Wildfire, workplace and walkability

Fire and oil  Happy New Year to all readers of Futures Cut! I’ve been fortunate to have taken a few weeks off over Christmas; and much has happened during that period. Despite achieving a relatively small shift in the popular vote (+1.2%), Boris Johnson turned the map blue in the General Election, providing a commanding majority (80 seats), a significantly clearer position on Brexit and a clearer political direction on many domestic issues. A corresponding small sterling bounce helped my holiday finances. Abroad, tensions flared and seemingly settled again in the Middle East. Interestingly, crude oil prices have been little affected; the increased US shale production taking the sting out of regional geopolitical volatility. The other big world news of the new decade comes from the Antipodes, where bushfires have lit up much of New South Wales and Victoria (the latter being my home for the past 3 weeks). Over 15 million acres (more than the entire UK ‘natural waste’ of 12 million acres) have been set ablaze and there is little sign of this abating. The debate on Australian news has inevitably focussed on climate change. Australia has basked in abnormally warm temperatures (the hottest and driest ever actually), which has dried out the scrub and created a ready fuel source for fire; this is an undeniable trend. However, the position is more complex; bushfires are not a new phenomenon in Australia (similar to Canada) and cannot be put down to global warming alone. A lack of controlled burns, dry lightning, and arson have all been cited as contributors. Much of the damage and loss of human and animal life is in rural communities, but fire has been known to impact on the urban fringe at the interface with wildlife. Modern Western building codes and planning requirements mean that significant urban fires, once a regular and devastating occurrence; (Rome 64AD, London 1666, New York 1835, Chicago 1871) are thankfully now very rare. Nevertheless, the way in which long-term climate trends interact with short-term weather and human incidents will increasingly be a feature of our planet and our economy. The real estate industry has a significant role to play in both ameliorating climate change and building and managing land in a way that limits the negative impacts of extreme conditions. Both rose quickly up the agenda in 2019 and remain key trends to watch for our industry in 2020. #sustainability

X, Y, Z  When choosing a career, I was told that real estate was a people business. The way that the industry works is still undeniably that. However, it is only relatively recently that the link between the people who use real estate and the financial performance of the associated asset has become much clearer. Reducing lease lengths, and customer experience propositions place greater emphasis on the nuances of individual need, rather than corporate covenants and financial instruments. An understanding of these needs is therefore paramount. A paper recently published by my global research colleagues looks through the clichés around generational behaviours and offers thoughts about how demographic shifts might affect the use and occupation of real estate in 2030. Of note: (1) the very large baby boomer group will leave the workforce by 2030, but will continue to be a dominant consumer group, having accrued significant wealth over their lives. There is a question to be posed about how global economies will cope as the ratio of retirees to workers increases significantly over the coming decade (1:6 > ~1:3). (2) Millennials will be the most significant component of the workforce in the next 10 years with some reaching 50 by the end of the decade. Their focus on social issues is likely to lead to significant change in how we do business going forwards; whereas their expectations of amenity and flexibility in the workplace is likely to continue to drive trends such as coworking, mobile working, and tenant experience. Finally Gen Z, a digitally native group that has never known life without the internet, will form the world’s largest population group. With them come new ways of communicating, which are very different to the baby boomers’ expectations; however, the work ethics of the two are more aligned than to intermediate generations. >>Download your copy of the report. #demographics

Second hand   The primary consumer value chain in the UK involves manufacturing firms selling to the public via retailers. Large businesses have dominated this sphere since the industrial revolution, when artisans were squeezed out by capital intensive operations. That remains true for the production of most new products, where the individual has neither the skill nor the economies of scale to produce them. However, there are some industries where the highest volumes of sales come in secondary markets by individual sellers. These tend to be where the product has a lifespan and value beyond the first use, e.g. cars (3m new car sales pa ~ vs 8m used car sales pa in the UK); and of course, real estate. However, as pressure mounts for the sustainable reuse of products, we are seeing a shift towards resales in other traditionally business dominated markets. In what feels like a breaking of one of the last taboos in this space, Vogue reports this week on a predicted 2020 boom in the second-hand beauty market, following on from expansion last year in apparel resales. Hygiene and product expiry dates are critical to build consumer confidence in this space, as is finding a reliable platform on which to sell the products, much of which is about engendering trust. Digital operators, such as Glambot are obvious choices for individuals to resell cosmetic products, providing a wide distribution channel at limited cost. However, as resale of all used products forms a bigger part of every market, it will be interesting to watch the extent to which these operators take physical footprints, and to what extent they cannibalise the new sales markets.

Pedestrian  In a bold move York City Council has put in place plans to make York city centre car free within 3 years, Birmingham has followed suit this week with a plan to ban cars driving through the city and Newcastle has announced a pedestrianisation proposal. Driven in the large part by air quality and congestion issues, these are moves likely to be followed by other cities, but what are the commercial implications? Firstly, there is the question of land use. A journey by private car uses 90x more space than the same journey taken by bus. In the US, up to 60% of land in city centres is dedicated to car use (streets or parking). Liberating land for commercial uses captures value for the municipality. The ‘laneways’ in Melbourne are a good example of public realm of which only 8% was accessible in 1994 (mainly service streets), but following intervention 92% were walkable by 2004, with new attendant commercial uses. Secondly, on a macro level, cities with pedestrian cores are perceived as more attractive and have a better sense of place. Copenhagen’s pedestrianisation is seen as a poster child for this kind of transformation; whereas Venice has always had this benefit. A poll taken in Kajaani, Finland, confirms public perception of its pedestrianisation as providing aesthetic, comfort and safety benefits, while 52% of retailers believed it had improved their business. Meanwhile, a report commissioned by the DfT in 2011, showed a public willingness to pay for pedestrianisation schemes of up to £45 pa by the public using these areas; and a 2018 publication by Living Streets collates various commercial benefits arising from new urban realm. Against these benefits there will inevitably need to be consideration of mobility breakages, and loss of value for those who currently live and park their cars in the city centres. #pedestrianisation #placemaking

Interest rate incidents  In the modern era, monetary policy has become the most significant lever held by the state to influence the economy. Changing interest rates have a significant and, in some cases, direct impact on the valuation of financial assets, and so the Bank of England is understandably measured in its approach. However, it seems that decisions on interest rates can have even further reaching implications. A paper published by BoE last month, explores ‘the effect of the mortgage rate pass-through on fertility’. Looking at the global financial crisis, they conclude that each 1% point drop in the policy rate resulted in a 12% decrease in mortgage payments, and a corresponding 5% increase in the birth rate among families on an adjustable rate. Beyond interest rates, factors such as gender equality, religion, expected mortality, and contraception use have all been shown to influence fertility. Perhaps unsurprisingly, there is also a high dependence on one’s intentions; something known as ‘the theory of planned behaviour’’, which posits that one’s intentions have a bearing on what one actually ends up doing. Crazy, huh? A study by Notre Dame University last year revealed that a decline in the birth rate (or more specifically the conception rate) is a statistically significant lead indicator for recession, predicting a weakening of the economy before other indicators such as unemployment and the purchase of durables. The latest ONS data on the crude birth rate for the UK was the lowest since records began. Uh oh. #weirdandwonderful #BoE

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