Report - cms.law...4 futur UK real estate in the digital age What does the future hold? About the...

1UK real estate in the digital age | What does the future hold?

UK real estate in the digital ageWhat does the future hold? Report

3UK real estate in the digital age | What does the future hold?2 UK real estate in the digital age | What does the future hold?

Big data

39% think big data is already having a significant impact on the real estate industry; a further 42% think this will happen within two to five years.

39%88%

36% now

41% future

The digital workforce

Keeping agile

As ways of working become more agile, office spaces will have to adapt. 88% think demand for flexible work environments will significantly increase in the next 10 years.

Bricks and mortar. And silicone?

Are smart buildings the future or part of our present? 36% of respondents believe the internet of things has already significantly impacted the real estate industry. A further 41% expect it to in the next two to five years.

People power

Crowdfunding has revolutionised raising capital in the arts and technology sector, but can it work in real estate? 47% think it will in the next 10 years but 33% think this unlikely.

Next 10 years

Driverless vehicles

Driverless vehicles are inching closer and closer to our roads. 35% think they will lead to changes in location strategies, but 42% think this unlikely.

42% 47%

33%

Horizon scanning

Virtual reality

81% think virtual reality will change how developments are planned, marketed and leased in the next 10 years.

Click. Print. Build.

Expect to see 3D printing having a major impact on real estate construction methods in the next two to five years according to 57% of our respondents.

81%

57%

67%

32%

Switching off London

With London prices continuing to soar, 67% now see the Capital as over-valued while just 32% see it as fairly-valued. The impact of Brexit remains to be seen.

UK real estate in the digital age: The download

National network

In our fourth major piece of research we examine the state of play in the UK real estate market considering investment prospects post-Brexit and the influence of technological innovations.

We surveyed 302 investors, developers and advisers as well as interviewing 11 industry leaders and tech pioneers for their thoughts and opinions.Together they handle portfolios worth over £350bn.

Asset classes

Technology is impacting all sectors, benefitting distribution and logistics which is the most popular asset class with 64%, and disrupting retail, the least popular, with 35%.

Occupier demand

86% see occupier demand coming predominantly from technology within two years; this is followed by distribution / logistics with 61% and professional services with 53%.

Disintermediation

With technology allowing people to take more control, 61% think it is likely that online platforms will begin to disintermediate commercial real estate agents in the next 10 years.

67%Manchester

Birmingham

Regional livewires

67% see Manchester as the top regional city for investment and growth opportunities. Birmingham comes close behind with 53% singling it out.

53%

86% 61% 53%

35%

64%

61%

Powering up

Outside the Big Six, the top cities to watch are tech hotspots Cambridge and Reading.

Disconnecting from Europe

The Brexit vote has sent a surge of uncertainty through Europe. 63% of people are now quite or very pessimistic about the short term fate of the UK real estate investment market.

Very optimistic

Quite optimistic

Neutral

Quite pessimistic

Very pessimistic

3%

11%

23%

47%

16%

4 UK real estate in the digital age | What does the future hold?

UK real estate in the digital ageWhat does the future hold?

About the research Nabarro, in conjunction with FTI Consulting, created and ran a poll of 302 real estate investors, developers and agents, and conducted 11 interviews with leading market figures and tech pioneers. Those surveyed and interviewed have combined portfolios worth more than £350bn.

Of the survey respondents, 47% work in real estate investment companies, 19% for development companies, 18% for agents and 3% for real estate lenders. Giles Barrie, Managing Director of strategic communications company, FTI Consulting and former Editor of Property Week, undertook the in-depth interviews during May 2016.

Contents5 A new reality6 Prospects post-Brexit7 The national network8 Digitally driven demand9 Interview Paul Williams and

Celine Thompson, Derwent London10 Interview William Newton, WiredScore12 The digital workforce13 Interview Juliette Morgan, Cushman & Wakefield14 Interview Mary Finnigan, WeWork16 You’ve got to see it to believe it17 Interview Gordon Ingram, Gordon Ingram Associates

18 Are smart buildings getting cleverer?19 Interview Andy Gulliford, SEGRO21 The road ahead22 Building the future23 Interview Alastair Parvin, WikiHouse24 People power25 Interview Dan Gandesha, Property Partner26 Middlemen everywhere beware?27 Interview Andrew Miles, Realla29 Interview Rob Ellice, easyProperty30 Interview Alan Dornford, Capita Real Estate

5

In this our fourth thought leadership report, we canvass the views of over 300 real estate professionals who manage portfolios worth over £350bn. We also feature 11 interviews with some industry figures you will recognise alongside emerging tech pioneers – I hope you enjoy their innovative and dynamic views.

What is clear from our research is that real estate is no longer just about bricks and mortar or location. A wave of innovation is engulfing the sector from virtual reality to smart buildings and even driverless vehicles (yes really – see page 21). The real estate sector is now embracing technology to meet the needs of a generation of digital natives.

Turning to the market, when I wrote my introduction to last year’s report, I welcomed the certainty of a surprise majority government following the general election, but with that came a question mark over Britain’s place in Europe.

However, few predicted that divisions over Europe would lead to Brexit, with its consequential uncertainty and disruption.

Some volatility is inevitable in the short term, but the UK real estate market is fundamentally strong. As a country, we enjoy a clear legal framework, the availability of transparent market data, expert independent advice, a talented labour pool and, of course, English is the global language of business. We are in a strong position to deal with this new reality and let us not forget that with every challenge comes opportunity.

A new reality

Ciaran Carvalho Senior PartnerT +44 (0)20 7524 [email protected]

uk.linkedin.com/in/CiaranPCarvalho #REdigital

We live in a digital age. Technology is transforming our everyday lives, shaping the buildings where we live and work, and changing the way real estate is located, developed and transacted. Against this digital backdrop, our latest research explores what the future holds for the UK real estate market.


Prospects post-BrexitAn uncertain outlook

“ Brexit is a leap into the unknown. Brexit clauses were a pragmatic legal response to that uncertainty. Following the referendum, a number of these clauses are being exercised. In other cases buyers are taking time to assess the market before deciding on the way forward.” Ciaran Carvalho, Senior Partner, Nabarro

6%

76%

18%

18%

37%

45%

Increase

Increase

Decrease

No change

Decrease

No change

How do you believe the UK leaving the EU will affect the level of investment in the following locations?

