Communities, consultations and competition

The most innovative district in the world  Sidewalk Labs’ project in Toronto has been feted for the past 18 months as a bellwether for a new wave of tech company led real estate development. This week the Google sibling launched its $1.3bn plans for the 12-acre site, in what they are describing as ‘the most innovative district in the world’. One such innovation will be in the form of building construction, much of which will be high rise ‘mass timber’ and, more generally, built and operated to a very high standard of environmental sustainability (solar, batteries, waste disposal chutes, solar power grid). Public squares and pavements will be protected by ‘raincoats’, ‘lanterns’ and ‘fanshells’. Ground floor uses will be flexible ‘stoa’ (from the Greek word) spaces that cater for multiple uses and will be booked through a leasing platform called Seed Space. Events, activities and community programmes in open spaces will be coordinated by an ‘Open Space Alliance’. Co-living units will share building amenities and cater for a diverse age group and the affordable housing percentage will be high relative to local requirements. These (and more – see link to doc through our website below) would be reasonably cutting edge on their own account, but the real story is in the digital / smart city proposals, which occupy a rather smaller section towards the end of the report. Connection speeds will of course be through the roof (and public) and the design includes ‘urban USB ports’ to connect up digital infrastructure. Sensor-driven data collection and analysis are at the core of the proposals and the developer is avoiding criticism by putting this in the hands of a public ‘Open Data Trust’. The proposals are undeniably exciting, and the real estate community should be taking notes. If Sidewalk Labs are successful, a much wider (350 acre) parcel awaits adjacent to the existing site, as do many more projects on an international stage.

 

Rent free  Despite a gradual shift in the lens through which real estate is viewed, price / cost remains a compelling factor for many. If you’re competing on cost then it’s a fairly tough proposition to beat a competitor that is offering the same product for free. Yet that is exactly what is happening in the case of some offices. A recent example comes from Manhattan based retailer Showfields, which has opened a coworking space at the top of its Soho store. There are no real estate costs for customers and the WiFi is free. The cost in this case is the requirement to sign up to a newsletter. From Showfields’ perspective the space will drive customers into its store, but also ‘build a community’, which it sees as essential to its growth. For the time being concepts like this remain niche; however, as vacant upper floor retail space is returned to the market this trend is likely to increase. The challenge for those offering office (and other) space using a traditional model is that those investors and operators who can derive alternative forms of value beyond rent should always be able to outcompete on price.

 

Walkable Urban Places  In the US the dominant form of urban development over much of the second half of the 20th century took the form of low-density urban sprawl, to which one would typically need to drive. With the rise of New Urbanism, and a new paradigm based on the theories of those like Richard Florida, this trend shifted in favour of higher density, mixed format development to which one could typically walk. In partnership with my US colleagues, George Washington University has published a report analysing the relative performance and economic contribution of these two urban types. The findings are relatively stark. The report finds that whilst the latter group of walkable urban places currently comprises less than 1% of the land mass of US metro areas, it accounted for over 72% of the absorption of office and multifamily space in top cities in the period since 2010. On average the rent premium for these forms of development was 75% greater than for urban sprawl, and the capitalisation rate was up to 50% higher, leading to a multiplicate capital premium. Whilst concentrated city centre development has been more normal in the UK, the findings of the report parallel an observable outperformance of city centre locations on this side of the pond. As the activities which our city centres host continues to evolve, it is increasingly in these concentrations that the higher value-added activity is being carried out, whilst those areas which respond less well to dense human interaction start to lose purpose.

 

Naming places  I’ve made the point previously that owning significant parcels of real estate allows investors to tap into non-traditional income streams that might have historically been overlooked. It has been announced in the press this week that TFL is due to consult the public over potentially changing the name of White Hart Lane tube station. The potential for the name change comes in response to a request from Spurs, in respect of which a premium of c. £15m is being sought. Whilst TFL is in a relatively unique position, other landowners should not ignore their potential to commercialise the naming of their assets. Stadia are obvious examples (e.g. Emirates); as are events venues (e.g. The O2). However, so are any prominent buildings that are publicly recognisable. In retail some physical structures are so closely associated with the operator that they take on their brand (e.g. Harrods) but in the UK, less so elsewhere, we have been more reluctant to name office buildings after their tenants. It is clearly less manageable when the building is multi-let and the other tenants disagree (one of the reasons for the reversion of London’s Salesforce Tower to 110 Bishopsgate). However, for iconic structures on our cities’ skylines, intangible property rights such as their name could be an unfactored form of returns.

 

High street highs  As the cycle of renewal of our high streets starts to take shape, innovative new uses are rising like a phoenix from the ashes of yesterday’s retail. Much has been made of the prospect of beds and sheds products, clean industrial uses, and even vertical farms. Last week it transpired that a highly innovative format combining all of these uses has been operating on the high street of the sleepy market town of Kettering for some time. Taking over the prominent 1930s Regal Cinema building just a couple of hundred metres from the Council offices, new operators have repurposed the premises into a form of factory / urban farm / distribution facility. The only challenge for this high street renaissance was that the product of their endeavours was 2,000 cannabis plants hooked up to an industrial scale hydroponic rig. Whilst the authorities took a dim (and somewhat incredulous) view of this new use appearing right under their noses, it undeniably ticks a number of voguish boxes. Biophilic design, repurposing of a heritage structure exploiting original features, and one could only imagine what kind of fun the experiential and sensory brand consultants could have with this.