Alistair Elliott on real estate’s global revolution
Alistair Elliott is senior partner and group chairman of leading global real estate group Knight Frank. The veteran dealmaker reflects on the seismic impact made by global investors over the course of his near 40-year career in real estate.
London’s Battersea Power Station is an excellent illustrative example of the growing significance of the global property sector. This former coal-fired power plant, in prime central London riverside land within sight of the Houses of Parliament, had lain derelict for 30 years, a symbol of the post-industrial period. It has now been reinvented as a vast residential, commercial and retail development. Sold to its developers for GBP400 mn in 2012, the 17-hectare site now has 1,300 luxury apartments designed by architects including Foster + Partners, 250 retail shops, almost 1 million sq metres of commercial space and a cinema, with a gross development value of over GBP10 bn. It also has its own dedicated branch of the London Underground, with trains scheduled to start running in autumn this year.
The 2012 sale to a consortium of Malaysian investors, effected after years of failed attempts at development, was handled by Alistair Elliott, senior partner and group chairman of leading real estate advisory firm Knight Frank.
“I led the team who pitched for the job,” he says. “We drew up a list of the top 100 or so people and organisations who we felt were likely to spend several hundred million pounds on a piece of land. There aren’t that many institutions who could take on the initial outlay and then see the development through, but we worked through the list methodically, found the right buyer and 12 months later we had completed the sale.”
The influx of global capital into the property sector has spurred other urban transformation projects, including the Hudsons Yard scheme – an 11-hectare commercial and residential development in New York; the trio of luxury residential towers at One Sydney Harbour, phase one of which was designed by Renzo Piano; and the artificial islands of the Palm Jumeirah in Dubai, a 560-hectare development of resorts, hotels and apartments and villas for nearly 60,000 residents.
The lesson from such major projects is that property is for those with a long time horizon, says Elliott. “You have to go in with your eyes open. Developments of that scale are controlled by capital that takes a 10- to 20-year view.”
The fact that investors are no longer limited to local markets has also played a part in the resilience the real estate sector has displayed during the disruption of Covid-19. Resilience that surprised even experienced players, many of whom expected the cycle to take a much greater turn for the worse. “Real estate assets of all kinds are now international commodities,” says Elliott. “In March or April last year, the view of the majority of people I spoke to was that the prospects of a crash were very high. There was so much uncertainty around the pandemic and the number of economies going into lockdown. But in fact, what has happened is that markets just stalled temporarily, and they are now bouncing back in many countries.”
Knight Frank was founded as a UK real estate agent in 1896; Elliott has played an active role in its expansion into a global real estate player, with 488 offices across 57 territories and more than 20,000 staff. Its services range from major commercial redevelopments to consulting wealthy private clients on their third or fourth homes. Crucially, he says these are global and connected as never before. “It’s crucial that we are able to advise clients about what’s going on in Sydney or Singapore, Monaco or Paris, New York or London."
China and India are also good prospects for post-pandemic growth because of the underlying strength of their economies, Elliott adds. “There’s already been a rapid resurgence of activity in Shanghai and Beijing. India was badly hit and has been a bit slower to recover, but the fundamentals suggest strong GDP growth over the next two to three years.” The World Bank expects the Chinese economy to grow at 8.5% in 2021, with Indian GDP predicted to rise by 8.3% in 2022.
The industry he has made his own has not always been such an international place. “When I started in the 1980s, real estate was much less global and more inward looking than it is now. It was a much smaller world.”
The range of asset classes that pique investor interest has also diversified, as well as their locations. Although residential and commercial remain key to global interest – according to Real Capital Analytics, Chinese investors spent USD6.8 bn on real estate globally in 2020, of which USD2.12 bn was on UK commercial property alone – investors now seek advice on an increasingly wide range of alternatives. “It’s not just residential on one side and offices and shops on the other anymore,” says Elliott. “Today, our clients are interested in data centres and retirement living, hospitals, cinemas and student accommodation. They’re interested in buy-to-let blocks and luxury hotels. The fundamentals of a piece of real estate are more important to them than what type of asset it is.”
What is the secret to real estate’s enduring international appeal? “It provides yield and adds diversity to a portfolio. It has also proven to be a sensible long-term bet through a number of crises. Property does go through cycles of course, but a building is always worth something.”
Major industry players have had to adapt to the globalisation of the sector. “When I joined the graduate scheme, the first thing everyone did was a stint in the mailroom,” says Elliott. “Now we run schemes like our Broadening Horizons programme, which offers people early in their careers the chance to work in one of our overseas offices for six weeks so they can really get under the skin of things.”
It’s experience that even the best virtual technology can’t match. “Although we have learned that we can do a lot more with remote working than we thought we could, the amount you can learn by immersing yourself in a market alongside a group of people who really know it well is amazing. Fundamentally, there’s no substitute for that.”
1983: Joins Knight Frank’s graduate scheme
1995: Joins the equity partnership
2006: Becomes head of commercial, Knight Frank
2013: Becomes senior partner and group chairman, Knight Frank