Govt must loosen planning rules to boost UK real assets

As inflation and interest rates come down, and political promises to boost infrastructure rise, real assets and commercial property in particular are looking more attractive, the head of real estate at TIME Investments has said.

According to Roger Skeldon, the lower interest-rate and inflationary environment has meant cost of financing real assets has reduced, making valuations more attractive.

He said: "As interest rates are starting to drop, and the indications for rates are coming down, the cost of financing assets has also come down significantly.

"With the prospect of it coming down further, this increases people's interest in investing in these assets."

He also commented on the Budget, which is scheduled to be held on October 30. "What government does with planning is going to be one of the most interesting things", he said.

We're interested in beds and sheds.

Vanessa Hale, BNP Paribas Real Estate

Skeldon added: "Not just in terms of residential [new builds], but also in terms of healthcare and social housing.

"If planning around this gets loosened up, there should be more capital coming into the market and we would see increased inward investment coming into the UK as a result. This can only be positive for the real assets sector and the UK as a whole."

But he said investors needed "clarity" over the tax situation, as the speculation around this was causing a lot of uncertainty.

Skeldon was speaking on a one-hour webinar today (October 16), hosted by FT Adviser in partnership with TIME Investments.

The panel, moderated by FT Adviser features editor Melanie Tringham, discussed the strategic importance of real assets under the current economic and political environment.

They also considered what sectors might be more popular thanks to interest rate expectations and investor interest in alternative asset classes.

What is a real asset?

Panellist Shakhista Mukhamedova, co-head of global manager research, Europe, at RBC Brewin Dolphin, explained: "It used to just mean real estate but now it covers so much more.

"It's the roads you walk on, the bridges you cross, the offices you pass. It's the hospitals, the schools. It's not just commercial property; it's any infrastructure.

"Sometimes these overlap, such as data centres, which are properties and infrastructure. It's data cables. All this is all classed as a real asset and there is a broad range to consider."

Skeldon said the team at TIME Investments liked sectors such as renewables due to the valuations, but added it was important to look at the fundamentals, and to be aware of issues such as wage growth or consumer habits, which could affect some sectors. 

He said: "There are challenges - for example, in retail, there are some areas that carry more risk than others, but areas which also offer good returns."

According to Skeldon, shopping centres are one asset class which can provide an attractive return, but where there can be elements of risk around that sector.

He pointed to people's shopping habits, which changed in Covid to favour online shopping. This meant warehouse/logistics were in favour with investors, rather than physical shopping centres, although shoppers have started to come back to physical stores.

He added: "Broadly there are aspects of retail where you can get some interesting deals and good returns."

According to Vanessa Hale, head of research and insights at BNP Paribas Real Estate, anything being driven by long-term themes such as demographics and technological evolution is interesting.

She said: "From a commercial real estate perspective, [we're interested in] the hospital side and anything demographic related - it's beds and sheds.

"Whether it's student accommodation or institutional rents or senior living or industrial and logistics - this is all being driven by AI and ageing populations." 

Mukhamedova said AI was also becoming the "new story" in terms of data centres. "Demand for the asset class remains strong, and yet the supply is still difficult - it is hard to find the space for the new buildings needed for data centres, for example."

But she said AI could be used to help improve efficiencies across the real asset space, such as cutting energy bills or pinpointing maintenance early on.

She explained: "AI is being used to calculate the current need for energy, and to help companies model which parts of the building need to use energy at particular times.

"This can help with offices and student accommodations, for example, which are positive developments and making things more efficient."

Hale agreed: "There are wins there, which means these businesses can be more financially productive and efficient."

Barriers and considerations

The panel also addressed barriers to client access and explore actionable strategies for successfully integrating real assets into diverse portfolios.

For example, there is an environmental, social and governance aspect to consider, especially with regards to retrofitting old buildings such as offices and warehouses, which can take time and increase prices.

An ESG focus can also push up the price of developments and cause potential delays in new buildings, Skeldon said.

Although this would necessarily present better, more sustainable opportunities for investors in the long-term, the move towards ESG could be slowing down the number of new investment opportunities, the panel suggested.

The more trust the investor has, and the more disclosure around the marketing, this should be a good thing in the long run.

Oliver Creasey, Quilter Cheviot

Fellow panellist Oliver Creasey, head of property research at Quilter Cheviot, said the new regulatory sustainability disclosure requirements brought in by the Financial Conduct Authority may also be something for advisers and clients to consider.

He said: "It's early days so far. The actual labelling only really came into play over the summer, and we have not yet seen many property funds get over the line to get a label. 

"It should help in the round - the more trust the investor has, and the more disclosure around the marketing, this should be a good thing in the long run.

But better regulation and greater political support for making these assets ESG friendly needs to come with more capital support from the government, too, although he quipped "don't hold your breath on that for October 30".

But commercial property has also got a 'sentiment' issue which some retail investors may need to overcome.

Creasey said some investors holding commercial property open-ended funds have found there are times when the investment was "punctuated by gates on redemptions" over the past few years.

He said: "This can be problematic for some investors. If you look back even seven years ago, there were many large open-ended property funds which had meaningful scale, and which invested in direct commercial property. 

"Now there are very few, and even these are now starting to hold shares in REITs, which are not direct assets, to help with the liquidity issue and give them a more dependable liquidity profile."

You can watch the webinar on demand here by registering on the site.

Global views on infrastructure

Their comments came as the Global Infrastructure Investor Association revealed results of a survey, which showed the majority of Britons advocating investment in infrastructure in order to deliver economic growth and environmental gains.

The survey was carried out by Ipsos among approximately 23,530 adults from 32 countries, before the July 4 election in Britain.

Of the British contingent, 72 per cent of Britons agreed that ‘Investing in infrastructure in Britain will create new jobs and boost the economy’ while a similar proportion, 67 per cent, said ‘investing in infrastructure in Britain will make an important contribution to combating climate change'.

Some 66 per cent said the country was not doing enough to meet Britain's infrastructure needs.

Sectors ranked best-worst. Source: Global Infrastructure Index, Ipsos for Global Infrastructure Investor Association

According to the GIIA index, Britain ranks low among the 32 participating countries, which included the Philippines, India and Poland, in terms of infrastructure development and investment. 

Ben Marshall, research director, for Ipsos UK, said: “This year’s survey suggests the British public see an upside of investment in infrastructure."

simoney.kyriakou@ft.com