UK

EU (exc. UK)

Given the outcome of the Brexit vote, how optimistic or pessimistic do you feel about the UK real estate market in the short term?

Very optimistic (3%)

Neutral (23%)

Very pessimistic (16%)

Quite optimistic (11%)

Quite pessimistic (47%)

11%

23%

47%

16%3%

Our survey was carried out just weeks before the EU referendum and evidenced the sector’s support for the remain campaign. 63% were pessimistic about the short-term impact of a Brexit vote on the UK real estate market and an overwhelming 76% felt the level of investment in the UK would decrease.

In the immediate aftermath of the vote to leave the EU, the terms of our exit, and indeed the timing, are unclear. With the triggering of Article 50 deferred whilst the Conservative party regroups, actual exit could be years away.

The only thing we can be certain of is we face a period of political and economic uncertainty. This may cause some buyers to re-evaluate the market. As a result, yields may move out, something many will see as overdue. Overseas investors may also be encouraged to take advantage of a weakening pound.


The national networkInvestment snapshot

What is your current view of the London real estate market?

Under-valued (1%)

Fairly-valued (32%)

Over-valued (67%)

67%

32%

1%

53%

Birmingham

29%

Bristol

24%

Edinburgh

25%

Leeds

67%

Manchester

13%

None of the above

Of the Big Six regional cities listed below, which do you think are particularly appealing as investment prospects?

Glasgow

10%Switching off London?Another year of growth has fuelled an increasing view that London real estate is becoming expensive, with 67% of those polled now seeing the capital as over-valued compared with 50% in 2015.

The short-term shock of Brexit is likely to cause disruption, but its impact on London values remains to be seen. Some see a weakening pound driving increased interest from overseas investors, whilst others are concerned banks and international businesses may seek to relocate their EU headquarters outside the City, having a negative impact on the prime office

market. It will therefore be interesting to see whether rental growth slows.

The recent rise in co-working and the push into fringe areas has been one result of rising rents, with companies unable to secure space affordably in central areas moving to emerging hot spots like Victoria, King’s Cross, Whitechapel and Croydon. Investors are responding to this trend, for example, Nabarro recently acted for Ho Bee Land, a newly listed Singaporean investor, on the £99m acquisition of two prime office buildings in Croydon town centre.

Regional livewiresWith respondents asked to name which of the Big Six cities appealed, Manchester was favoured by 67%. Still the leader but down 12% on last year, perhaps reflecting growing opportunities in other regional hubs.

There were gains for Leeds and Birmingham as HS2 becomes a realistic possibility. For Scotland, Brexit means a second independence vote is back on the table, with the SNP vowing to explore options to keep Scotland in the EU. This may prompt a drop in transaction volumes in Edinburgh and Glasgow as happened in the run up to the first Scottish referendum in 2014.

Enthusiasm for the Government’s Northern Powerhouse initiative is faltering slightly. In 2015, 84% of those polled thought the initiative would have a positive impact on markets in the North.

This year, just 58% felt it had actually had a positive impact, showing a gap between expectations and reality. Notwithstanding this, the Chancellor has said that direct investment in the North has grown 127% in the last two years and the Northern Powerhouse remains a government priority.

The top cities or towns to watch outside of the Big Six were tech hubs Cambridge and Reading.


Digitally driven demandOccupiers and investment choices

The technology companies set to deliver innovation are also recognised by most of our respondents as driving occupier demand over the next two years.

Developers like Helical Bar and Derwent London are responding by providing state-of-the-art new developments which combine the best of traditional office design and space tailored specifically for tech and media occupiers.

86%

61%

37%

53%

32%

Technology

Distribution / Logistics

Professional services

Financial services

Healthcare

Retail

Other

Where do you see occupier demand coming from in the next two years?

16%

6% The White Collar Factory secured the UK’s First Wired Certified Platinum for Development and Redevelopment Rating

60%

Office

48%

Industrial

35%

Retail

64%

Distribution / Logistics

Which of the following asset classes do you consider appealing in relation to the real estate industry?

Residential

46%

PRS (private rented sector)

58%

Hotels / Leisure

47%

Student accommodation

51%

Healthcare

44%

Distribution and logistics was second in terms of occupier demand and was the most popular asset class for investors. This sector goes from strength to strength against the backdrop of the e-tailing revolution. Per capita, the UK shops online more than any other country in the world.

Conversely, retail was the least favoured asset class amongst our respondents for both occupier demand and investment.

The traditional UK retail market is having an exceptionally difficult time with two of the country’s best known retailers, BHS and Austin Reed, collapsing within days of each other. What is clear is that retailers must embrace the internet revolution and use technology in order to survive – transforming physical stores into destination experiences.

These “bumps” are index-linked, frequently with “caps” and “collars” which set a base and a ceiling on how much the rent can rise. This allows us and our occupiers to predict cash flow accurately years ahead which is helpful in uncertain times.

At some developments we have also loosened restrictions around alienation – the extent to which we allow our customers to share their space more proactively than leases of old allowed.

Traditionally developers have been very wary about occupiers allowing other companies to operate from their space, but with the rise of freelance and collaborative working we can no longer afford to be so restrictive.

We’ve also become a lot less restrictive in our approach to dilapidations: we don’t want the years leading up to the renewal of a lease to be dominated by discussions over reinstatement of fittings.

We now seek to come to cleaner, simpler dilapidations agreements because the customers coming to the end of their leases are often on a roll – growing or heading towards a merger – and we want to remain on good terms with them.

How are design and marketing of offices changing?Tenants now want much more of a blank canvas, for everything to be less ordered.

Office hours have changed from 9 to 5 to 5 to 9, so we need to provide much more communal space with big lobbies and cafés. Tenants also need “swing” space that they can size up and grow into very quickly. We have proactively and very selectively chosen like-minded flexible office operators in some of our larger buildings in order to help our other tenants to alleviate some of the stresses of needing project space or extra space during the term of their lease.

“Long life, loose fit” is the key. Our valuers are happy with the concept as well. We have some customers on 15-year leases and others on much shorter arrangements, but overall our average length of lease is eight years.

Where are the hot new office locations?We like Whitechapel: it’s near the City but more importantly Shoreditch and Spitalfields; it’s near improved transport links like the Elizabeth Line and, importantly for tech start-ups it’s near the Patent Office.

