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Now to a conversation about real estate. According to a new report from CBRE, business leaders across Europe and in the US see property as important to achieving the aims of their business, but they want more influence over the physical spaces that their firms occupy. Joining us now is Kieran Bird, who is CEO of the CBRE UK and Ireland CBRE Group, of course being one of the largest commercial real estate services and investment firms in the world.
So I'm delighted to have you in the radio studio for the first time.
Kieran, good morning, Thank you.
So what exactly do executives want then from property? I mean, they're under pressure in so many spheres. Why is property a focus?
Look, it's interesting we look at this survey and we wonder why real estate wasn't in as much focus, perhaps pre pandemic, and I think that was because business leaders we're kind of focusing on what really is important to them and real estate kind of was left behind. It was almost an admin stroke as a cost and maybe even finance or HR were the reports through to board.
And in fact it was the pandemic that brought this into focus because if you look back and my goodness, doesn't it seem a long time ago, But that there almost the panic that nobody was using these offices or shops were empty, and so there's a lot of rent being paid and no use. And suddenly boards are saying, do we need this space? Will we ever go back to this space? How will we use it in the future. So that brought the focus.
In terms of are we going back though to the kind of pre pandemic. There's been a lot of excitement about the return maybe of property, especially offices. There's been a huge trough in office values. Are we actually on the cusp of things returning to pre pandemic normals?
I think so.
Although flexibility and hybrid working from home, although there's many leaders out there are saying it's we've got to stop this, We've got to get must get everybody back, I think there will be flexibility in the future. But there is no doubt that many leaders, including myself, are realizing, if you really want to drive your business and rebuild those cultures that I think have been stretched through this period,
you want them back in the office. But the office needs to be something that rewards your people and enables you to collaborate. And I wouldn't I would say that. I think there's different businesses, different people. Client facing professionals need to connect with each other. Some people can work just as well at home, and I think that's why there's a hybrid and a flexibility. But there's no doubt offices are back.
When you speak to your clients about what they want out of their officers, do you get the sense that everyone's hadding for five days back in the office or is there still going to be an element of flexmle work that's from no.
I look, as I say, depending on your business, if you're client facing, I think there is a likelihood you'd want your people in four to five days a week. But there is an acceptance and there's a trust that's been built over this period. People can work from home, and people can work from home really well, but it's more project leg If you need privacy, you need time alone, or why spend the time travel linking to the office
when you can work from home. So look, there is a hybrid, But there are many businesses out there that need four to five days a week because they need collaboration, They need individuals to bring energy to each other. I think it's probably the one thing that people forget. I often hear people saying I work just as well from home. Do you bring your energy to your team from home? And we know the answer to that.
But look, there's been strong rental growth, there's been a reduction in terms of borrowing costs. But the folk because in many parts of Europe is still on the best quality buildings on very high environmental standards. We know that a lot of landlords and renters are under pressure because the new regulations coming in from Europe. By the end of this decade, the standards for environmental impact will be very high. Do you think that actually we've bottomed out now?
I mean we've heard it a number of times. Have we bottomed out in terms of values for London offices for European offices.
Look, the investment market is a different challenge, and that falls back to interest rates, costs of building, costs of construction. That is a different almost a different debate. But the rental levels of offices are continuing to rise. Ironically, But going back to your first point about sustainability and the quality of the office, there is no doubt that big businesses are now wanting best in class. Our problem is
supply chain. We haven't been developing for the last four or five years the way we would have been in the past. So ironically in the way here in London and in most cities, grade day offices were a danger of potentially running out over the course of the next two to three years, and what that is causing is rising of rents quality grade day offices. People are there's almost we need to get a move on because we're going to lose out of space. And that does open
opportunities for the next tier of offices. You could call them to secondary or edge of London or outskirts, and I think that those areas will.
Continue to.
Appeal more, albeit there's a lot of expenditure required to fit an office to the quality. Dare I say of Bloomberg's.
Yes, Does the issue of tariff's then start to play into this? Donald Trump's issued tariffs now and imports into the US. I mean, I know CBRE is global and so you may have a perspective on that, but tariffs are going to make it much more difficult for the building industry. Surely they're going to reroute supply chains are going to make that kind of building pipeline more difficult.
