From defence logistics to AI: four things we learnt over breakfast

Over breakfast at Duck & Waffle this week, the conversation ranged from capital raising and defence logistics to data centres and whether AI could prove as disruptive to real estate as the internet was to retail and offices.

The discussion formed part of Tavistock’s latest real estate breakfast, a small, off-the-record gathering of listed REIT analysts, private capital investors and a senior City journalist. Under Chatham House rules, nothing below is attributed.

A few themes stood out.

Optimism is returning, quietly

The mood around the table was more positive than the macroeconomic backdrop might suggest.

A difficult Budget remains a concern and questions persist around the UK’s ability to retain wealth and attract investment. Yet several attendees pointed to a simple fact: property fundamentals are improving.

Occupier demand remains healthy across many sectors. Income growth is beginning to reassert itself. One veteran REIT analyst noted that the sector is edging back towards double-digit total returns for the first time in years.

There was also little nostalgia for the larger listed property market of the past. The shrinking number of UK REITs was viewed less as decline and more as consolidation. One analyst has watched the number of companies he covers halve in five years and expects further mergers ahead.

Defence has become investable again

A few years ago, defence exposure would have sat firmly in many investors’ exclusion baskets. Today, the conversation has changed markedly.

Several participants highlighted growing demand for logistics, industrial and R&D space from defence-related occupiers, particularly businesses operating within supply chains rather than manufacturing weapons themselves.

Perhaps most strikingly, some institutional investors now view defence through the lens of national resilience and security rather than as an ESG problem. What would once have been politically difficult is increasingly becoming acceptable.

AI is already changing the industry

The AI discussion split into two camps.

The first focused on occupiers. AI businesses are emerging as an important source of demand for premium office space, particularly in central London. While broader questions remain about AI’s long-term effect on workplace requirements, several participants argued that the immediate impact has actually been positive for the best buildings.

The second discussion centred on personal use. One investor described using AI to assess an acquisition opportunity, reducing hours of analysis to minutes while surfacing risks that might previously have taken much longer to identify.

Others were more cautious. If AI eliminates the repetitive, entry-level work that traditionally teaches people how to analyse investments, where will the next generation of dealmakers learn their craft?

It was one of the most interesting debates of the morning and one without an obvious answer.

Data centres are becoming misunderstood

Data centres inevitably featured.

The consensus was that public debate is often focused on the wrong issues. Water consumption, for example, was described as something of a red herring given the widespread adoption of closed-loop cooling systems. Power availability and grid capacity are the far more significant constraints.

There was also scepticism around claims that older facilities are rapidly becoming obsolete. In many cases, the underlying infrastructure, connectivity and power access remain highly valuable, even if cooling systems require upgrading.

By the end, the conversation had touched on labour markets, national security, electricity networks and the future of work. Which may be a fair reflection of where the industry finds itself today.