we've seen a greater need for products pay for real estate. Even some new real estate typologies developed. I mean, you know, factories didn't exist until uh the industrial revolution. You know, cities were suburbs were really made by the train. Um so you know, it'd be interesting to see what new products that we haven't even talked about today might come out of this uh this period ahead of us.

SPEAKER_02 43:23

And that is a really nice positive place to leave the episode. Thank you very much, Richard. Um that's another that's it for another episode of Property Perspectives. If you've enjoyed, click please click like and subscribe.