BE News asked some of the biggest names from across the built environment to share their thoughts on the challenges and opportunities ahead. In the second of three instalments, 24 industry experts give their predictions for 2024:
Richard Kauntze
Chief executive, BCO
Looking ahead, it’s hugely encouraging to have seen a record number of retrofitting planning applications in the City of London last year. Meanwhile, the unprecedented number of entries for the Refurbished/Recycled category for the BCO awards stands as powerful testament to the increasing quality of retrofit as the approach becomes more mainstream. Retrofit currently makes up 75% of London office construction. The hope is that other cities follow suit, with London being an exemplar. As the industry moves towards meeting increasing sustainability standards, new ideas will help overcome obstacles to achieve real change. Reflecting this, we have invited the BCO’s NextGen Committee to curate some of the sessions at the upcoming BCO conference. As the debate surrounding hybrid working continues as intensely as ever, offices will need to work even harder to support well-being, productivity and sustainability. Retrofit will play an increasingly large part in this.
John Berg
Global head of private real estate, Principal Asset Management
2024 will present many significant opportunities throughout the built environment. Real estate investments will likely become broadly more attractive if, as many expect, the Fed and other major central banks signal a pause or shift in monetary policy, resulting in lower yields for other asset classes and more attractive yields for private real estate debt and equity investments on a relative basis. Certain real estate sectors are expected to remain popular irrespective of a central bank pivot. From a diversified, multi-property sector perspective, funds that emphasise more resilient sectors like industrial and housing while reducing exposure to the office sector will align well with investors’ preferences. In addition, data centres stand out as a compelling long-term investment opportunity as the demand for data computing and storage is only going to grow.
Priya Aggarwal-Shah.
Founder and director, BAME in Property
With increasing geopolitical challenges, employees are seeking justice and wellbeing as crucial elements of overall EDI approaches. This goes beyond the ‘emotional contract’ that employers have with their workers and ‘checking in’ on them, to the expectation that employers should take a stance on global issues and respond accordingly and appropriately.
As such, it will be important for companies to focus on building inclusive cultures, where their employees feel seen, heard and psychologically safe. Here, there are opportunities to increase cultural awareness between employees and understand why and how this impacts wellbeing and productivity.
Another opportunity is to be more transparent – from data collection and intentions for changes to ensuring job descriptions state salary ranges and not merely ‘competitive’ – applicants deserve and are simply demanding more.
Neil Seager
Managing partner, Haslams
Despite the pending election, I expect waters to be calmer as a result of stabilisation of inflation and interest rates. This will lead to hardening of yields across most sectors with industrial and logistics and alternative markets being the best performers once again. Specialist regional expertise will come to the fore as geographical nuances are amplified. Rental growth in the industrial and logistics market across the majority of the M4 corridor has not kept up with other locations. This will change in 2024 as a number of new developments finally come on stream. I hope for the overdue planning system revolution to unblock the market, but I fear the election will probably mean the biggest issue in the market today will be kicked down the road for at least another year.
Taylor Odegard
CEO, NavigatorCRE
Challenging conditions over the course of the last year have pushed CRE stakeholders towards data-led insights that help navigate change and mitigate risk. More firms than ever will integrate data into their decision-making processes in 2024. However, the fragmented and poor management of inaccurate data remains an Achilles heel for the industry, which still grapples with a lack of truly actionable insights. For data platforms, particularly with the rising interest in ‘new’ types of data, like ESG insights, this is a huge opportunity. Those that can collate, clean, filter and make sense of disparate data sources will see increased demand as firms adapt to regulatory demands and a fast-changing landscape. Quality data and data management is foundational for a successful portfolio strategy. Sherlock Holmes’ wisdom holds: “Data! Data! Data! I cannot make bricks without clay.
