23 May 2019
Power, parcels and problems
Virtual insanity If you attended one of our Outlook conferences recently, you’ll have heard me talk about the threat that the digital world poses to the world of real estate. In the context of clunky VR headsets and an unquestioned axiom that ‘people prefer to do things in the real world’, the threat of substitution of real world processes by virtual ones might feel remote. However, I argue that this is dangerously flawed logic, which ignores the changes already happening in the world. Hardware will catch up (it always does), but more importantly, a younger generation is increasingly seeing the virtual world as a viable and preferable alternative to physical interactions, across a range of activities. Testament to this is the rise and rise of virtual platforms (e.g. Fortnite: 250 million+ users) and the amount of time that people spend viewing digital media (a shocking 11 hours per day according to a study last year by Nielsen). Further evidence comes this week in the form of the sale of a virtual dress for $9,500, (well, if you’re spending a lot of time in the virtual world, you’ll want your avatar to look good, right?). The potential long-term implications for real estate are stark. However, there are I believe some clear defences to this trend. Message me if you’d like to discuss this topic further.
Creating an impact Last week I wrote an article about the redundancy of phone boxes and their removal from our highstreets. This week’s news highlights a couple of examples of uses that might fill that gap. Firstly, Royal Mail has announced that it will be rolling out 1,400 new parcel post-boxes from June in response to the growth of online sales / returns. Secondly, a report by the University of Bristol points to the damaging impact of the removal of free-to-use cashpoints on local communities. In particular, it points to a disproportionate representation of pay-to-use cashpoints in poorer areas, compared with free ones. The challenge with cash machines is largely one of opex, and the question about who should pay for this. The easy response is to place responsibility on banks (it’s they who derive value after all). However, the community also benefits, and so maybe it should be the public sector? Finally, the property industry benefits. Social amenities such as cashpoints create the conditions to make a place attractive to residents, which in turn underpins values. Increasingly, developers and investors are posing questions about CSR and impact investing. Delivering and operating social infrastructure (from cashpoints and community centres, to pubs and playgrounds) is a clear example of a shared value proposition that supports local communities whilst at the same time securing longer term income sustainability from the wider scheme. The property industry has historically accepted obligations to deliver infrastructure, but has shied away from the associated downstream operations. Is the time to reopen this discussion?
Takin’ it to the Streets Carrying out pretty much any commercial activity has historically required having a real estate base from which to do so; whether that is an office, a shop or another structure. Real estate value (/cost) is most significantly influenced by the location of the asset. This is turn influences the likelihood of achieving greater massing and higher value uses; but the primary driver is being at high footfall node; typically greatest at the centre of a city. However, as the world shifts to decentralised / distributed activities old paradigms about location may start to break. This increases the importance of seeking out customers rather than being reliant on them coming to you. An example of this is found in the fast food industry where, with a consumer shift to online and mobile ordering, less footfall is arriving at restaurants. Burger King has developed a customer centric response to this. In cities suffering significant traffic congestion (e.g. Mexico City and LA), it will offer a new service delivering meals directly to your car. This is facilitated by big data and location analytics technologies that didn’t exist 10 years ago; now making it possible to predict areas of congestion and arrange resources accordingly. Fast food is an industry where one-hour delivery slots don’t cut it. Distributed customer demand makes having a network that can satisfy dispersed delivery more important than having a single central node; with corresponding impacts for real estate.
eProblems A recent study has found that 30% of e-Commerce initiatives will deliver no value to retailers. The study by Greenlight Commerce shines a spotlight not on the failure of the digital channel itself, but on the ability of those wishing to deliver through this route to implement their initiatives. Typically, in response to the perceived market threat / opportunity, projects were rushed (48%), and success metrics were not properly assessed and measured (87%). Both Amazon and e-Bay launched in 1995. As Warren Buffet once said, ‘You don’t want to give Jeff Bezos a 7-year head start’. However, many retailers have given him a 24-year head start, allowing the likes of Amazon to accrue incredible economies of learning during this period. With the only real retail strategy now being omni-channel (in varying mixes), a failure to implement a successful online channel affects overall business performance and creates a competitive disadvantage. Another study showed that 90% of UK customers now use Amazon, and 25% have an Amazon Prime subscription (not bad for a book seller). In the States, Amazon’s market share of online sales exceeds 50%; whereas for the rest of the world it is just 6%. The question maybe should not be about online vs offline, but more about the increasing prospect for dominance of a couple of global players in this space.
Power and petitions Political power struggles and fraught European politics are par for the course in modern times. This week, one power struggle has concluded, and another European political contest has been played out. The former was of course the climax to Game of Thrones. To avoid spoilers, let’s just say that that it ran true to its unpredictable course... The latter was the Eurovision Song Contest, won this year by the Netherlands with the UK in last place. What can we learn from these events? The first is that you can’t please everyone. 1.3 million people have signed a petition to have the last series of Game of Thrones recut (only 116,000 for Star Wars: The Last Jedi but 6 million for Brexit). The second is that our optimism about success in the UK is not always matched by our performance. As Ramsay Bolton said, ‘If you think this has a happy ending, you haven't been paying attention’. On a positive note, I’m reliably informed that the chances of the UK winning the UEFA Champions League final next week are significant higher.
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