Big questions are being asked about the future of how we will live, work and consume.
Real estate and infrastructure focus is key to delivering net zero, ‘levelling up’ and trade and investment objectives
PwC estimates a £25-38bn investment would deliver c.300k new social and affordable builds by 2025
The competition between ‘clicks vs bricks’ is putting significant pressure on landlord and tenant relationships.
COVID-19 has changed how we’ll live and work and what it means for the built environment.
PwC anticipates a degree of reverse urbanisation as flexible working takes hold.
The impact of COVID-19 has fuelled speculation as to how we’ll live and work, and what it means for our demands on infrastructure and the built environment. Traditional working, leisure and home models have been upended. We’ve seen images of airports, offices and shopping centres sitting empty, with other assets, such as fibre and logistics, emerging to play a critical role in supporting society. It is hard to predict how long term and wholesale these shifts will be, but they will have a profound impact on the infrastructure and real estate we need.
To help address these key issues, PwC today announces the formation of a new Real Assets practice to combine the expertise and cross -sector insight of close to 1,000 real estate and infrastructure professionals as the UK aims to return to prosperity after the COVID-19 pandemic. The launch coincides with an announcement from the UK government on plans to accelerate infrastructure projects.
Real Assets refers to the built environment and infrastructure that surrounds us and enables us to live our lives, providing us with communications, energy, transport and places in which to live and work.
The firm believes new opportunities will arise from developing two distinct capabilities:
a sophisticated understanding of society’s changing behaviours
the ability to rapidly respond to subsequent demand shifts.
The Real Assets multidisciplinary team fields the expertise of financiers,valuers, diligence professionals, technologists, asset management experts, engineers and capital programme specialists.
The leadership team includes Neil Broadhead, heading up the UK Capital Projects and Infrastructure team, and Angus Johnston driving UK Real Estate activity. Overall, the Real Assets practice will provide clients with multi-disciplinary cross-sector expertise in key areas including the New Energy, Housing, Transport, Digital Infrastructure, Hotels, Utilities, Student Accommodation, Health, Logistics and Office sectors.
While COVID-19 has accelerated the trend towards more agile working, the fundamental need for space to work hasn’t disappeared, but perceptions of the purpose and value of the ‘workplace’ have shifted markedly.
A PwC survey of 2,000 people during lockdown showed that 56% of those who could work remotely agreed the home can be a suitable workplace.
This could drive a reconfiguring of spaces to manage new demand, or examining opportunities that support working from or near home, such as smart mobility, fibre infrastructure, 5G or even smart metering.
Many traditional real assets’ businesses could consider these types of activities to be outside of their comfort zone. However they could be well positioned to capitalise on opportunities.
Indeed, more than 7 in 10 (71%) of respondents to our Emerging Trends in Real Estate survey 2020, agreed that achieving their target financial returns would require a widening of the definition of traditional real estate to include real assets and related service businesses.
Additionally, lockdown has shown the benefits of an improved living environment for many.
Over the longer term, COVID-19 may well accelerate moves towards greater reliance on regional hubs and reverse urbanisation. These major, long-term shifts and cultural changes are shaping what we build, how we consume and what matters to us, has also put us in a position to debate what we prioritise as we respond to those changes.
Real Assets are central to those priority discussions. Buildings and transport currently account for more than half of all UK carbon emissions and are fundamental to how we tackle some of the major global challenges, such as ageing populations, urbanisation and wealth asymmetry.
Existing assets will also need to be substantially replaced, retrofitted or repositioned:
Whether that’s motorway service stations building electric-vehicle charging infrastructure with the potential to compensate for the inevitable decline in petrol and diesel fuel sales, or real estate owners investing in smart mobility to decarbonise the travel to or from their buildings.
Doing the right thing is therefore no longer a nice to have, but critical for those developers, owners, investors and operators looking to deliver value, both for themselves and society.
Simon Hampton, Real Assets leader and partner at PwC, said:
“This year has been a game changer for society and for our economy. COVID-19 has accelerated in weeks the trends commentators had predicted would play out over years. The Real Assets team has been created in response to the unprecedented challenges of a growing, connected society shaping our physical environment.
“The changes that have been surfacing in the real estate and infrastructure sectors for decades can no longer be ignored.
“The COVID-19 pandemic has made it all the more urgent for everyone involved, from planners, developers, operators and investors - and government - to adapt and grow. In order to achieve net zero, ‘levelling up’ and trade and investment objectives, the UK government and businesses will need to demonstrate creativity and agility to deliver essential infrastructure and real estate. The need to get our response right has never been greater.”
What are Real Assets?
The term “real assets” has developed amongst the investor community to reflect the increasing interplay between real estate and infrastructure, with many of the world’s leading capital providers aligning their teams to focus on the opportunity offered by an evolving society.
Recent years have seen the infrastructure category extend from the standard utilities, roads and hospitals sectors, into fibre, data centres and energy storage, while real estate has expanded into logistics, flexible space, retirement living and student accomodation - all fuelled by customer demand.
Key sectors to watch:
The UK house building industry is potentially facing an unprecedented downturn. To bridge any potential housing volume decline in the medium term, a significant investment in social housing would keep production near to pre-COVID-19 levels. PwC analysis of industry data suggests it would require an investment of £25bn-£38bn to deliver close to 300,000 new social and affordable homes by 2025, which could protect 226,000 jobs and provide a £47bn boost to the economy.*
While the long-term impact of the pandemic is still uncertain, demand for transport services and associated infrastructure will be influenced by multiple, sometimes conflicting factors. The mix of modes and energy requirements could radically change as passengers look for safer alternatives to public transport.
For longer journeys, particularly between cities and in smaller towns, passengers are likely to opt for private vehicles instead of travelling by rail or coach.
For shorter journeys, particularly within larger cities such as London, Manchester, and Birmingham, passengers may opt for micro-mobility solutions, such as bicycles, e-bikes and e-scooters where they are available. Importantly, no two cities will be the same. Implications will vary based on dependency on public transport, political priorities, funding, commuting patterns, and the sectoral mix of the workforce.
Notes to editors:
*Affordable housing forecast methodology:
Estimates are based on our forecasted number of new builds required to maintain 2019 new build volumes, equal to a shortfall of 291k new builds between 2020 and 2024.
Assuming a build cost of £188k - £285k per house, ~£51bn-£77bn total investment would be required to maintain the new build shortfall.
Our investment thesis assumes a 50% a social housing subsidy to incentivise affordable house builds which would cost the government and potential investors~£25bn-£38bn.
The Home Builders Federation in conjunction with CBRE, Lichfields and the Ministry of Housing, Communities and Local Housing assume each new build creates 3.2 jobs in the economy and ca.£174k pounds of economic output.
Applying these assumptions, investment in social housing could retain up to 226k jobs and create an additional £47bn of economic output.
Sources: House Builders Federation: 2018 economic footprint of UK house building, ONS – Output in the construction industry , DHCLG, PwC Analysis
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