Paul Jones
Managing director, Spica Technologies
In 2023, Zoom asked employees to return to the office, WeWork filed for bankruptcy and our own data revealed the importance of both flexibility and in-person collaboration for employee retention. This balancing act will continue to fuel the proptech fire in 2024, as employers battle to maximise the productivity of their workforces. The demand for solutions that ease friction between remote and in-office, whether encouraging space optimisation through desk bookings or collaboration days with the whole team, will continue to grow. Sustainability will remain a prominent trend. With regulations tightening and greenwashing concerns continuing, employers must actively work to reduce emissions or risk losing talent and ROI. Investors should note the growing need for retrofitting in 2024. This comes after increasing calls for energy-efficient solutions with minimal structural intervention. At Spica Technologies, we will spend 2024 creating occupier-focused spaces that ensure office trips are worth the commute.
Charlie MacGregor
CEO and founder, The Social Hub
Community, connection and authenticity will be key drivers for the market in 2024. Mixed-use developments and destinations will continue to provide the key to prosperity, with blended uses that appeal to different audiences whether live, work or leisure. This type of diversity significantly reduces risk, effectively creating a circular economy that is resilient, which is something we have been pioneering with our own hybrid hospitality model. While many major institutions are signalling a return to the office, for many people the ‘work from anywhere’ trend continues, with many choosing to work in coffee shops and flex spaces for a change of scene from home. This represents a huge opportunity for the hospitality industry in particular to diversify and capture this audience. I also anticipate 2024 to be a year defined by partnerships, with local authorities working more closely with developers and operators than ever before to facilitate the delivery of projects that can supercharge local economies.
Byron Baciocchi
Chairman and chief executive, Unica Capital
After 10 years of sellers holding the cards and a significant repricing over the past year, London is now a buyers’ market for those who can move quickly on commercial acquisitions in the face of rising tenant demand. The next 12 months are key. It’s not just institutional capital that is looking. Networks of international ultra-high net worth individuals and family offices are poised to strike, owing to quick decision-making abilities and liquidity. Buildings that don’t or won’t meet increasing EPC regulations present both a challenge and an opportunity given significant discounts. Those with in-house development experience will be able to make the most of these assets, being conscious of refurb costs. The return to the office will only get stronger. If nothing else, remember that each year, there are millions of new graduates coming into the central London workforce who want to enjoy the bright lights of this wonderful city – lights that can’t be seen from working in their bedrooms.
Alan Harbinson
Managing director – cities, Buro Happold
In 2024, cities across the UK will continue to face socio-economic, technological and environmental challenges, which infrastructure, development and collaboration can help address. We will continue to collaborate with our colleagues and peers in industry, academia and government to decarbonise cities faster in order to meet net zero targets across the UK and provide places and spaces that are focused around achieving greater health and wellbeing, while truly demonstrating innovation and global best practice. However, reform is needed to free up investment in low carbon energy sources, including renewable power generation, increased grid capacity and heat networks. The government also needs to set a consistent framework for investment, both public and private, in infrastructure across the built environment, including social and health infrastructure, active travel, climate resilience, water systems and public transport.
Hannah Smith
Managing consultant, CACI
2023 was yet another challenging year for real estate as persistently high prices on consumer goods and record housing costs continued to squeeze consumer wallets. This was set against the backdrop of ongoing global instability, which has characterised the last four years and means that places have had to work harder than ever to win their share of a shrinking pot of spend. There is however cautious room for optimism in 2024. 64% of us said we were worried about the cost of food this Christmas, and while this is very high, in 2022 it was 81%, suggesting confidence is growing, however slightly. We have sought experiences this winter, with early indicators suggesting more time spent eating, drinking, and socialising in December. As we enter 2024, placemakers must lean into the evolving customer missions they are serving – they must stay relevant by closely tracking market trends in order to grow spend through unique experiences.