Look, Tariff's it's the next challenge. We don't know what impact they are going to have as yet. We've been quite used to challenges in real estate or in our economy over the last five or six years, so it's another challenge. But I don't think it's going to stop real estate. And the whole purpose of this survey was are the boardroom focused enough on real estate? And I don't think there is any doubt that the focus is back. What we're hearing across the board is the ninety seven
percent of boards. Actually, I was surprised, pleasantly surprised to hear that they now have direct reports through to the c suite. Seventy six percent have personal involvement, and I think that's encouraging because what they really are saying is real estate is a priority, and it's not just it's a business enabled how it's going to enable them to drive and focus on their business more than perhaps they have done in the past.
You mentioned the headwinds from higher interest rates. Looking at the expectations now, we're expecting a fewer rate cuts in the US and in the UK than we had been previously. How much of a drag our higher interest rates are new office investments the cost of debt?
Right, it's been challenging. There's been this standoff across the world is what is a property worth and what some are prepared to pay interest rates? I mean that we've been teased, but they're slowly coming down, we hope, and of course it makes a big impact. However, I will go back to that last point. As rents rise, that gives a lot of encouragement and hope that there really is now an opportunity where values seem more attractive certainly than they have done in the past.
Yeah, I mean do real interest So it's to have to come down much further though to make that kind of to make the recovery story to really take hold, because it's been it's been one that we've been waiting for for a couple of years, you know, to happen.
Yeah, I think it's fair to say they do need to come down, and I think we hope that they are.
But if rent's.
Going up, there's a meeting of price price that both buyer and seller are getting closer and closer. And I think we're closer to that point albeit there continues to be other challenges and I think that when you look at development and the cost of construction, you can't ignore that.
So there are there are many challenges, but I think we're getting closer and closer, and there are obvious movements and there are deals starting to happen because of the pressure point and the attraction of people or businesses wanting to get their people back to Grade A or best in class offices.
What kind of officers are attracting the highest rants in London. There's been a number of shifts happening in the landscape. We think about the Bag Bay and says moving out of Canary or for example, of moving into the city. And obviously you've got the big Google development of King's Crass as well. What's what's the what is the Grade A now for business as when they're looking for office space.
Well, I kind of a jest, but I walked in this building. I mean, why wouldn't you want to come in work in this wonderful building. It's it's ticking the sustainability box, right, It's I'm no doubt it's ticking wellness and health. It's in a location that's almost perfect, right, So transportation makes it a big difference.
You want, you want.
Your coffee shops, you want your food, you want your entertainment. I mean people there's a perception on Canary Wolf and it always comes up. But what they have done that that it is improved dramatically. I don't think people have been there to go and see what inexperience you can have both from food, entertainment, the transportation. Only from our office bang on bonste you can be in Canary Wolf in eleven minutes. So I think it's all about you've got to be rewarded for when you travel in and
you've got to have all of those. And if you're trying to get the best talent and you want to keep hold of the best talent, there's a fight out there for that. And they are attracted to come to offices that are in the best locations and easy to get to.
But you can have fun and you can work and collaborate when you're.
There and carry okariy ware. They're still an attractive destination for ofice space.
Unquestionably from me, they're going through change right, they've repositioned it. It was known and I think there was perceptions there. There's no doubt Canary Wolf is coming back with vengeance. But most importantly, they've made it a nice place to be. Just there's a perception piece that it takes a long time to get there.
It really doesn't. And when you're there, it's not just about towers. You've got you can have fun, you can.
Oh there's a marketing piece here that's missing. Then maybe a last thought on data centers. If you wuld deep seekers, you know, there was a lot of focus on building data centers in Europe. It's very expensive in terms of the energy needs, so there were doubts about that. Now Deep seats sort of throwing a bit of a curveball in there, data centers in the building. How quickly do you think it's going to be built out in Europe?
Look, data centers have been on the agenda for many years now, and with AI, I don't think that's going anywhere soon. In fact, the attraction is far greater. I think the biggest challenge for us all across Europe across the world is power. Right, we need to find locations, we need the land, but we need to fix power and that probably leads onto another whole big discussion. But power at the moment is an issue, particularly in the
UK but elsewhere in the world. But there's going to be demand and I think AI is here to stay.