• EMEA

Homes, heat and halftime

By Richard Pickering, Head of Futures Strategy

Three-year tenancies  Since the Housing Act 1988, residential assured shorthold tenancies (ASTs) with no security of tenure have become the norm. Despite the societal problems created by short tenures (exacerbated by a larger pool of private renters: (1988: 8% vs 2018: 17%)), ASTs sit at odds with longer term commercial tenancies which do typically benefit from security. Now, as commercial lease lengths seem to be in decline, there is a government proposal to increase the minimum term of ASTs to 36 months, albeit with an initial 6-monthly mutual break and a subsequent 2-month rolling break for tenants. The consultation document language suggests that any rent uplift needs to be ‘at a level that is agreed at the outset of the tenancy’. So no market review? Practically, this might create little difference to the current model, as tenants typically occupy for 4 years in any event and leave if the rent increases too much. However, it is difficult to see: (a) why the landlord would not activate the 6-month break and renegotiate if the market rent was higher (or prospectively higher) than the fixed rent, or (b) why the tenant would not treat their 2-month rolling break as an option over the space? Capped rent models have been proven not to work – the market votes by reducing supply. This proposed tinkering might be well intended, but surely seems destined to end in a fudge?

Hot data  A macro theme of the past 10 years has been the exponential growth of data, driven by mobile internet and the internet of things. We are likely to have 50 times more data in 2020 than in 2010, with a doubling almost every two years. Consequently, there is a need to house this data somewhere, which in turn drives demand for data centres. The challenge is that these assets consume huge amounts of energy and throw off a lot of heat. In a memo from the Danish government leaked last week, consultants estimated that a single new data centre could increase national electricity usage by 4%. Other sources suggest that 90% of that energy will be converted to heat. This consumption of resource and thermal pollution is the chimney smoke of the modern industrial age. Nevertheless, and in spite of this week’s heatwave, for temperate countries such as ours, thermal waste provides opportunities. For instance, the Dutch Data Center Agency under an initiative called the Green Data Center Platform last year called on stakeholders to employ this waste heat in other buildings. Its research suggests that while Dutch data centre industry emissions alone could power 2.7m homes, it would be more efficient to channel this into uses where demand is more consistent such as leisure, hotels and urban farms.

Prisons  The rate of population growth in the UK has been running at c. 0.75% pa since 2000. However, our prison population has been growing on average 3.5% pa over a similar period, driving overcrowding (70% of all prisons) and demand for new prison beds. With the MoJ last week announcing the trial of five new residential centres for female inmates, will we see a different form of custodial buildings moving forwards? Prison is a relatively modern invention. Going back a few centuries popular punishments included: forced servitude, physical suffering and public humiliation. As these went out of fashion, transportation to the colonies became popular, and finally from the mid-nineteenth century when the US and then Australia got fed up of taking our convicts, we started to build prisons in earnest. Many of these Victorian prisons are now no longer fit for purpose and have high running costs. Meanwhile, modern design standards favour urban edge, ‘super-sized hubs’. These on the one hand present new PFI type opportunities, whilst on the other hand, we are likely to see the release of more inner-urban sites (e.g. Holloway) for residential development.

Buy the room  Research suggests that a large amount of human thinking is carried out using visual or spatial techniques. This has significant application in the real estate industry, where we regularly employ maps, plans and charts to illustrate shape, locations and trends. The same is true in retail. Visualising how purchases might find a place in our lives and homes helps to underpin willingness to buy, by reducing the risk that the product will not fit in to our lifestyles. IKEA has long done an excellent job of exploiting this through the creation of room mock-ups showcasing its products in home settings. Latterly, this has been taken to the next level using their augmented reality app, which lets you try out their furniture in a digital replica of your home. Others are now getting in on the act. Walmart has released two innovations: the first takes you on a virtual tour of a home decked-out with Walmart products and allows to you click on each for more detail on pricing. The second is a static mock-up that allows you to ‘buy the room’ (bundle all of the displayed elements into your shopping bag). With a combination of these technologies it should soon be possible to trial curated looks for your living room at the click of a button. The future of digital retail?

Pop up creche  As we move towards the summer holiday season, many of us will be wishing that we had more time off to enjoy the sun. For working parents, however, the summer holidays can present a significant additional incentive to take time off. Choices for childcare are typically limited to working from home, leaving the kids with family, or paying exorbitant childcare costs. The seasonal nature of demand means that providing permanent premises for a temporary creche operator is often financially unviable. However, this seasonal peak in childcare demand coincides with a corresponding seasonal trough in the use of office space over the summer period; a time when employees typically take more annual leave. This provides an opportunity to reallocate a percentage of flexible office space for use as a ‘pop-up creche’. Various operators have spotted this gap in the market, and savvy employers are taking advantage of the opportunity to add value to their flexible working proposition.   When measuring utilisation of office space, creative thinking around near-costless, non-commercial uses that add value to the employee / retention experience should perhaps be a consideration.

1966  Cheryl has split up with Liam, Wimbledon is in full flow and Josh ‘decoupled’ from Georgia on Love Island. But, frankly no one cares because it appears that football might actually be coming home. Such is the disregard for everything non-football, that 1.2 million people are estimated to have planned a sickie today in the prospect of celebrating last night’s game. And, of course, England dutifully obliged by clinching their first ever World Cup penalty shoot-out victory; in the process providing some catharsis for Gareth Southgate following his Pizza Hut ad days (Millennials may need to google this). Now a close third favourite to win (9/2), and with no other previous World Cup winner on our side of the draw, the question is can England go all the way? If you believe in cycles, then the answer is almost certainly ‘yes’. In 1966, the year of England’s last victory, Real Madrid won the European Cup and Chelsea finished fifth in the league; both of which have repeated themselves this year. In the same year, UK inflation picked up to almost 4% (tick), London’s Centre Point development completed (tick), and Labour won a General Election (well, we are only at half time…).

 

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