We also like Paddington, Maida Vale and Haringey: they are all improving places close to Central London. Developing in those locations has been the successful Derwent formula for years.

Interview: Paul Williams, Director, and Celine Thompson, Head of Leasing, Derwent London

How and why has Derwent London evolved its leasing strategy in recent years?Constantly talking to our customers has been crucial ever since we held an occupiers’ forum five years ago. At that point we realised that the property industry and its tenants had grown apart, and we needed to understand more closely what customers wanted from our developments. We have run forums every year ever since and gleaned much information about what tenants want from their workplace and their relationship with their landlord.

We have since made several visits to the US, focusing on areas like New York, especially Brooklyn and Dumbo (Down under the Manhattan Bridge Overpass) which developer David Walentas turned first into a haven for artists and next a centre for technology start-ups.

We’ve met many creative and tech giants such as Google, LinkedIn and Facebook – and much of their thinking has helped inform the creation of our White Collar Factory development on Old Street roundabout in particular.

What innovations are you introducing for customers?On White Collar Factory, we have replaced rent reviews, which can be unpredictable for customers as they rely wholly on open-market evidence, with lease “bumps” which they can forecast more clearly.


“ Tenants now want much more of a blank canvas, for everything to be less ordered.”

location. They also want to update and upgrade their real estate portfolio. We do an assessment and nothing is made public until the landlord is happy with the Wired Certification level they have achieved. We have looked at a lot of buildings that have not yet been publicly certified as the landlords want them to be at a certain level. We make recommendations as to how to reach that level which will improve their asset’s value. Landlords and occupiers are always going to have a preference for something that has been future proofed.

What are your expansion plans? Globally our plan is to become the international standard for connectivity. We are already in the US and the UK and are also in conversation with major European cities. This is a global issue and we believe it is something we can solve.

Any future predictions?The internet is only going to grow in importance for business. It is an important issue to address, more now than a few years ago, because of the different ways we use the internet. We need to upload information in a way that we have never done before. We used to sip data but now we are gulping it down because we are downloading so much more. We need connectivity standards. It is business critical.

We are all very conscious that what looks well connected now will not look well connected in the future. If you consider the potential impact of augmented reality and virtual reality, I think the office of 10 years’ time will be very different from the office of today. So we will update our Certification standards every two years. This allows us to be part of that incremental change and help all the landlords we work with through that process.

Interview: William Newton, UK Director, WiredScore

“ We used to sip data but now we are gulping it down because we are downloading so much more. We need connectivity standards. It is business critical.”

What is Wired Certification?Wired Certification was created as a digital connectivity rating scheme for commercial real estate in New York two and a half years ago and we arrived in the UK at the end of last year. We exist because of the importance of connectivity to occupiers and the lack of information that most of them have about how good their internet connectivity is going to be before moving into an office building.

Is the UK real estate market becoming involved?Real estate advisers are introducing us to landlords and developers, as Wired Certification is a really effective way to market a building to occupiers looking for top-notch connectivity. We are working with Derwent, LaSalle, Legal & General, British Land, Land Securities and Tishman Speyer to name but a few. Cushman & Wakefield have now mandated it into their heads of terms and a number of the other advisers are looking to do the same. WeWork’s agents request the Wired Certification for any building they are considering. We are here to hopefully make everyone else’s life easier.

Why are landlords so keen to get their buildings Wired Certified?Landlords want to differentiate their new buildings from others, beyond cost and



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The digital workforceAgile and co-working

Just letting your staff work from home one day per week does not make your company agile. The focus now is on creating flexible working environments, both inside and outside the office. 88% think demand for agile space is set to rise.

Research recently published by the BCO and Savills found that the number of workers surveyed who wanted to work from home has actually fallen and instead there is a shift towards more dynamic working environments which encourage collaboration.

Millennials (who will make up 75% of the workforce by 2030) prefer this flexible work ethos, which allows them to work anywhere at any time.

Co-working was originally led by start-ups, entrepreneurs and freelance workers attracted by the opportunity to rent a limited number of desks in a shared space because this delivered opportunities for cross-pollination and collaboration. These spaces harness a sense of disruptive energy, so it is little wonder that larger corporates are now looking to tap into them.

It will be interesting to see to what extent traditional landlords allow co-working organisations to “eat their lunch” before creating co-working spaces of their own.

Credit: WeWork

Will demand for offices, that facilitate agile working, increase significantly?*

Very likely (34%)

Neither likely nor unlikely (8%)

Very unlikely (0%)

Don’t know (3%)

Likely (54%)

Unlikely (1%)

54%

34%

8%3%

1%

*in the next 10 years

“ We are all familiar with the concept of group sharing but actual co-working requires a departure from traditional alienation provisions which are the norm in UK institutional leases. We are already seeing this happening, particularly with tech occupiers, where dealings with serviced office or shared workspace providers are permitted without landlord’s consent. Careful drafting can ensure that the certainty so important to landlords, exists alongside the flexibility that some tenants are starting to insist on.” Clare Thomas, Nabarro partner, Real Estate

13UK real estate in the digital age | What does the future hold? 13UK real estate in the digital age | What does the future hold?

Interview: Juliette Morgan, Partner, Global Technology Practice, Cushman & Wakefield

How did you become involved in the proptech world?My career spans the public and private sectors, but I specialise in fusing the world of property with the needs of tech and creative companies.

Starting work in 2005 for the property advisers Bidwells in Cambridge was brilliant, because I learned about the needs of research and development at a very early stage in my career.

Then, I worked in New York City, putting the theory of cluster development into practice, and was appointed Head of Property at Tech City UK where I spent four years helping to grow what became Europe’s pre-eminent tech hub.

I joined Cushman & Wakefield in 2014 to develop its push into the tech world, once again mixing development consultancy with the property needs of tech companies.

How has London developed as a tech location over the last five years?There’s so much more to London as a tech hub than Shoreditch and Old Street roundabout, although those locations have also really moved on.

Helical Bar’s development The Bower and Derwent London’s White Collar Factory – both at Old Street – are both curated with the tech world in mind, are knitting in well and will ensure the area maintains its character and heart.

