Over the past decade, a move towards specialism in real estate has taken place, bringing with it a number of advantages.

Bill Hughes

Adopted in particular by the REITs, one example is Hammerson’s shift to focusing solely on the retail sector. For L&G, this included strengthening our in-house sector specialist teams to bring in a wider range of emerging sectors as well as deeper tenant relationships.

However, while this trend remains a prerequisite for good performance, a broader theme has emerged that will be important for investors in the built environment - the ability to fund real estate regeneration with long-term private sector capital alongside the renewal and creation of social and economic infrastructure. To do this, it is essential to adopt a holistic, multi-stranded approach.

The government’s deficit currently stands at £75bn, against liabilities of £3.3 trillion, with annual spending commitments of around £750bn. This is unsustainable without growth in productivity from investment in economic and social infrastructure - namely housing in cities that have suffered decades of under-investment.

Rather than spreading further outwards, we need to mend and rebuild what is already there; to regenerate the existing built environment to make more efficient use of the resources and infrastructure that are already in place. This makes the relationship between economic infrastructure, social infrastructure and real estate more compelling than ever. So while specialism is still important, what’s much more important is specialism across a much wider universe than real estate.

This is about creating vibrant communities by linking the places where people live, shop, work and play - allowing them to live better-quality, more productive lives. It is necessary to employ energy efficiencies and new construction technologies to speed up delivery and lower future occupational costs. Improving people’s health and wellbeing, while boosting jobs and economic output, can not only take some strain off the state’s welfare system but also allow the UK to compete better internationally.

Likely to remain indebted and therefore fiscally constrained for an entire generation to come, the public sector needs to find non-financial levers to attract regeneration investment. Brownfield regeneration is often more complex, expensive and lengthy to deliver than traditional development. It seems perverse that brownfield schemes often bear heavy taxes that make them unviable, despite their social, environmental and economic benefits.

However, supported by their increasing devolved powers, enlightened local authorities can now lift many of these hurdles by relaxing planning laws, unlocking land ownerships, reducing tax burdens and selectively putting in place investment-grade guarantees. A more balanced assessment by the public sector of the true benefits of regeneration, both social and economic, can encourage more investment and reduce the barriers to critical development.

This opportunity then becomes a strong match for the money held by managers of pension funds and savings. Indeed, aligned to the future success of the economy, these managers should feel an obligation to invest in and improve the UK’s built environment on behalf of the populace whose money they are deploying, so are the natural partners of choice.

In short, real growth will only come from a more joined-up approach to real assets, beyond real estate. ‘Mixed-use’ development has greater meaning today than ever before, and it is only through the cross-sector collaboration of skills and partnerships that large-scale economic and social regeneration can be delivered.

Bill Hughes is head of Legal & General Investment Management - Real Assets