Finance, fit-out and flying

06 June 2019

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A personal view of the evolving role of real estate in a world of technological, social and business change, by Richard Pickering, Head of Futures Strategy.

Finance, fit-out and flying

Land for the Many As the prospect of a General Election becomes more real (7/4 odds for one in 2019), policies other than on Brexit start to warrant consideration. This week saw the publication of a Labour commissioned policy development paper entitled ‘Land for the Many’. This sets out a range of proposals, some of which may raise eyebrows in the real estate industry. There will be limited opposition to the proposal that all planning and ownership data on real estate (inc beneficial ownership) should be published digitally in order to increase transparency. This is a journey upon which we are already passengers; and could well have the most radical impact on our sector in the long term. However, other proposals are more likely to catch the headlines in the short term. At the heart of the recommendations is an overriding objective to ‘discourage land and housing from being treated as financial assets’. From this stems a number of proposed initiatives: (1) reform of buy-to-let, giving 3-year term-certains and capping uplifts at CPI, (2) tightening of LTVs and loan-to-income requirements, (3) annual council tax revaluations and phased out SDLT for owner occupiers, (4) amends to the Land Compensation Act to enable purchases closer to existing use value, (5) removal of PD rights for office-to-resi conversions, (6) a new Public Realm use class conferring associated occupational rights on citizens, and (7) a more general presumption that development should be a public sector led activity. That should provide some food for thought.

By the month In the world of music, subscription streaming services have comprehensively taken over from downloadable MP3s during the past 3 years; a trend which reached maturity this year, as the big tech platforms refocus their business models. This is symptomatic of a much wider societal shift towards subscription business models. Of course, renting an office is already a subscription service (periodic income in consideration for the leasing of real estate) and as lease terms fall to include pay-per-month packages, real estate monetisation looks more and more like Netflix. The question for landlords is what else can be bundled into the service offering? When creating product bundles, a supplier is best to pose the question, what else does my customer need at the same point? Furniture is the easy and obvious answer. Last week Knotel responded to this need by launching its own subscription furniture offering, ‘Geometry’. Charged on a monthly basis, and using modular design elements, which include collapsible meeting rooms and phone booths, the operator claims to be able to fit out an office in less than an hour. Meanwhile, in the resi market, responding to the needs of digital nomads who work from city to city at short notice, flexible housing start-up ‘Anyplace’ has just received seed funding for its short-term furnished housing marketplace. As well as providing shorter than average furnished tenancies, it also procures longer than average hotel stays, securing preferential rates for those willing to commit to stays of a month.

Clicks and Mortar Amazon has made its first incursion onto the UK high street this week, opening a ‘Clicks and Mortar’ store in Manchester. This is part of a proposed roll out of 10 unbranded pilots stores across the UK. Amazon previously had a more modest high street presence in the form of its lockers, and these will also form part of the new stores. The rest of the offer is about bringing previously online-only brands to a high street marketplace. Due to its relatively low barriers to entry and easy contractual commitments, the online channel can be an attractive starting point for small businesses to seed their offering. However, due to limited supply of shelf space on the high street (compared with potentially infinite suppliers online), physical retail remains a better channel for funnelling in customers that sit outside target market segments, (particular those that arrive without a specific purchase intention). Coming in under the Amazon umbrella allows these businesses to be incubated on the high street in way that might not otherwise be possible.

Looking up? Flying taxis are obviously a pipe dream, right? Wrong, apparently. A series of prototypes has started surfacing in recent months, such as from German start-up, Lilium, with promised commercial delivery horizons of about 5 years. Such is the sincerity around delivery that the regulators are starting in earnest to certify operators, reports the FT this week. Setting the rules won’t be easy, especially with flights over dense urban areas. However, an equal challenge is how our built environment would cope with an increase in vertical take-off air traffic. For instance, in the UK’s biggest city, London, there is only one centrally located heliport (at Battersea). Parks and other large green spaces might provide opportunities to site landing pads. However, whilst 47% of London has some form of green coverage, most of that is in outer areas or private gardens, leaving less than 20% as Public Open Space. Another option is the Thames. If Boris could build a new global airport in the estuary, presumably a few helipads in the central section should be an easy matter? These would have the advantage of being located close to nodes of expected demand. Finally, we have rooftops. Traditionally a home for plant, and now increasingly the best bit of the building to deliver bars and restaurants (our report here), roofs could in the coming years find new demand as an access point for both passengers and drone deliveries. Particularly as our cities densify and ground floor infrastructure becomes stretched, the interesting bit of the office tower might move from the bottom to the top.

Shop the room Forget about experiential retailing. What about an experiential living room? Convincing people to buy products based on the lifestyles of the rich and famous is a tried and tested technique. Even people who aren’t that famous, like last year’s cohort of Love Island contestants, might work. On that occasion, online fashion brand Missguided provided the Love Islanders with free products to wear on the show, which resulted in an uptick in sales of 500% of those products. This year, new partner is hoping to emulate their success. But why limit one’s ambitions to selling clothes, when you can also sell furniture? The UAE division of IKEA has developed a cunning ad campaign, which faithfully recreates some of the most famous living rooms in the world, using their own furniture. Now you too can buy the look of Homer Simpson’s living room, complete with crooked picture of a boat, or Monica’s purple-walled Manhattan loft with comfy sofa for entertaining Friends. However, there remains a gap in the market for a commercial equivalent. If you’re about to fit out or provision your office, perhaps discuss with your facilities manager the options for: a mid-century orange dinette chair from Mad Men, desk toys and stickers from the IT crowd, or the water cooler and Gareth’s stapler from The Office. Links to referenced reports can found on our website under 'Snippets'. Take a look here.

© Cushman & Wakefield 2018. This information contained in this briefing is for information purposes only. Accordingly, the information contained herein should not be relied upon or used as a basis for any business decision. Any such decision should be based only on suitable and specific professional advice. This briefing is not directed to, or intended for distribution or use in, any jurisdiction where such distribution or use would be prohibited. To the extent permitted by law, Cushman & Wakefield accepts no duty of care and cannot be held responsible or liable for any loss or damages which may be incurred by any person (directly or indirectly) as a consequence of relying or otherwise acting on the information contained in this briefing.

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