Guest Blog: The Race for Space
By Tom Jansons, Jansons Property Investors and Developers
Three emerging markets are creating a disparity between supply and demand for land in the Southeast of England with some projects pushing prices to £10m per acre. The future of traditional real estate asset sectors is coming into question and investors are starting to notice.
Following the pandemic and current government campaigns, property sectors such as offices, retail, and hospitality may dwindle. Covid forced us to work from home, closed retail and halted travel and events, impacting these mainstay sectors for real estate. However, this stoop has given rise to three emerging asset classes which we expect to perk the ears of investors- namely, electric vehicles, film, and data centres.
Electric vehicles recharging infrastructure
The UK government announced in March 2020 an EV (Electric Vehicle) charging infrastructure review and £500m in funding allocated to a rapid charging network that ensures EV drivers will always be within 30 miles of a charging station. Property markets are already viewing this as an emerging sector, considering that February 2020 saw 215,000 pure electric vehicles on UK roads and 10.7 per cent of all cars sold in the UK across 2020 had some level of electric power or zero emission capabilities.
With the government committed to its roadmap for cutting out petrol/ diesel cars by 2040, more public charging infrastructure is required. The shortage of charging points and the growing national demand means there is a soaring need for investment in this sector. This has a direct impact on the real estate industry in several ways:
- Petrol stations will soon become futile. The number of charging stations in the UK already surpasses the amount of petrol stations. This means the land from existing petrol stations now present interesting opportunities for transition and development.
- For office developments, workplace charging will play a huge role in attracting businesses to an asset. The ability to charge your car while you work will be a lucrative way to develop a more desirable piece land for office spaces.
- Disclosures on local air pollution impacts residential desirability and this will force residential developers to think about investing more heavily in EV infrastructures.
- Charging points have proven to invite customers to spend more time in retail park/ outlet locations, already seeing a 50 per cent rise in dwell times. This will inevitably spur on an increased investment into EV infrastructures from retail space owners and developers.
- Developers are purchasing assets (such as retail parks) to transform them into last mile delivery hubs for large logistic and industrial fleets. However, this will require a significant amount of grid capacity which brings with it a need for more investment.
All in all, adding a charging station capacity to land assets can be an almost sure-fire way to drive up value. Therefore, it is likely that a surge in EV infrastructure investments is on the horizon.
Film studios capture industrial land space
Recent years have seen a boom in the volume of TV and film being produced worldwide. The UK is a particular production hotbed with over half of the UK’s existing studio space concentrated in the Greater London and Southeast area. This has generated demand for studio space, which in turn creates a need for purpose-built film studios. Although this area is not typically a primary focus for property developers and investors, the current forecast for the film industry deserves further consideration as a distinct property market, offering the potential for a unique range of opportunities.
An economic review produced by PwC in 2013 suggested that the UK would need to source between 800,000-1.2 million square foot of additional studio space by 2032 to keep up with the industry’s growth. However, a 2018 report by Lambert Smith Hampton indicates that if recent growth rates are sustained, these predictions will rise to 1.6-1.9 million square footage that will be required over the next 15 years.
There are three main types of film property:
- Purpose-built film studios – these are large and well-equipped sound stages that were specifically built to the bespoke requirements of production companies. These are the most convenient properties for the industry but there are currently only a handful which are truly purpose-built in the UK.
- Repurposed buildings – this consists of warehouses, air hangers, factories etc. which have been refurbished for studio use.
- Alternative space – these are vacant industrial buildings with little to no refurbishment for film use.
Considering the repurposed and alternative property types here, industrial property owners have an opportunity to generate income from large and/or vacant buildings and other un-utilised assets with relatively little expenditure. And property developers face a clear demand for new studios and ongoing studio development projects, which can be an easy transition from industrial development.
Data centres – one to watch
In a world where we constantly produce an endless stream of data, this area is becoming increasingly important to the alternative property sector. Fuelled by the Covid-19 lockdown and the digital transformations that came with it, data centres will prove a promising asset class for investors and developers alike.
Real estate investment trusts that specialise in data centres outperformed all other types of REIT in 2020. Plus, as data centre migration is a highly complex process, premises are typically occupied for 10+ years which means this is a sector offering a long-term income stream and security.
But data centre development is increasingly contested and can be operationally intensive assets to handle. With highly specific requirements in terms of location and infrastructure, there is already a disparity between demand and supply for this land.
Data centres will inevitably drive-up high infrastructure costs and are expensive to build but the investment opportunity is evolving. Exploring sale and leaseback options unlocks the market with data centre acquisition opportunities. And with the technology focussed property sector seeing growing investment intensity in tech-related infrastructure and the current global backdrop of seemingly constant technology advancement, this is a space to watch.
All three offer significant investment opportunities as emerging class assets and will take centre stage as they succeed traditional routes. The impact of the global pandemic on traditional industries combined with the rise of technical advances and digital transformations have caused a boom in these newly emerging property industry sectors.