12 November 2018
Serendipitous, stickiness and Siberia
Global startup revolution The US, and in particular Silicon Valley, has long dominated the world’s share of venture capital. In Proptech for instance, 52% of global venture capital is invested in the States. However, a new report by Richard Florida points to a rebalancing. In the 1990s, 95% of VC activity was in the US, whereas today it is more like 50%. Whilst China is behind much of this trend, startup activity is found to be concentrated on a small number of dominant global cities (London being the top city outside the US). Why is this? Florida asserts that ‘innovation and entrepreneurship are fundamentally urban processes that require the density, diversity, and scale of large cities’. Density brings with it the potential for large numbers of serendipitous interactions. If we consider that the work of the future is trending away from the performance of linear tasks and towards creativity and innovation, this paints a strong argument for the continuing rise of the best agglomerations. Florida points to ‘the rise of the rest’ – a term used to describe the increasing importance of the US’s second tier cities, but concludes that in fact, ‘the rest’ are more accurately the global centres like London that continue to take an increased share of global business activity.
Pay Power In a speech at Acas’s Future of Work Conference last week, BoE Chief Economist Andy Haldane noted that long term structural forces have been holding back pay growth. He lists these as: weak productivity growth, a secular fall in the degree of unionisation, and changes to working practices driven by industry concentration and automation. The combination of these factors has led to the weakest decade of pay growth since the 1930s, which is drawn into sharper relief by the rise in the cost of housing. The share of all income allocable to labour fell sharply in the 1980s and now stands at 10% less than in 1955; the young have suffered particularly in this shift. If we look forward, factors such as the increased dominance of large businesses (creating monopsonistic bargaining positions), the rise of the gig economy (and associated loss of employment rights) and the rising wave of automation should propel this trend further. Playing this through, without government intervention, the division of wealth in the country between those who derive income largely through capital and those that earn income through labour is likely to widen.
WeMRKT Disruptive business models in the real estate sector are highlighting the potential to leverage property assets to create other revenue streams. WeWork has been particularly adept at transforming ‘tenants’ into ‘members’. Tenants pay rent, but members it seems are open to buying a much wider collection of services and develop loyalty and stickiness to their ‘community’. A recent example of this is WeWork’s WeMRKT concept, kicked off over the summer in Hudson Street, Manhattan. Any WeWork member can pitch to have their product promoted in the store. For successful members this provides a new distribution channel for their products, focussed on a targeted member demographic, together with brand and marketing support. For WeWork, they take a skim off the revenue, turning them essentially into the retail arm of their membership. They have plans to open 500 similar concept stores over the next two years, together with an online channel. Space is a vehicle to engineer choices. Its strength comes in its finite nature, which, when compared with the vast expanses of the internet, constrains customer options. In the process this adds value to the products which make the cut, and to the property owner who can offer that opportunity.
Smart cities and smart decisions Data is playing an increasingly central role in real estate; from how we choose where to locate a shop, how we make investment decisions, and how we design buildings. With tech players like Sidewalk Labs entering the sphere of city development, this is only likely to increase. However, with this comes questions of ownership and privacy. One might have thought that Google’s sibling company Sidewalk Labs would want to gain an edge in their Toronto scheme through keeping their data proprietary. This could for instance give them unique metrics on how people interact with real estate and move through the city, which could be capable of monetisation. However, in a bid to address trust issues, Sidewalk Labs announced this week that it is giving up the IP in any data collected through the scheme to a third-party agency ‘Civic Data Trust’ and making all of the systems run on open standards ‘to prevent vendor lock-in’. We live in an age where disquiet is mounting on how personal data is used. Whether you know it or not, you probably already give up your live location data (from which one can easily infer where you live) through the apps on your phone. As with many areas of technology, data is one where innovation is running ahead of governance. It is encouraging to see market leaders like Sidewalk Labs taking the ethical high ground on this issue.
Stand up to sitting down The first purpose-built office in the UK was built in 1729 to house the East India Company. It marked a change in how we work, as orderly rows of desks and offices accommodated the birth of the corporate era. For many years, and in spite of significant societal shifts, the look and feel of the office has not changed much. Most people still sit at a desk to complete the vast majority of their tasks. However, questions have begun to emerge around the health and productivity implications around spending such a large portion of your life in a sedentary position. Such is the nature of office-bound work, that last year the University of Edinburgh published a report that found that middle aged Scots spend more hours per week sitting down than pensioners do. An experiment published in British Medical Journal last week sought to prove the effectiveness of implementing a ‘SMArT Work’ (‘Stand More at Work’) intervention. The study involved 146 NHS workers, 77 of which were given a height adjustable work station. Predictably, by the end of the experiment, those with standing desks were sedentary 83 minutes less per day than those with a desk. A significant proportion found that this created benefits, in that they were less tired, less anxious, felt more engaged throughout the day and there was a reduced incidence of musculoskeletal issues. With the evidence building in favour of standing work-stations, how long will we continue to fit out offices with traditional seated furniture as standard?
Giving it away For those working in central London development, land value is often the biggest component of development cost (>£200m per acre). For those operating in environments where demand is a little more scarce, land has considerably less value. In fact, in some cases you can’t even give it away. Take the example this week of Russian minister Alexander Kozlov, who launched a competition on his official Instagram account, offering a mystery prize to the person who could guess what it was. It transpires that the prize was a hectare of land in eastern Siberia. Runners up got a badge. Ironically, the badge was the greater prize, as the land is already being distributed for free under a government initiative. If you want free land, you can also find it in such places as Iowa, Pitcairn Island and Cape Breton in Canada. In the latter a local employer is giving away 2-acre woodland plots to employees after 5-years of service. This compares with virtual land in places such as ‘Genesis City’, ‘Decentraland’ and ‘Metaworld’ where an acre of cyber space now trades for up to $200,000. Which is the better investment…?
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.
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