Andrew Crabbie
Head of real estate, Forsters
Planning will continue to be a thorn in the side for developers. Local and national government must get to grips with the planning application bottlenecks (though with a general election looming, it is likely this will be on the back burner). The impact in 2024 of the introduction of biodiversity net gain regulations will prove another challenge to developers. Michael Gove’s decision to refuse M&S’s plans to develop its flagship store on Oxford Street on the grounds that the project was not compatible with the transition to a low-carbon future has amplified the ‘demolish and re-build versus retrofit’ debate, which will continue to run in 2024. From an occupier perspective, the flight to quality zeitgeist will grow across all assets as companies share the same priority of inhabiting well located, highly amenitised, sustainable and flexible workspace that puts the performance and well-being of its employees at its heart. Indeed, here at Forsters we’re a living, breathing exemplar as in January we’re consolidating our London business into a new headquarters on Baker Street in the heart of Marylebone.
Robin Rivaton
CEO, Stonal
2023 was a year for open dialogue surrounding technology’s place in CRE, particularly with AI. Concerns about ethics and regulations dominated the conversation, addressing the impact of integrating AI tools. Liquidity challenges, such as meeting investor requests and data-less decision-making, continue to plague the industry, but AI is a critical solution. The narrative is set to shift in 2024, moving beyond apprehension to allow GenerativeAI and predictive algorithms to shape the future. There is a growing acceptance of AI’s benefits, supported by regulatory frameworks to nurture its sustainable development. The UK’s commitment of £500m for AI development represents this beacon of hope. We anticipate a monumental shift this year, which should help address issues impacting commercial real estate such as low liquidity. These solutions will ultimately foster immense progress in CRE. Stonal envisions a year in which significant leaps and bounds will continue to be made in rethinking CRE through AI.
Mat Oakley
Head of commercial research, Savills
In 2024, we believe the factors that drove the recent collapse in commercial property values, along with investor confidence will improve. However, as high inflation and interest rates recede, some new (and old) challenges will test sentiment in certain sectors. While we expect borrowing costs to fall over the next two years, they will not return to levels that were used in the pre-Covid decade. This will mean that not only will prime yields not return to those seen in 2019, but also that stronger than normal levels of rental growth will be required to support some investment and development decisions. Parts of the UK commercial property market look set to continue to deliver strong rental growth, but even this positivity may not be enough to convince investors to return to the market when other regions of the world are continuing to experience falling values and distress. Ultimately, 2024 will be an opportunity to buy at the very bottom of the cycle.
Dimitri Tsakiris
Commercial director (construction), Paramount
At a time of high inflation, high interest rates and seemingly higher costs of materials, tight budgets and tighter timeframes will mean the built environment market will be increasingly competitive in 2024. Some construction companies will continue cutting margins to secure contracts, but we think it’s important to hold the line and maintain a reasonable profit while providing utmost standards. With planning often protracted and long lead times from pricing jobs to physically starting work, margins are also being eroded by inflation and rising costs, so it will be even more vital to work closely with local planning officers to maintain momentum. Togetherness will be key to 2024 success. Due to the current uncertainty, clients will be more open to exploring partnering models with contractors. That puts the onus on us all to work collaboratively and transparently, which we believe is the best way to navigate the choppy waters ahead.
Janine Constantin-Russell
Managing director, Outlet Shopping at The O2 and The Entertainment District
Our unique combination of leisure, retail, and F&B is a key differentiator that drives our success. We will continue to innovate to maintain this position in 2024, adding to and evolving our mix to provide even more choice for visitors. For Outlet Shopping at The O2 specifically, we will be focused on securing more outlet firsts and establishing its position as one of London’s ‘must visit’ shopping destinations. For the Entertainment District, the emphasis will be on exploring more innovative solutions to maximise the vast and unique space we have, including accommodating new sports, leisure and wellbeing offers, such as Padel Social Club. Destinations must continue to think about the needs and desires of future social culture trends to deliver enticing experiences. Doing so is part and parcel of being a unique destination like The O2 and is what enables us to thrive.
Steven Campbell
Director, Campbell West
Like other growing companies we rely on the development of our own talent to meet the vast array of challenges that the sector creates. We are not immune to the skills shortage that affects the construction industry. For us, the key to addressing this challenge is to develop our own talent through apprenticeships – the ability to learn on the job with current methods and technologies just can’t be matched with desk-based learning alone. I have been through the apprenticeship system myself along with my business partner so have first-hand experience of its value to both the learner and the business. Unfortunately, too many school leavers are directed towards desk-bound courses, which do not prepare them for the reality of the job. In my view, this needs to be urgently addressed for the sake of new talent and our sector as a whole.