But tech is now spread across London, from King’s Cross to Canary Wharf, from White City in the west to the Royal Docks in the east, from Croydon to Greenwich. Croydon has brilliant civic leadership and feels like Shoreditch in the late 2000s.

How will the workplace change over the next five years?Taking an extreme view, people may begin to follow the mantra of Pieter Levels, the Dutch thinker who is seeking to unite “digital nomads” who work around the world. This has seen a new community created for people who may one week be in Bali, the next week in Manhattan and next in Medellin.

#nomads connects people moving from city to city – a far cry from the rigid workplaces from which many still operate.

We may see growing tech clusters in Manchester, Bristol and Edinburgh as London becomes ever more expensive, and which for some companies may become a symbolic “front door”.

That front door may see people “hiving” – flying in and out to present or meet, but not being permanently based there.

What are your other predictions?I’ve got three more tips:

1. I’m expecting more traditional landlords and developers to move into the co-working arena. Some are wondering why there needs to be an intermediary like WeWork.

2. Virtual reality will be huge in property. Virtual viewings and virtual meetings are becoming very realistic indeed and will cut the need for travel dramatically.

3. Developers will need to become “brandlords”, appealing to tech companies in an authentic way, using local architects and consultants to demonstrate why they should be the developer of choice.

“ We may see growing tech clusters in Manchester, Bristol and Edinburgh as London becomes ever more expensive, and which for some companies may become a symbolic ‘front door’.”

“ On a real estate level our business provides flexibility, and of course the value of this flexibility to members is greater in a more volatile or uncertain market. Our members do not have long and expensive leases.”


Who are WeWork and what do you do?In 2010 WeWork was founded by Adam Neumann and Miguel McKelvey in New York. Their idea was not just to provide beautiful shared office spaces to small start-up companies, but also to build a community. A place where success was measured by personal fulfilment, not just the bottom line.

After rapid expansion in the US, WeWork came to the UK in October 2014 and we are presently expanding into Europe and Asia. We now have 10 locations in London, with another coming online soon, with 3 million sq ft of space, and 100+ locations worldwide.

Who occupies WeWork space and why?WeWork has over 60,000 members worldwide, ranging from freelancers and two-person start-ups hot-desking, to SMEs occupying 30 desks in their own glass-walled bespoke office within the communal space.

Our work spaces are an eclectic mix of businesses which include everything from architects and advertising agencies through to technology and software designers, accountants and lawyers. One of the

attractive benefits of being part of our community is that our members can solve each other’s business needs. They can network with thousands of potential customers, collaborators and advisers online and in every WeWork location every day. No one else in the world offers this type of business community.

We are even seeing established companies occupying space in our buildings to complement their own offices. This is to attract a different type of talent to their companies, be that millennials or entrepreneurs, who want to work in a vibrant environment but also build relationships and interact with our community to help them do business in ways they cannot do from their own offices.

Is the WeWork model the future blueprint for office working?There is a macro shift happening around the world toward a new way of working that’s focused on meaning and community.

We believe we are responding to – and helping to accelerate – this change. People want to become part of our network, so the model not only works, but the value proposition of being connected to a global community only increases as we expand.

In some of the more traditional office work space models the community aspect is not as fundamental to them and they are more focused on real estate. Real estate is part of our business, but not our driver. Community is the core of what we do, and it works.

How do you respond to recession and growth?Everyone knows the real estate market is cyclical. On a real estate level our business provides flexibility, and of course the value of this flexibility to members is greater in a more volatile or uncertain market. Our members do not have long and expensive leases to service unlike other companies in traditional offices.

We also have the advantage that as a company expands, it can grow with us, as we offer flexibility. It can take more space and expand in the building it is in. This removes the issue of relocating staff to a new location that may not be so desirable and they won’t have to change their daily travel plans. Or, should the company want to move to a different London location, we can accommodate that as well.

Interview: Mary Finnigan, European Senior Counsel, WeWork


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You’ve got to see it to believe itVirtual reality and 3D modelling

“VR” is this year’s buzz term in real estate and at MIPIM 2016 virtual reality headsets were available for people to tour around office, retail and residential buildings.

Companies like Virtual Walkthrough and Floored are at the forefront of this evolution, allowing potential occupiers, investors and homebuyers a real life experience without actually visiting a building.

Many believe virtual reality will by 2020 be as synonymous with property marketing as the brochure in the 1990s or the website in the 2000s.

But there are wider applications. Virtual reality is likely to become intrinsic to the planning process, as developers seek to show planners and the public how developments will look years before a spade is placed in the ground. Design flaws can be spotted and fixed in advance, and the technology promises to boost the speed at which buildings are let.

Will virtual reality change how developments are planned, marketed and leased?*

Very likely (25%)


Very unlikely (1%)

Don’t know (5%)

Likely (56%)

Unlikely (5%)

56%

8% 25%5%

5%1%


Vertex Modelling offers an intricately detailed 3D model of London.

“ Software such as GIA’s 3D computer model helps developers understand the impact their projects will have on the surrounding environment at an earlier stage. This knowledge is key to shaping any rights of light strategy whether this involves negotiating with adjoining landowners or taking out insurance.” Nick Lloyd, Nabarro partner, Real Estate Dispute Resolution

Interview: Gordon Ingram, Senior Partner and Founder, Gordon Ingram Associates

Tell me a little about GIA?GIA is an independent firm of chartered surveyors and technical specialists. We are the leading practice in rights of light and neighbourly matters and are pioneers in the field of designing for daylight in increasingly dense cities. For more than 20 years we have been building our reputation for delivering creative solutions on some of the most prestigious developments in the UK and around the world. With over 150 staff in offices in London and Manchester, we are the largest specialist adviser in the UK.

What are rights of light?Rights of light is my specialty area. It applies in England, Wales and Northern Ireland, but doesn’t extend to Scotland. Right to light is an easement in law, basically if a building has enjoyed light continuously for a period of 20 years, then it has a right to that light.

The law says that right is absolute and theoretically indefeasible. Consequently if you materially injure such an absolute and indefeasible right the law protects that, such that a neighbour can get an injunction to stop a development happening or alternatively seek damages.

Do you use technology to assist?The law of light has been an issue for the last 120 years and we have taken the subject into the 21st century, with scientific analysis to make it more easily understandable. We have been computer modelling since 1993 but we have recently taken it to the next level through game engine technology. Now we not only do the analysis, to understand the before and after effects of the scheme compared to the existing, but also seek to illustrate the experiential effect.

