By Richard Pickering, Head of Futures Strategy
Inclement outlook? The Q1 economic data is out, and the result (0.1% real GDP growth) is pretty miserable, compared with the already tempered expectation of 0.3%. This puts quarterly growth at its worst for 5 years. The biggest drag on performance sits in real estate, or more particularly construction, which fell by 3.3%, accounting for almost all of the failure to hit estimate. A wider trend (which impacted on construction) was the severe weather that we experienced towards the end of February, which in the context of political division perhaps highlights that there remain many things in life that we just can’t control. Similarly, whilst rents are correlated with GDP, other factors that measure our success as a society are not. The ONS also last week released is eighth annual Quality of Life in the UK report, which suggests that people each year feel happier, healthier and more satisfied. It’s easy to use short term statistics to jump to conclusions concerning the ebb and flow of the economy, but the future is in many respects improving for all of us.
The Big Three? Not so long ago, supermarkets were framed as leading the demise of the UK high street. Now a merger between J Sainsbury and Asda might be looked at rather more favourably as the Bellerophon to the online assault. Only a small element (c.6%) of UK grocery spend is currently online (vs c.18% for all goods). Largely this is due to the consumer preference to see the actual groceries before buying them. However, new patents seek to address online issues, and then there’s a UK replica of the Amazon/Whole Foods tie-up to watch out for. Meanwhile, the Sainsbury-led merger would see the group take c.31% market share (v Tesco c.27%). Store closures have been explicitly ruled out, (albeit competition review pending). However, this is really about increasing the industry concentration. With the new group and Tesco controlling more than half of the market, in the first instance it is the squeeze on suppliers that will be ramped up, which could suppress an element of recent supply chain inflation. Down the line, having tighter conditions with fewer players in the retail market should make it harder for online substitutes to take a position.
Fintech ecosystems The development of Fintech (or what used to be called ‘banking’…) is one of the most significant trends of modern times. The widespread adoption of its various forms will revolutionise our financial system, from the personally impactful (e.g. how we make payments) through to the industry changing (e.g. a shift to open banking). But how does this translate to real estate? Here are three points to note from our recently published ‘London’s Fintech Ecosystem’ report: (1) proximity matters (agglomerations of mature and start-up businesses are forming, with some corporates offering smaller businesses space on their estates), (2) investment in the sector don’t necessarily translate to headcount or spatial growth, and (3) the boundaries between financial hubs and tech hubs are blurring (with specifications and amenities needed to react to secure a new breed of occupier). To find out more, download your copy here, or get in touch with my colleague, the report author, Kat Hanna.
Pitch invasion In the industry, we typically look at property through the lens of the rational investor – how do we maximise returns whilst minimising risk? However, that ignores that for many buying property is not an investment – it is way of securing the right to occupy for the long term. And in that context, decisions can be more emotional and irrational. The most obvious example is buying one’s home; however, the recent bid for Wembley stadium highlights another. Buying a football club is at best a dubious investment, but the land upon which it sits can be even more problematic. In most cities there is only capacity for one or two large stadia, and demand tends to be entirely reliant on the need and success of the local team, which can often shift independently of macro-economic factors. With the ownership of grounds often split between club, fans, trustees and the public sector, and the land often having a higher value alternative use, the symbiotic relationship between these players is often a tense one. Whilst there is no objectively ideal structure, land ownership that puts the ground in the hands of those who can take a long-term view feels like it should serve most of them best.
Loo roll Many thanks to all of you that provided feedback (surprisingly not all negative!) about the future of New Europe, whilst I was sunning myself a week ago. I was humbled by over 800 responses. I am pleased to say that we now have a clear direction of travel, which involves, on the political front, simultaneously taking a more pro-Remain and more pro-Brexit stance, by featuring more, and alternatively less, articles directly related to property, and by making the blog in equal measure longer and shorter than at present. In answer to your questions: I am indeed from Hull, (what gave it away…?), and no, I am not being paid by Hull Tourism Board. In response to requests, I shall endeavour to provide some ‘earlies’ in future editions (will 20 years early suffice?). Finally, the survey revealed that 5 of you read New Europe whilst sitting on the toilet; and also that one such respondent would like to receive the bulletin in paper copy, although it wasn’t entirely clear to me whether the two activities were connected.