Destruction, disruption and decoration

Freak weather  For most, the worst effects of the UK heatwave this summer were sunburn and hangovers. However, the balmy 30s in the UK were matched by more dangerous 45-degree heat in Europe. And it seems that incidences of extreme weather are both rising and doing so more quickly than anticipated. News in recent weeks has revealed high-impact weather events that have caused devastation across the world. Hurricane Dorian ripped through the Caribbean and up the East Coast of the US to Canada, causing an estimated $7bn damage in the Bahamas alone (~60% of the Bahama’s $12bn GDP). Hot on its tail, Hurricane Umberto is barrelling towards Florida. Meanwhile, typhoons Faxai and Lingling have been causing significant destruction in Eastern Asia. It is hurricane season, and these are parts of the world with a history of extreme weather; however, this is still abnormal. Storm frequency has been increasing at a rate of 30% per decade since the ‘80s, with attendant increases in remediation cost, mainly to real estate. A report by the National Centers for Environmental Information finds that the current run rate is $150bn dollars each year in the US, with the number of $billion+ dollar events rising from ~5 in the ‘80s to 14 last year. Do we need to worry in the UK? 2019 will be one of the top three hottest years on record. A government report analysing flood risk potential shows a range of scenarios for change over the next 100 years. At present damage from flooding accounts for ~0.1% of GDP. In scenarios where current commercial activity prevails, this figure is expected to quadruple, with urban commercial properties most at risk. The topic of weather impacts becomes an increasingly important one for investors with long-term horizons.

 

Tech Disruptors and the Supply Chain  The impact of technology is typically to create efficiencies in process and systems, such that either the costs of those processes are cheaper, quicker, or offer greater utility to the user. Perhaps one of the most complex systems is the consumer supply chain and inevitably this has become a target for technologists. Technology has had a (significantly) net positive impact for industrial investors to date, but will this persist? The topic is covered in a recently released paper by my US colleagues, which considers disruption in the supply chain. There are a few points to consider. Firstly, a combination of e-commerce and urbanisation is pulling the shed closer to the consumer, whereas vehicular automation may have the opposite effect, as haulage costs reduce. In this context, location risk is an important consideration for investors. Secondly, automation will change industrial design with a requirement for larger, higher units than current stock delivers; with attendant design risk. Thirdly, technologies such as blockchain and RFID will significantly increase supply chain visibility; hence the more efficient flow of goods through logistics facilities and quicker inventory turnaround times. This will impact on the demand schedule for space. You can find a copy of the report here; and if you’re hungry for more, I’ll address the wider topic (don’t worry, only briefly), at our industrial client event next month.

 

Coworking 2019  Whilst 2017 may have been a high-water mark for serviced office take up, our latest research report on the subject shows that active demand and take up by serviced office operators remain strong. Running at 18% of all take up in central London since January 2018, this outperforms any other sector and by the year end will account for 5.5% of all stock. Having moved firmly into the mainstream, this is no longer a concept delivered in fringe locations; most space last year was taken in the City Core. Importantly, it is also no longer an activity for new or niche players and disruptors. Many of the mature incumbents now have some form of flex, service or managed proposition, and are increasingly electing to deliver themselves rather than leasing down. As serviced offices come of age, we start to see a new norm in the use and occupation of workspace. What is less clear is what may be the systemic impact on value that comes with an increasingly high proportion of total stock held on less secure terms. You can download a copy of the report here.

 

Bike Lanes  If one were to ask a London taxi driver for their opinion on bike lanes, the response would usually be both clear and colourful. From a business perspective this is more complex. On a recent trip to Amsterdam, I found that the presence of multi-directional bike lanes significantly imperilled, and hence deterred, my willingness to cross the road to visit shops on that side. Many shopkeepers agree. Nevertheless, a recently published report by the University of Toronto suggests that such a view may be a mistake. The study considered the piloted introduction of a cycle land on Bloor Street, Toronto, replacing 136 on-street car parking spaces. The results? Spending on both sides of the street, together with the number of customer visits increased during the pilot period (It has since been made permanent). This marries with the findings of previous studies elsewhere. Digging beneath the headline, customers were found to have had more difficulty parking, but this did not deter them and those additional customers that arrived by bike were statistically likely to spend more than those who arrived by car. The report concludes that: (a) planners should consider ways to increase bike lanes in vibrant urban centres, and (b) that merchants typically overestimate the percentage of drivers that arrive at their shops using a car.

 

Spiritual healing  You may be aware that Netflix uses algorithms to offer you recommendations of what to watch, and even to provide the evidence basis for designing new series. I don’t have such algorithms at my disposal; however, intuition tells me that some of the most popular shows on TV are crime dramas, home renovation shows and horror movies. In a stroke of genius, all three genres are coming together in a new series called ‘Murder Flip House’. The show will uncover houses with horrible histories and then deliver a series of remedies including exorcisms, papering over blood stained walls and of course the obligatory installation of hard wood floors and a new granite worksurface. What could possibly go wrong? If anyone is interested in crowdfunding me to deliver a commercial version, I could promise: exorcising the memory of Japanese knotweed, addressing criminal increases in service charge budgets and providing solace for those haunted by CVAs.