What we’ve recognised is that game engine technologies are the future. They give you a lot more flexibility not only to work that analysis but also to illustrate it. We use the best graphics card on the market.

What we’ve been doing over the last 10 years is putting separate schemes together and we now have a unique 3D computer model of London which is 160 sq km to an accuracy of 15 cm.

It’s not a flat model it’s a terrain model, taking into account the curvature of the earth and it is based on detailed photogrammetry making sure it’s absolutely spot on. It has taken a lot of time and investment as we’ve had to write our own software as it doesn’t exist. It is cutting edge and ahead of its time.

Some future gazing for your product?We have had interest from Germany and the Middle East. They want to do studies about driverless cars and designing cities around them.

Driverless cars are going to change the modern city – the way we travel, how we work and where we stay. I’m not saying they are going to happen tomorrow but they are the near future and a lot closer than people think. It sounds like science fiction, but it is not.

Where do you see GIA in 10 years’ time?If we stay true to Moore’s Law the future is already here. Where technology is taking us we could get the entire project team – the money men, the developers, the architects, the planners, the chartered surveyors, designers, construction companies – together and we could all sit in a room automating stuff, technologically illustrating proposals, ideas and buildings. We could create the project with all the process checking and tweaking as one big team and with all permissions granted. The contractors could then go and 3D print the materials and start the construction process.

“ We now have a unique 3D computer model of London which is 160 sq km to an accuracy of 15 cm.”



Are smart buildings getting cleverer?The impact of the internet of things

Hammerson has rolled out Beacon technology across its entire shopping centre portfolio, to work in conjunction with their mobile app, Plus. Using information based on customer preferences, combined with geo-technology to determine a shopper’s location, Plus sends personalised offers in real time. Data gleaned from this approach enables smarter marketing, driving increased footfall, dwell time and sales for retailers. Land Securities has a similar digital loyalty scheme being trialled to drive footfall at its Trinity Leeds shopping centre. The future of retail is creating an individualised customer experience.

Smart buildings and smart cities have been on the horizon for years, but for many in real estate they are now becoming a reality with 36% believing that the internet of things is already having a significant impact.

With new energy performance standards coming into force in 2018, a fear that many older buildings will be rendered obsolete is driving increased demand for state-of-the-art systems to regulate buildings.

According to IBM, the “intelligent building” is evolving from an automated building to a fully digital building that makes use of data to develop strategies that help improve energy efficiency and productivity.

In the retail sector, the internet of things is being used to improve experiential shopping. To provide tangible experiences that cannot be matched by the online world, retailers are experimenting with the latest innovations, from digital walls to virtual changing rooms.

82%saw retail as the asset class ripest for disruption.

“ The day-to-day lives of today’s discerning shoppers are a seamless mix of physical, digital, and everything in between, so their shopping experience needs to deliver the same, particularly to keep pace with the high expectations of Generation Z and Millennials.” Stephen Brown, Group Marketing Director, Hammerson

When do you anticipate the internet of things (objects connected to the internet) starting to have a significant impact?

36%

25%

16%

16%

It is already

2 years

5 years

10 years or more

Never

Don’t know

3%

4%


Interview: Andy Gulliford, Chief Operating Officer, SEGRO

How is the world of sheds changing?Industrial and distribution property was for years seen as a basic property asset class – production and warehouse facilities serving mainly local needs.

Now, however, “urban logistics” and “logistics” are more widely used descriptions as the sector has attracted billions from UK and overseas investors who have understood its significance as “infrastructure” to the growth in demand from e-commerce.

According to PropertyData, in 2014 £7bn was invested in the UK industrial and distribution market, with £5.6bn spent last year. In the first five months of 2016, even against a backdrop of uncertainty over the European Union referendum, £2.26bn was spent.

At SEGRO we have extensively reshaped our portfolio, priming it to perform as a centre of gravity for retailers as they shift focus from stores to operating in an omni-channel world. With that comes a requirement for efficient warehouses at national transport intersections and close to cities to ensure rapid delivery of goods ordered online.

How are distribution properties themselves changing?Three themes are particularly apparent: height, density and power.

With the growth of e-commerce has come the rise of automation.

In national fulfilment centres, where central inventory is held in the “hub”, increased height to accommodate mezzanines which themselves support increased automation is becoming the norm.

Amazon Robotics – formerly Kiva Systems – is at the forefront of this technology, focusing on small computerised robots that navigate around warehouses using barcodes on their floors to pick pods which are then packed by humans. Three levels of mezzanines with robots and conveyor systems moving goods to stationary pickers has enhanced efficiency and, consequently, productivity.

Closer to urban conurbations, parcel delivery centres operating home deliveries have conveyor systems using advanced software to sort packages, dropping them directly down chutes into waiting vans. Here the larger number of smaller vehicles has led to design change with develoments

needing more space and doors for vans and lorries. The standard 50% density has been reduced to 25 to 30% to allow adequate circulation and parking.

Automation requires increased power capacity – a requirement further exacerbated by a move to electric vehicles needing charging facilities as fleets are switched to more sustainable models.

What are the important issues for the longer term?With e-commerce growing at a rapid rate, it is crucial that enough land, particularly in urban locations, is set aside for distribution use. Industrial designated land is disappearing at a rapid rate. In London alone a loss of 50% in the last 30 years, with huge sites at Stratford, Nine Elms and White City all being developed for alternative, mainly residential, use.

In the longer term we also see potential for driverless vehicles. These may vary location decisions by extending how far lorries can travel, by removing the need for drivers to take a break.

“ At SEGRO we have extensively reshaped our portfolio, priming it to perform as a centre of gravity for retailers as they shift focus from stores to operating in an omni-channel world.”


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The road aheadDriverless vehicles and drones

The most important factor in real estate is location, which is traditionally influenced by transport. Historically cities were near seaports, then railways, then the car arrived creating suburbs and big box retail; so what impact could driverless vehicles have?

Driverless vehicles have been given a mixed reception by our respondents, with 35% thinking they will lead to changes in location strategies and 42% thinking this unlikely.

