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Right, we're going to pivot to something a little bit different. So the UK, we know heavily reliant on the private sector for development of UK infrastructure. For the property firm CBRE, it means opportunities in investments for healthcare, for accommodation and for the much talked about data center build out. But this with the backdrop of global bond yields rising, particularly UK guilt yield they spiked on Friday. Does that dent the sector? Really pleased to say that we have CBRE
UK CEO Rishi Buka with us. Good morning, Really great to see you, Thanks for coming over you you spoke to my colleagues on TV, so I'm really glad that I've got you on radio as well. You've released a report about the rise of infrastructure capital, how important it is. Where is the fastest growing sector in amongst this infrastructure build out? Are your clients making active investment decisions now for the U Ken Island?
So a couple of comments, Carlin.
Firstly, we're seeing a very interesting trend at the moment where we are seeing real estate investors invest in alternative asset classes, healthcare, data centers, which I'm sure we'll come on and talk about, and living which is broadly student accommodation, flats and single family homes. And at the same time, we're seeing more traditional infrastructure investors, those that would have invested in tolls, bridges, motorways, investing in real estate which
have infrastructure like characteristics. So those assets have got high barriers to entry long leases in today's environment inflation linked leases. And the reason that's interesting is, and I heard you talk about guilt prices earlier. Infrastructure investors typically have lower leverage or no leverage versus a typical real estate investor, which means they should be able to pay more. So, going back to your question, we are absolutely still seeing
lots and lots of real estate transactions closing. I think we're day eighty of the war today. What we have seen, unsurprisingly, is a modest price reduction for those deals that we're getting close to getting done. But we're seeing no shortage of demand right now for real estate and real estate adjacent assets.
Richie, good morning.
I wonder where you're seeing more demand for data centers. Does that mean you're seeing less demand for offices as workers are replaced by.
AI morning, Lizzie. So I'll make a couple of points, you know.
The first one is everybody's talking about AI and worried about what could go wrong. The way I like to think about it is what could actually go right. So in London right now we're seeing a huge number of AI tech engineers being hired.
That's great for employment.
Second point, we are expecting AI focused companies to take up to four million square foot off new office space here in London by twenty thirty three. We saw Anthropic take one hundred and fifty thousand square foot recently. Third point is on a global basis for corporate occupiers, non AI companies, but they employ a lot of people. We haven't seen them sign leases there any shorter than they
were a decade ago. And the reason that's important if they thought they were going to have fewer people, or they were more uncertain about the environment, you would typically expect them to sign shorter leases. So we're not seeing that. And then the point around demand for data centers versus offices, in part you've got different buyers, so you're not cannibalizing one another. But where you do have real estate buyers,
we are seeing a huge demand for data centers. If you just take London right now, on a pan European scale, London accounts for about thirty percent of data center live capacity. It's about eighty percent nationally. It is by far and away the largest city in Europe out of the big five, big five being Paris, London, Amsterdam, Dublin. And so we're not seeing any shortage in demand at all.
Okay, and next us and Jamad.
How quickly can you really build a data center in Britain given the power and water constraints, So.
That is the absolute right question to ask. So West London right now will probably take you ten years to build a data center. That's two years to get planning. Albeit the government has designated data center's critical infrastructure, so maybe it's a bit quicker two years to build, but right now to apply friction, yeah, that's also hard availability, materials and cost. And then the big point that you are saying, Caroline up to six years to get power.
Yeah, so surely that timeline you have to add a number of years to that because of government fragility, the change of leadership. Are your clients, you know, are they delaying any plans because of the fragility of the government.
Now, look, we've to a certain degree since twenty twenty had some level of uncertainty every year, some more than others. Real estate's clearly a longer term commitment, so people do look through short term political volatility. The bigger issue was going to be interest rates. You know, real estate buyers are typically higher levered, so the high the guilty yields go,
the more expensive real estate becomes. But real estate investors generally can invest in any environment, but what they do need is certainty, stability and predictability, which is a bit of a challenge right now within the UK. You know, things will get resolved. It's a long term commitment. We don't expect in the short term, sorry, in the longer term that to really influence the amount of real estate investment there is in this country.
But what if the AI bubble bursts and you get hyper scale of capex cycles slowing down reshe.
So's it's a question that everybody's asking the amount of capex that's being spent and why does that matter for real estate? It matters because you've got an awful lot of real estate debt being lent against this capex. Look I'm not an AI specialist, but you know, the earnings forecast for some of these big data center businesses is enormous.
But I can tell you right now, the fact that everybody's talking about it, the fact that everybody's worried about it, means that people are aware of it and hopefully taking account of it in their underwriting.
In terms of other things that we are thinking about and maybe that you're thinking about. If you talk about the kind of the attractiveness of building this kind of infrastructure, of basing it here in the UK, how do you defend against competitors JNL Kushman Wakefield and again with the backdrop of yields? Is that not making investors think twice as yields continue to rise, but especially here in the UK.
So I can only tell you what we're seeing aside from the amount of domestic capital under the Mansion houseer called that's where you've had a number of defined contribut You should providers commit to invest ten percent of their capital in the UK in the private markets by twenty thirty, so you've.
Got a wonderful pool of domestic capital.
We have seen a huge increase in the amount of overseas capital. Look at the UK predominantly out of Japan, the United States and Australia, So there is something going right. People are looking to diversify away from other parts of the world, you know, and we can forget sat here in London. We've got Ruler Law, some of the best universities in the world, a great tech infrastructure business, a relatively stable currency and time zone in a global environment
that's really valuable. It's really easy to forget these things sat here with the day to day manushev to duel and gloom. But when you travel around the world like I do, actually London is one of a handful of places that are still viewed as very attractive with stability in the long term. Obviously we've got some short term challenges right now.
Yeah, and what if there is a change of prime minister. If you get more left wing prime minister, is there any particular policy issue that worries you could slow down investment in your sector.
Look, without getting to the individual name, So there are clearly the bond markets would if there is a change in prime minister. There's clearly the bond markets will favor certain candidates over the other.
But like I said, before.
From a real estate investor perspective, they're very comfortable investing at higher rates of interest rates. That's not a problem, done that for years. The issue is just having some stability back. So if we do end up with a change in PM, you know, arguably some stability comes back and investors will look through it and invest.
Okay, I'm going to press you a bit, fir, what about renationalizing various industries?
What about rent controls.
That we'll discussed only a amount of days ago by the Chancellor Rachel rees. That would surely spook investors who are trying to build, as you say, long term investments with rents for you know, older peopletudents or whatever it might be.
Rent control, it would be a huge deal for this.
To a certain degree we've had if you just take let's talk about residential just let's look back over the last five to seven years of what's happened. You can no longer claim back mortgage in just relief on your tax returns. The amount of legislation rightly that's come in to protect renters, most recently the Rents Act. Having said that it's in a way it's institutionalizing the asset class individual private landlords of finding it too expensive, too complex
to invest. We've seen a huge uptick in the amount of institutions looking for living and actually, if you end up with more institutional landlords, arguably that's better for the tenants renting the space.
Okay, Rishi, very good to see you.
Thank you so much for coming in and speaking to us here on Bloomberg Radio. That is Rishi Bukar, who is the CEO of cbre UK, giving us some interesting thoughts on data set is on the infrastructure build out, saying no, you know, investors not deterred as yields rides or even really by the political situation. But I think a kind of clear message on stability, Lizzie.
I mean that was what we were talking about during the general election.