APL C&W Seminar - Substitution and the End of Real Estate
Throughout history there have been no substitutes for real estate – until now! As our world insidiously moves to one where digital services and products dominate, so the ability of consumers, employees and the public to carry out activities that don’t require real estate increases. We are seeing evidence of this in the impact of e-commerce on the retail sector; however, every type of real estate asset faces digital substitution threats. This spans from automation and telecommuting in place of the office, to online university courses, virtual GP appointments and digitally enabled just-in-time deliveries.
Why is this happening? Firstly, because digital products and services tend to be cheaper. In many instances, digital execution also offers consumers convenience. When you buy online, there is no need to drive into town, pay for parking and risk that the product you came to purchase isn’t in stock.
social trends affect the demand schedule. So how can the associated risks to value
be ameliorated? Firstly, some assets have a high natural defence, because they
are underpinned by activities that can’t avoid the need for real estate.
Residential is an example – we will always need somewhere to sleep. A second
advantage comes from real estate which is underpinned by activities which are
more enriching when carried out in the real world. This start with exciting
venues like restaurants, theme parks and cultural attractions. However, the
recent trend has been towards operators taking these same experiences and
applying them in more mundane environments such as shopping centres and the
the importance of experience-led real estate increases, so landlords will be
challenged to create differentiation through service provision, placemaking and
shifting their business models from real estate investment to real estate
operation. This will have significant implications for the income and risk
profile of assets, as well as an increased importance of brand and intangible
property in overall asset value. Looking forwards, lenders will need to take a
more nuanced view of income risk and customer selection when considering a
property’s suitability as security. This starts with having the right data and
advice, combined with a vision for how the world might change.
more, see futures.cushmanwakefield.co.uk/explore/about