Credit: Google

Crystal ball gazing – how could driverless vehicles affect real estate? The key idea when it comes to driverless vehicles is “platooning”. Since vehicles can detect and communicate with one another using radar they can drive closer together. Vehicles can be as little as five to six feet behind the vehicle in front and much nearer to vehicles either side. This could mean that a three-lane motorway might be able to fit four lanes of driverless traffic, thus making better use of existing road infrastructure and reducing congestion.

This could have a major impact on the residential sector. People may be able to commute longer distances in less time and also work whilst they are commuting – so people may choose to live further out from cities.

Furthermore, commercial buildings will need less parking in the vicinity. The driverless vehicles could drop off a passenger then go and park itself somewhere else and more densely, since no door will need to be opened.

Ultimately real estate close to train and tube stations may become less valuable if driverless vehicles become preferred.

Nevertheless driverless vehicles could have a significant impact on the location of distribution centres as the UK’s retail dynamic shifts rapidly towards home delivery. June’s unveiling of “Amazon Fresh” has set the distribution world buzzing, and is expected to lead to even greater demand for “urban logistics” warehouses on the edge of Britain’s cities and towns.

76% think drone delivery is going to take off during the next 10 years and this could lead to ground-breaking changes. “Amazon Prime Air” is working on enabling package deliveries by unmanned drones, taking “last-mile completion” to the next level from same-day to even less-than-an-hour delivery. It remains to be seen whether the 12% of sceptics who think drones will never have an impact are right.

35%think driverless vehicles will lead to changes in location strategies in the next 10 years.

76%anticipate drone delivery infrastructure starting to have a significant impact in the next 10 years.


Building the futureNew construction technologies

modern materials and proven technology will enable L&G to create high-quality homes to help solve the UK’s housing crisis.”

Laing O’Rourke is also a leader in this field. Its founder and chairman Ray O’Rourke has all but staked his reputation on the system’s success – and has seen major early results through the off-site fabrication and assembly of British Land and Oxford Properties’ “Cheesegrater” tower in the City of London.

3D printed models are already a common sight in most architects’ offices, yet it’s still early days for 3D printing in the real estate context.

59% of respondents think 3D printing will be utilised as part of construction processes in the UK in the next 10 years, revealing a vote of confidence.

The potential to “print” rather than cast sections of buildings with concrete holds great potential for space-constrained developments, since components can be printed off-site.

Through enabling customised, on-demand production and reducing costs, 3D printing may lead to manufacturing activities becoming more localised. On-demand manufacturing will reduce inventory holding and see the emergence of smaller, local distribution centres, disrupting the warehousing sector.

Modular construction is the breakthrough technology tipped to succeed at a time of housing shortages, limited supply of land and tight public finances. 43% see it as already being widely used.

Fund manager Legal & General has launched a modular housing business, Legal & General Homes, which will seek to modernise the home-building industry through its new factory in Leeds. According to Paul Stanworth, Managing Director of Legal & General Capital “sustainable, durable

WikiHouse design files can be downloaded and printed on a CNC machine, then rapidly assembled.

In 2015 a construction firm from Shanghai unveiled “the world’s tallest 3D-printed building”: a five-storey apartment block at the Suzhou Industrial Park.

59%anticipate that 3D printing will be utilised as part of real estate construction processes in the next 10 years.

43%

21%

18%

It is already

2 years

5 years

10 years or more

Never

Don’t know

When do you anticipate modular construction will be utilised as part of real estate construction processes?

2%

8%

8%

What is WikiHouse and how did you become involved?I am an architect, but I don’t operate in the traditional sense. Having gained a grounding at Rogers Stirk Harbour & Partners, I co-founded WikiHouse, which is an open-source platform aimed at solving some of the biggest problems affecting our cities.

We look beyond the architect’s traditional remit, expanding into economic, social and technological fields and are particularly focused on how digital technology can change housing and “democratise” the growth of cities.

WikiHouse is a foundation which elicits contributions from across society aimed at solving the housing crisis, with a particular emphasis on modern methods of construction.

Our parallels are with other areas of the “sharing economy”, like Airbnb, where people circumvent traditional business models for the greater good.

Why is WikiHouse needed to solve the housing crisis?At the moment housing delivery is mainly concentrated in the hands of a small group of volume house builders whose primary concern is delivering results for their shareholders.

It is very difficult to square that pressure with increasing housing supply, because those house builders ultimately aren’t interested in building more homes or even improving the efficiency of how they build homes.

At the same time, the public sector has stepped back from supplying large-scale new housing, so you are left with small developers and housing associations as the answer.

Being less dependent on debt and able to build on thousands of small sites, they can create a new model that is politically viable because it is community-led. This is where WikiHouse comes in...

How can WikiHouse help?Our role is to facilitate pre-fabrication to the highest standards and for the widest possible use.

You can now download 3D design files and digital components that can be shared as code to promote pre-fabricated construction – which until now has always been centralised through factories, costing £30m or more to build.

Instead, machines can now be bought for £20 to £30k to create sheets of structural plywood and panels, creating flat-pack kits that can be rapidly assembled.

Bricks and blocks are actually very outdated technologies, and through modern methods of construction we can now make very high-performance homes.

Using this technology, small developers, people aiming to build their own homes and housing associations can embark on pre-fabricated construction themselves.

How will houses built in this way look?Architects relish the thought of working with these types of materials, and with modern methods of construction overall. They hate working for developers who are constantly telling them to make the ceilings lower, and instead love working for the ultimate end user of a building.

Overall we want to see an end to 19th-century production models so that neighbourhoods can begin to remake themselves, creating resilient, data-driven, self-sustaining cities.

What scope is there for WikiHouse to influence commercial development?We believe the same shifts towards modern methods of construction will affect the worlds of offices, shops and industrial estates. We are already seeing longer-term investments in place-making, as developers realise the “build it and bugger off” model is broken.

Interview: Alastair Parvin, Co-Founder, WikiHouse

“ Using this technology, small developers, people aiming to build their own homes and housing associations can embark on pre-fabricated construction themselves.”



People power Crowdfunding

Crowdfunding receives cautious optimism from our respondents. 47% think it will become a mainstream means of raising real estate capital, whilst 33% think this is unlikely.

Real estate is a sophisticated market – fuelled by institutional, private equity and sovereign wealth capital – therefore reservations about funding derived from the public are inevitable.

