Insights

Across Europe and the US, real estate markets are strained today to a degree that we have not observed since the global financial crisis (GFC). Over the last few quarters, borrowing costs have surged, and liquidity has started to evaporate. If economic fundamentals continue to soften, liquidity problems could turn…

The London-focused office REIT Great Portland Estates (GPE) recently made an announcement that caught our attention. In a presentation of April 2022, the company declared that all its investment activities would be guided by a new mandate going forward: “If not Flex or HQ repositioning […] [then] exit.” GPE’s latest annual report describes…

In this paper, we lay out the case for investing in European real estate, particularly relative to US real estate, in the coming decade. While US real estate outperformed in recent years, all investors know that past performance says little about future returns, and the next decade may look very…

The internet has already changed the lodging sector in meaningful ways. Hotel websites made it easier for customers to transact directly with sellers. Online travel agencies (OTAs) allowed buyers to sort thousands of competing products and compare prices. Airbnb pulled millions of new suppliers into the market, and pricing algorithms…

As we’ve discussed before, the office has changed a great deal in the last quarter-century. Our views about that transformation are structured around a broader narrative about the evolution of information and communications (ICT) technologies. We’ll start by laying out that narrative, since it is crucial to understanding the rise…

Our 2021 white paper takes up a very basic question: why do people live where they do? We draw on insights from economists, historians, and urbanists to try to understand why some places thrive, why other places flounder, and why the fates of particular places evolve over time. In Section 1, we sketch…

Economic historians tell us that the Black Death helped birth the domestic silk industry in Europe. Until the fourteenth century, silk was mainly imported from Asia. But the Black Death led to a consolidation of European wealth, which funded fresh investment in fixed capital, enabling local entrepreneurs to produce silk…

Howard Marks is worried that value investors have lost the plot. In his January 2021 memo, “Something of Value”, he writes that their obsession with cheapness—or more specifically, with a naïve definition of cheapness—has confounded their ability to spot genuine value. This focus on “cheap” as a byword for “value”…

The last time Mike visited New York (before Covid-19, of course), he decided to stop somewhere he hadn’t been in 15 years: the New York Public Library. A lot had changed since his last visit there.  And as he walked into the building—then named after the man who the last…

A recurring theme when we here at Castleforge attempt to prognosticate over the central London office investment market is that it is very hard to predict the trajectory of cap rates. On the one hand, London is a volatile market and is not immune to economic cycles that create cap…

“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.” – Bill Gates Another day, another article announcing the end of demand for office space. A couple weeks ago,…

As we have discussed in previous letters, over the past 20 years the UK property industry has seen a substantial rise in construction costs, which has lead to a large and sustained increase in the replacement cost of buildings. Since 2000, construction costs have outstripped inflation by nearly two times…

With recent political movements drawing greater attention to the potential impacts of human activity on climate change and governments coming together to discuss ways to reduce and mitigate these impacts, it is no surprise that ESG issues are at the forefront of the minds of stakeholders in the property industry….

Our readers will know that we have been covering the WeWork story for a number of years now and that we have been sceptical, at least to the extent that WeWork’s business model was a poor bargain for landlords and likely obscured a reduction in net absorption in central London…

Over the past 20 years, the UK property industry has seen a substantial rise in construction costs. We believe that this rise in construction costs has led to a secular increase in the equilibrium level of rents across the property spectrum as the replacement cost of buildings has increased. Here,…

At Castleforge we foster an environment that encourages continued learning and development of each member of staff. Examples include skill-specific educational courses that team members are welcomed to take, our internal library filled with books (albeit many of which are still in pristine – i.e., unread – condition) or our…

Within our discussion of serviced offices, it’s important to separate the product offering from the business model. While we believe the offering is increasingly attractive to a variety of tenants (discussed in detail later), the typical business model possesses numerous potential risks, primarily because typical serviced office operators lease their…

For those of you who attended our annual meeting, which was held in London on May 9th, you will know that we spoke in some detail about the three main pillars of our investment strategy: vertical integration, thematic investing and operational enhancement. Of course, we’re always keen either to challenge…

At our annual meeting Mike discussed at length one of the very simple but powerful metrics we use to understand the rental cycles in London: the amount of space under construction. It causes us some amused frustration that many brokers in our industry don’t spend much time on a day-to-day…

On a recent trip to Berlin to meet with the buyer of 160 Aldersgate (a Germany-based fund), Mike and our colleague Martin were walking around the Alexa shopping centre in Mitte. Suddenly, Martin stopped and turned to Mike, remarking with some surprise “even the adverts are all in English!” Of…

Recently, you might have heard us discuss how we think that leasing agents are significantly less incentivised at the individual level here in the UK than they are in many other real estate markets around the globe. For example, Mike led the discussion that saw 160 Aldersgate leased to DLA…

We recently read with some amusement and amazement an article in a UK property industry magazine, using research contributed by a UK property company, about a new way we should all be looking at office demand: net absorption. The article stated that “London’s occupiers have vacated the greatest amount of…

History never repeats itself exactly, but we often experience echoes of history where the characters are the same, even if the actors change. It is therefore often helpful to draw parallels to previous market cycles as a way to help us understand what may be happening now. For the London…

Given the substantial attention dedicated to a market update at our recent Annual Meeting, we thought that rather than a letter about the market, it would be more interesting to put together a one-off discussion piece focused on the U.K. planning system. It has occurred to us that planning risk…

Whilst there may be an affordability crisis in relation to the price of housing for sale, there is not the same crisis in relation to rental prices, particularly outside of London. Rents have remained relatively stable in relation to wages in recent years. Our research shows that many of the…