17 January 2019
Who blinks first? Yesterday was a big milestone in the Brexit process. The result of the vote was however surely expected by all. The odds going into last night’s vote were 1/33 against, and with an expected deficit of more than 100 seats to pass the vote (a certainty in the context of modern politics), even then the bookies appeared a little cavalier. Ultimately, the bill was defeated by more than double that expectation. Theresa May surely knew this would happen; so what’s next? Yesterday was unlikely to be a point of new information, and neither is tonight. Whilst 118 Tories were happy to vote against the PM yesterday, they are unlikely to do so in response to Jeremy Corbyn’s vote of no confidence to be held this evening. This means that to prompt a General Election, Corbyn needs the DUP on side, whose confidence has been pledged and reaffirmed to the Government. So, if we’re back to scratch, then the options narrow. May will undoubtedly go back to the EU to try to improve the deal; however, they are unlikely to budge, and with 72 days to go until Brexit it seems increasingly unlikely to be able to agree and document a substantially new deal in the timeframe. Article 50 could be extended or revoked with the EU’s agreement – that’s a possibility. However, the question now is, who blinks first? Will it be Remainers who fear that we will default into a no deal? In which case, a rerun of yesterday’s vote could spur a different result, especially if the EU also gives ground. Or will it be Theresa May, in the form of People’s Vote? If neither happens then we are heading for no-deal.
Retail as a Service The days of having to ask which aisle the baked beans are in may soon be over, as Kroger and Microsoft team up to create a new grocery concept in the US. This starts with smart shelves that light up to display the product that you are looking for on your app. Digital displays are also able to provide information on pricing and dietary information, tell you via the app if an item is out of stock, and when not in use, the display can be sold as commercial advertising space. Perhaps of greater significance, the system collects insights from customers about product choices, performance data about employees, and supports inventory management, reducing out of stock issues. Collectively, the system is being rolled out by Kroger as ‘Retail as a Service’ enablement software. This indicates that their ambition stretches beyond deployment across their store network, and into sales to other retailers. Here is an example of physical retail using technology to fight back against online shopping, which still commands only a small percentage of grocery spend. It is also competition for Amazon’s rapidly expanding Go offering, and a similar offering from Walmart. The store of the near future it seems will have digital at its core.
Shopping campus As vacancy rates in shopping centres tick up, a typical solution is to infill with service-led uses such as leisure, health and public services. The more radical solutions envisage a major use change, typically to residential. However, as corporates become clearer on the benefits of being part of mixed use communities, wholesale conversions to campuses appear more plausible. We see a significant example of this in Google’s 14-year lease of One Westside in LA, which hit the press this week. The tech giant is taking most of the mall for a 584,000 sq ft ‘urban creative campus’. The conversion takes advantage of the high ceilings and multi-level atrium of the existing mall, whilst providing sizable 150,000 sq ft flexible floorplates and rooftop amenity linking into an existing leisure provision. In many ways the mall of yesterday is the ideal creative business campus of the future, and One Westside feels unlikely to be the only conversion of this nature. For mall owners the question will be how many more corporates there might be with the scale of Google’s requirement?
CES Last week Las Vegas played host to the annual Consumer Electronic Show (CES), which placed a heavy emphasis on the smart home of the future. Over the past couple of years, there has been a steady stream of adoption (forecast 27% penetration in UK by end 2019) of the three major home automation platforms (Google, Amazon, Apple) in the form of their virtual assistants and smart speakers. This now provides the marketplace for various third-party hardware, which could revolutionise how we live. The broad categories include: energy management (e.g. Nest thermostats), scene automation (e.g. Philips Hue light bulbs), security (e.g. Yale’s smart lock) and wellness (e.g. Netatmo’s air quality monitor). The clever bit is when all these technologies work together, which gets better with larger ecosystems. For instance, when the air quality is poor, an air filter is turned on and the window is closed. Or when you arrive home, your front door unlocks using geofencing (so no key needed), your house is already warm (because it learns what time you are usually back home and sets the heating), the lights automatically come on (if it is dark), and you find a package containing your dinner inside the porch (because the fridge automatically reordered your food and the Amazon delivery driver let himself in to deliver it using a virtual key). This is no longer science fiction, and it is no longer the domain of the tech companies. At CES, IKEA announced its move into smart blinds, and we might expect other furniture retailers to follow suit. It won’t be long until having this infrastructure in the home is as essential to selling it as is having a kitchen.
Going bananas Perhaps the biggest recipient of technological change in real estate has been logistics. The growth of e-commerce has relocated activity from shops to sheds; whereas the sheds themselves (largely controlled environments) have shown potential to be largely automated in a short space of time. A report released this week by our Research and Insight team, considers ‘The Changing Face of Distribution’. As part of the analysis, the report points to transportation costs comprising 50% of the total cost of a logistics operation (compared with rent, 4%). Vehicular automation should over time provide significant savings on this cost, which would increase the economic residual available for items such as rent. Early automation is expected at major ports, where there are fewer moving parts and public safety issues to resolve that typically slow down adoption. Finally, as new demand corridors emerge, supported by new infrastructure such as the Trans-European Transport Network, a series of new ‘banana’ shaped logistics corridors will emerge across Europe, joining up major population centres. The UK’s role in this network will depend on the political outcomes over the coming weeks, with the EU Commission already having removed the UK section from a corridor extending from Benelux down to Italy. You can read a copy of the report here.
Smashing time The office of the future is a much more multi-faceted environment than that of yesteryear. Having replaced traditional rows of desks for some time now, cafés and breakout spaces have become standard fit-out. However, in today’s stressful world of work, more ambitious elements such as massage suites and basketball courts have been incorporated in some office designs to let employees blow-off stream. Now, an innovation in Beijing might provide food for thought for office designers and shopping centre investors alike. ‘Smash’ is a rather literally named space that allows customers to erm… smash stuff. Armed with a face mask and baseball bat, one can destructively recycle cathode ray TVs, VCR players (remember these?), CDs and various other items that have been left on the rubbish heap of technological obsolescence. Involving physical exercise and psychological catharsis, the concept responds well to our modern concern with wellness. Its minimal concrete fit-out and pay-per-smash business model also lends well to pop-up offerings with the operator stated to be looking for new space in shopping centres. For those that have had a particularly irksome day at the office, however, you might be disappointed to learn that whilst you can smash most things, ‘the only thing you can’t do is smash someone else’.
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