With many open-ended funds hit by sudden redemptions at the depths of the 2008/9 crash, there is also a fear that some crowd-sourcing vehicles will be unable to sell assets in the event of another downturn, which is even more pertinent in the aftermath of Brexit.

However, these platforms are undoubtedly on the rise and a key feature of today’s “sharing economy”. The European Commission recently published a report on crowdfunding which concluded that crowdfunding is developing rapidly and has the potential to be a key source of financing for SMEs over the long term.

In the past few years the major growth area for platform operators has been residential property, with Property Partner as the market leader.

Along with the rise of equity crowdfunding property platforms, there has been a growth in peer-to-peer lending platforms, with Lendinvest a frontrunner in this area.

Will new ways of raising capital through crowdfunding platforms become mainstream?*

Very likely (10%)


Very unlikely (7%)

Don’t know (4%)

Likely (37%)

Unlikely (26%)

37%

16%

10%

26%

4%7%


“ Nabarro has acted on the creation and structuring of a number of crowdfunding platforms. We recently collaborated with AltFi Data in the delivery of the research report Crowdfunding – Where are they now? looking at the status of companies that have raised finance using equity crowdfunding in the UK.” Sam Robinson, Nabarro partner, Financial Regulation

How and why did you create Property Partner?I had become interested in property while renting in Clapham, while at the same time being an accidental landlord in Reading. But I was frustrated because I didn’t have the time or the money to invest in property seriously.

I was also frustrated that property investment seemed to be dominated by a privileged few, whereas with the stock market anyone could buy and sell shares.

Once when I was walking through Central London I saw a stock market ticker and wondered to myself: “how would that ticker look on the side of a building if it reflected its current market value?”.

Above all, my fiancée (now wife) and I had become very frustrated when we had been keen to buy in Putney, missed out on several opportunities, and seen our deposit sitting idly in a savings account.

The good news is that by this time technology had advanced enough to create the crowdfunding platform which is the basis upon which Property Partner works…

How does Property Partner work?Since we launched in January 2015, people have been able to invest as little or as much as they like, from £50 to £750,000, in individual flats right up to blocks of homes – we have one property in Gainsborough, Lincolnshire which includes 42 homes.

We are now buying an institutional-grade block every week, and have funded the purchase of 229 units, with more than 7,600 customers investing through our platform.

We draw our interest from buy-to-let landlords who want to invest in a simpler and more tax-efficient way, people who are saving for a deposit on a home and want to invest their money in the meantime, and people who have invested through wealth managers and want to cut out the middle man.

We charge a 2% transaction fee on investments, but 0% on exit, so investors keep 100% of their proceeds. A 10.5% + VAT management charge is taken from rental income, which covers the costs of letting, managing and advertising the property. Once aboard, investors benefit from our team’s expertise.

One of our key hires was our Director of Property, Rob Weaver, who was formerly Global Director of Residential Investment at RBS, and as a fund manager ran a £500m residential portfolio at Invista Real Estate. We have also appointed Mark Weedon from MSCI (formerly IPD) as Head of Institutional Development.

How will Property Partner change the way the sector operates?Firstly, we help to provide a deeper pool of capital for the property world. As well as property companies and UK institutional investors, the wider public is now interested in buying the developments we favour.

These tend to be in core cities (Manchester), near good transport links (like Crossrail) or in regeneration areas with strong growth potential (like Thamesmead in London’s Greenwich).

We can also “perform” or buy very quickly, speeding up activity as well.

The desire for “club” deals has always been there in property, but only now does the technology exist to deliver on the idea.

Interview: Dan Gandesha, Founder and Chief Executive Officer, Property Partner

“ I was frustrated that property investment seemed to be dominated by a privileged few, whereas with the stock market anyone could buy and sell shares.”



Middlemen everywhere beware? Disintermediation through online platforms

Increasingly in the residential sector there are online tools allowing people to sell their own homes, via platforms such as easyProperty and YOPA.

We are at the genesis of this in the commercial space, and there is a proliferation of proptech start-ups. Hubble provides office space listings; Rialto is a cross-sector online property agent and landlord platform; and WildeRooms is a London-wide online retail aggregation service.

These online market spaces are empowering tenants to make more informed decisions without broker intervention.

In the short term what’s likely to develop is a hybrid model – where a customer can pick and choose the parts of a transaction where they want to work with a broker, and the parts they want to take care of themselves – effectively an “a la carte” brokerage solution.

While 55% of agents we polled believe online platforms could lead to their disintermediation, many of them also see positives. The UK’s biggest property advisers are seeking to move up the food chain by providing complex financial advice which has traditionally been the territory of investment banks. Smaller firms too, with star brokers and well-known personalities at the fore, have long since ditched the churn of small leasing and investment deals.

In addition, information such as lease comparables is increasingly available, with companies such as CompStak using technology to crowdsource this information. Hightower provides a platform for property managers to track marketing and leasing in real time.

The emergence of these companies indicates that real estate is waking up to the fact that it is a data-driven industry.

Will online platforms begin to disintermediate commercial property agents?*

Very likely (18%)


Very unlikely (2%)

Don’t know (4%)

Likely (43%)

Unlikely (19%)

43%

14%

18%

19%

4%2%


39%of respondents see big data as already having a significant impact on commercial real estate.


Interview: Andrew Miles, Co-Founder, Realla

What is Realla, and how was it founded?Realla is a search engine for commercial property, which also provides sophisticated tools for removing the “grunt” work from agents’ lives.

I founded Realla with Ian Parry in 2014 after spending five years in British Land’s investment team; Ian had co-founded and eventually sold Globrix, a successful residential search engine, giving us a mix of property and technology expertise.

We now have a team of nine, and have a series of strong backers from the property world including Tower 42 owner Nathan Kirsh’s family office, and Travelex entrepreneur and The Office Group backer Lloyd Dorfman.

The idea is to provide the definitive search engine for agents, occupiers and investors, and we already have an index covering one billion sq ft of space in the UK. The search engine is free-to-list and we drive traffic for free directly back to agents’ websites.

Backing up that search engine we have a series of advanced marketing automation and deal management tools – website and PDF creation, emailing, tracking and interest schedules etc. – which will take the “grunt” work out of agents’ lives.