Matt Slade
Retail director, Wembley Park, Quintain
While economic and political uncertainty are still likely to rear their heads throughout 2024, there will be some welcome disruptions to this. With Taylor Swift set to arrive on UK soil in June and August, retailers situated near the sold-out stadium shows will likely experience the latest
phenomenon of ‘Swiftonomics’. Retailers know that consumers will be out in force, spending not just on fashion but also on food and drink as they make an occasion of attending the concerts. At Wembley Park, we’ve seen the rise of consumer dwell time on event days and as a result, have invested heavily to maximise the visitor experience. Taylor Swift is going to provide an important case study to both retailers and event spaces on the importance of working together in order to boost footfall and spending at what is currently a very challenging time for the industry.
Tomáš Jurdák
Head of real estate, MiddleCap
Despite a gloomy global macroeconomic forecast, there are a few reasons to be cheerful in 2024. Inflation is still uncomfortably high, but as it comes down there will be more opportunistic capital searching for distressed deals, which in turn will balance transaction levels. The stasis in the commercial sector – caused in part by war, the climate emergency and regulation change – will ease as businesses can no longer afford to delay decision making, meaning many paused or postponed transactions will start to be pushed through. The rise of AI will also start to have a noticeable impact in the sector. While it is not the silver bullet to solve all our real estate woes, it can be a powerful weapon in our arsenal to improve operations, increase efficiency and enhance the overall experience for office tenants and property owners. Enlightened developers and asset owners should appreciate this and integrate smart technology into both new and existing stock.
Kevin McCauley
Head of strategy and research, Royal London Asset Management Property
There are several key challenges facing real estate investors this year. Whether they be broad macroeconomic trends like rising interest rates, or more sector-specific issues such as sustainable development and asset obsolescence, on the face of it, the outlook at the beginning of this year may seem gloomy. However, the capital value cycle is finely poised, despite falls in values across the industry since 2022. There remain opportunities to generate long-term returns through targeted investment. In the office market, while we can expect lower quality space to struggle, modern, well located, prime space will continue to let well. Since the pandemic, we have seen a series of regulatory and societal changes cause disruption. We can expect this to continue into 2024 and beyond. The UK’s life sciences sector, for example, has gone from strength to strength in recent years and there is still plenty of room for growth in key clusters such as the Golden Triangle – especially when compared with similar clusters in the US. The living sector is another that has benefited from demographic change and will continue to grow in importance. At Royal London Asset Management Property, we are committed to exploring these to generate long-term returns for our investors.
Adrienne Turner
Framework manager, Southern Construction Framework
Over recent years, market conditions have been volatile as factors such as the pandemic have impacted build cost and material availability. However, throughout Q4 2023, building cost rises slowed as material prices stabilised and now a more predictable 2024 market is beckoning. The Department for Business and Trade material price index for ‘All Work’ decreased by 2.1% in October 2023 compared with the same month the previous year, but despite this, overall build costs are expected to increase by 3% throughout 2024. Southern Construction Framework data suggests labour inflation will persist, offsetting potential cost benefits for projects in the near future. Given how significant inflation has been over the last 12 months, continued increases suggest viability problems many schemes currently face will again present crucial challenges for 2024. Amid high numbers of insolvencies, trades reported a selective approach to tendering. Many businesses gravitate towards low-risk opportunities with affordable design, favourable payment terms and a collaborative approach to procurement (such as Two Stage Open Book) – a move that decision-makers must consider to best optimise interest within trade packages. On a more positive note, trade supply chain partners report that material availability is much improved, with lead time forecast to remain consistent.
