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Earlier this month a group of APL members dodged the rain and made it through the northern line issues to attend the C&W APL seminar on Substitution and the End of Real Estate.   We have had great feedback from attendees who 'hadn't heard anything like it before' and particularly liked the way it was brought back to what it meant for the audience.  Below is a summary from the seminar:

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.

These 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 workplace. 

As 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. 

For more, see futures.cushmanwakefield.co.uk/explore/about