Some Thoughts on the Market: Managed Offices, Data Centres, Planning Reforms and an Ageing Population
Since I started working in 2018, commercial real estate has not stopped evolving. Covid reshaped how we live and work, rising interest rates forced us to rethink valuations, and geopolitical uncertainty is forcing governments to rethink their land and real estate policies.
These changes are impacting real estate in many ways, whether it be the future of offices, the rise of AI & data centres, planning reforms on the greenbelt, or the realities of an ageing population.
In this piece, I share what Lewis & Partners has been up to, along with some thoughts on the market and trends I have been observing.
State of the Market
In October 2022, I wrote about rising interest rates and their impact on commercial real estate. One major consequence was a prolonged transaction process, with buyers and sellers struggling to align on pricing.
Two and a half years later and despite some shifts in market sentiment, the fundamental challenges remain. Investors appear concerned whether their property income can cover borrowing costs, while others are opting to invest in government bonds offering comparable returns. Slower decision making is leading to stalled transactions, renegotiations, and deals being called off. While not all owners need to sell, most buyers need a reason to buy.
Opportunistic buyers, especially cash buyers, are acquiring assets at a discount to long-term values as they do not need to worry about borrowing costs and are likely to receive better terms.
A recent notable shift is the narrowing valuation gap between sellers and buyers, both acknowledging the state of the market.
Lewis & Partners Transactions
We have completed several sales in 2024, and I’m pleased to have been involved in a few:
14 Cavendish Square W1 - A vacant possession trophy asset in a prime Marylebone square.
76/80 Old Broad Street, EC1 – Prime City offices, including multi-let offices and two retail units.
Birmingham Roadside – Two newly developed roadside units let to Greggs and Costa, with EV charging facilities.
Aylesbury Redevelopment – Supermarket income let to M&S for three years with significant future residential development potential.
Market Trends
Managed Offices - Despite strong occupational demand, investors and banks favour traditional leases over managed leases. Traditional leases tend to be easier to underwrite and finance, while shorter-term managed leases are perceived to be riskier and harder to value. But in a market where flexibility is what occupiers want, should investors shift their mindset?
Occupiers, especially those seeking sub 5,000 sq ft, are drawn to managed solutions as they offer flexibility and efficiency. The offer includes a seamless office move including furniture, wi-fi, service charge and business rates (and all other amenities and costs) bundled into one all-inclusive payment model. This is in contrast to traditional leases which require tenants to manage everything themselves including fit out arrangements and lease negotiations.
In my next few pieces, I will take a deeper dive into the disparity between occupiers and investors, exploring how managed offices could be valued and how operators can collaborate with landlords.
Data Centres - With the rise of AI, investors are recognising the critical role of data centres. Data centres are the real estate required to support AI’s growth, handling AI’s computational demands while enabling massive storage and data transfer that come with it. Key factors in data centre development include:
Power availability – Sufficient energy supply on-site (Google turning to nuclear energy).
Strategic location – Proximity to key infrastructure, connectivity hubs and network availability.
Government support – Pro-business policies, tax breaks, and deregulation.
I like to compare the rise of data centres to the surge of life sciences during Covid. At the time, many believed life sciences would become a dominant sector in the market. Whilst the life sciences market has grown tremendously, it remains a niche. I see data centres similarly, given that most data centre transactions have been limited to large scale deals, primarily involving owner-occupiers, hyperscalers, private equity and institutions.
Greenbelt and Planning Reforms - One way to accelerate data centre development is through planning reforms. A notable position from the current Labour government has been its willingness to challenge NIMBYs and push development projects forward. Take for example the proposed data centre in Iver, Buckinghamshire, where the local council initially rejected the project, citing potential "harm" to the Green Belt. The government intervened, deeming the data centre to be of national interest and overruling the council. For context, below is an image of the current site in Iver.
It is refreshing to see the government prioritising the national economy rather than allowing a handful of councillors to dictate the future of the country. Another proposed project on the greenbelt I am keeping an eye on is the Film Studio in Marlow, initially rejected by the council and currently under review.
The greenbelt has been associated with countryside and green land that must be protected, but in reality we have seen that this is not always the case. We should encourage building on “grey belt” areas of the “green belt” which the Labour government defines as “poor-quality scrub land, mothballed on the outskirts of towns” and “poor-quality and ugly areas”.
If we are serious about meeting housing and infrastructure needs, we must challenge outdated perceptions of the greenbelt and start building.
Ageing Population - In 1980, the median age in the UK was 33, by 2024 this has risen to 40 years. The median age is expected to continue to rise, as birth rates decline and life expectancy increases.
I’m particularly interested in how Japan has navigated this demographic shift. It has been dealing with an ageing population for much longer than the UK, and I would like to understand Japan’s approach, particularly in areas such as:
Healthcare infrastructure – Hospitals, GP surgeries and pharmacies.
Senior living – Assisted living facilities, care homes and retirement communities.
Life sciences R&D – Innovations in healthcare and elderly care solutions.
Manufacturing – wheelchairs, canes, dental care, and other essential products for an ageing population.
Final Thoughts
I do not claim to be an expert in every real estate subsector, however, at Lewis & Partners, our role is to have a broad enough understanding to connect the dots for our clients. We achieve this by being in the market, engaging with agents and principals, and analysing investment opportunities. Whether that be identifying land that could benefit from planning reforms, recognising sectors that will thrive with an ageing population, or building a case for why investors should look into managed offices.
London and the office sector are two areas I know well and I remain confident in; that is why I will be doubling down on both at Lewis & Partners and in my next two articles.