Ted Schama
Joint managing partner, Shelley Sandzer
Having reset twice, the hospitality market is driven by a new set of values. While ‘location, location, location’ still stands, 2024 will also be about ‘contribution, contribution, contribution’ as securing a capital contribution and the right financial matrix increasingly define sustainable deals. 2023 saw the softening of premiums on fitted units, with some businesses even finding sites taken back by landlords available on new leases for no premium at all. Many of these were in prime locations that might previously have been financially out-of-reach. This has had a knock-on effect on shell units too, and now a two- to three-year package is common. This shift in dynamics means property costs are more sustainable and that is stimulating growth. This is attracting investors, and I see the trend of continued corporate activity gaining momentum this year. This is exciting news for the sector as a flow of capital underpins hospitality and certainty encourages confidence. Long may it continue.
Dan Silverman
Co-founder, Spacemade
Demand for a flexible workspace offer is undeniably increasing, and this will only continue to grow in 2024. Research that we conducted proved that landlords see a 25% rental increase with the introduction of flex space, and amid continued economic uncertainty, this will become a solution hard to turn down. This is supported by the significant change in how occupiers lease office space following the pandemic. With employees now embracing hybrid working patterns and employers finding themselves in need of adaptable space to reflect the peaks and troughs of the working week, flexible workspace will prove even more favourable. Some have taken the instability of co-working giant WeWork to mean a gloomy future for the flexible workspace market. In 2024, we will see more landlords looking for alternative leasing models, taking control of their own assets to avoid facing similar WeWork leasing risks, with more integration of hospitality-led flexible workspaces. With employees now expecting a stronger amenity offer and flexibility from their workplace, this is the year that will signify market stability as a new model for flexible workspace takes hold. As evidenced by WeWork, if operators fail to update their model they will fall behind in 2024.
Ben Cox
Senior asset manager, Sovereign Centros
The world of shopping centres is evolving and for asset managers, there are a number of important areas of focus. Sustainability will continue to be at the forefront of decision making in 2024. Increasing EV charging provision and investment in renewable energy will be key for future-proofing destinations such as Metrocentre. From a leasing perspective, while the focus continues to be on securing best-in-class retailers, bringing in service providers and developing community uses will be just as crucial to the creation of thriving destinations. One example of this at Metrocentre is the ongoing transformation of part of the former House of Fraser into a 40,000 sq ft community diagnostic centre, which is expected to fulfil 145,000 patient appointments per year. Repurposing retail space to integrate flexible workspace and additional leisure attractions are further strategic targets, diversifying the reasons to visit Metrocentre, while generating additional footfall and jobs for the local community.
Anthea Harries
Asset management director, King’s Cross
We anticipate the rapid pace of change in the built environment sector will continue in 2024 and businesses will need to navigate an uncertain market while meeting evolving customer needs and staying relevant. Flexibility, adaptability and agility will be key as the ‘flight to quality’ continues and dynamic spaces become increasingly critical to maintain occupancy rates. A consequence of this uncertain market has seen shorter lease agreements implemented across the industry. At King’s Cross, this will allow us to remain agile and broaden the range of both small and established brands – and in doing so, providing different price points to meet the needs of our diverse audience. At the heart of all this will be continued close collaboration with our occupiers and taking a customer-centric approach to ESG amid both macro and micro economic pressures. This will include focusing on physical and mental wellbeing which we are addressing with continued investment in our public realm and through an enhanced events and enlivenment programme.
Graham Sturge
CEO, RED Construction Group
Given market uncertainty, the initial focus from RED Construction Group in 2024 will be on what we can control – delivering projects and creating certainty for our clients. The construction industry is currently in a volatile state with numerous main contractor administrations in 2023, impacting the supply chain and posing a significant challenge due to their exposure. We are anticipating the market will stabilise towards the end of 2024, so strategic diversification is in our sights, both geographically and across new sectors, all while ensuring a measured and controlled approach to growth. We have identified areas where RED can instill confidence, fostering stability and nurturing relationships. Company administrations do create opportunities, and it is imperative for those that remain to pick up the slack. The next 12 months will be challenging, certainly at the start, but with every ebb comes a flow, and our steadfast and agile nature puts us in a great position to provide the solutions needed.
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