We are already working with five of the top 10 property advisers in the UK – including JLL – who see the potential in what we can do.

How will Realla change the property market?We can help bring occupiers together with agents marketing properties, and their landlords, far more efficiently than any traditional marketing campaign.

Marketing a 500,000 sq ft office development isn’t our target; our sweet spot is smaller disposals up to 10,000 sq ft and investment sales under £10m, where the “admin load” of transactions is high relative to the fee. We want to reduce this admin load.

The agency world is changing: the long tail of small disposals which ties up so much of agents’ time with admin will be empowered by innovations like Realla, leaving agents to focus on the high-value work like advising clients, generating competitive tension and closing deals. Agents who recognised these trends early, like the Hatton Real Estate Founders, have done and will continue to do very well.

I think the collapse in the middle tier of the agency world will continue. Global firms

like CBRE & JLL, will do well leveraging their global footprint, focusing on large deals and large consulting contracts – a globalising world favours this dynamic. Local specialists like Farebrother in Midtown and Ingleby Trice in the City of London will thrive because of deep expertise and very high levels of client service.

Individually, recognised “closers” like Stephen Lewis will always do well, of course.

What’s the basis for a successful proptech business?I loved working at British Land, but I’d always been interested in technology. I also thought we were at the beginning of a wave of innovation because property is an enormous industry which until now had been insulated from the digital world.

I’m also big on collaboration, so the catalyst for me to start afresh was meeting Ian. A lot of the best ideas for any industry are devised by insiders, but you need a first-class business partner from the tech world as well.

“ The agency world is changing: the long tail of small disposals which ties up so much of agents’ time with admin will be empowered by innovations like Realla, leaving agents to focus on the high-value work.”


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What are the origins of easyProperty and why are you different to traditional estate agents?We wanted to bring a brand into the online estate agency space to really kick off the sector. It needed a hero brand to come into it to give people the trust in something that’s a little bit different to the norm. We licensed the brand from the Easy Group about three years ago.

We are in the market to be a volume player, and to do things differently. The online space in the residential sales side is about 5% of the market and research shows that over 30% of the UK accepts the online model and wants to transact in this way, so you can see the growth potential.

Has technology changed the residential market more than we currently perceive?If you look at the way things were originally done, when people first started buying and selling houses not a lot changed, all the way through to about 2000 when Rightmove, and then Zoopla came along, and fundamentally changed the way people find property.

We know that over 95% of people start their search for property online. They know the property they want to see, they’ve walked up and down the street on Google Maps, looking at the schools and other houses in the area.

Portals have created knowledge and knowledge is a key factor that traditional estate agents underestimate. We still have to offer our expertise but it needs to be done in a different way and that’s where I feel our centralised model works better.

Will we see the death of the high street estate agent in the next five years? Do you need to be on the high street? The most expensive location you can put any office. Why? What benefit is there? Research has proven that only 4% of people now find a property through either looking in the window or walking into the estate agency premises. With technology and with the change of business model, you don’t need to be on the high street.

So where is technology going to take your business next?We’re just rolling out a new system of virtual reality. You can take a virtual tour where you are literally walking around the property as you see it, with the furniture in there. It creates a much better way of viewing it. We have just bought the latest technology in from the West Coast of the US. It allows you to change the colour of the walls, upload your own photos and put your own furnishings into the property so you get a feel for what that house is actually going to look like when you move in.

We’re very much about making things easy and the overall vision for us as estate agents for the future is that it’s not just somewhere you go and buy your house, it’s where you get the whole end-to-end service. We’ll find your house, we’ll find the mortgage, we’ll get your conveyancing done, we’ll change your energy supplier, install Sky TV and we’ll do everything you want us to do.

We aim to do deals with kitchen and bathroom companies and we can virtually add them to your new house to see if you like them. The possibilities are endless.

You’ll be able to see how your house is laid out and make an informed decision based on how it will actually look.

Interview: Rob Ellice, Chief Executive Officer, easyProperty

“ We’re very much about making things easy and the overall vision for us as estate agents for the future is that it’s not just somewhere you go and buy your house, it’s where you get the whole end-to-end service.”


Is your business unique in the real estate advisory market?You could say that. While at our heart we are a real estate advisory business with core services comparable with many of our competitors, a key point of difference is that we are part of a group, Capita Plc, which does many things besides real estate. We recognise that the future of good real estate advice and solutions requires us to have a much deeper understanding and involvement with the organisations that use and invest in it.

Capita Group is a leading business services company and is focused on supporting organisations across the public and private sector to deliver their core services effectively. Real Estate is a core thread which runs through any business transformation so we are a very complementary fit within the wider organisation.

Is the consultancy world changing?No question. The world is going through unprecedented social, technological and demographic change and no industry can stand still through that.

There will always be a place for good quality advice and service but whether you are a global multi-service business or a boutique firm you need to stay relevant against a rapidly changing landscape. It’s not just about growing a list of services; it’s about offering clients different models and solutions.

If I’m an investor, I want help understanding and accessing opportunities emerging as a consequence of structural change. Think private rented sector and retirement living. I also want support in evolving my existing assets, be they retail, office or industrial, to meet the changing needs of my customers.

Is technology playing a big role in this change?Absolutely. For starters it’s driving changes in demand for real estate. When people talk of multi-channel they naturally think of retail, but it applies to services across the spectrum. Think how many services from public authorities are now “self-serve” online rather than necessitating a visit to an office. Look at the financial services sector where “fintech” is the current buzzword. Historically that applied to technology enabling efficiency around support functions in financial services, but is now very much in the “front office” space. If the delivery models change, the needs on the real estate and the adviser change.

The same applies to real estate consulting. Technology is enabling much greater automation of process. The transaction and advisory end of the business must compete with new entrants with different data solutions and due diligence models.

What does the future hold?Change is good and as a consultancy you need to embrace it. We need to be innovative beyond the typical real estate boundary.

Capita have a very important role in bringing together the broad range of stakeholders with a vested interest in real estate. Working in isolation is not an option. An obvious example is creating more partnerships between the public and private sectors.

Interview: Alan Dornford, Managing Director, Capita Real Estate

“ When people talk of multi-channel they naturally think of retail but it applies to services across the spectrum.”



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Nabarro LLP Registered office: 125 London Wall London EC2Y 5AL. Nabarro LLP is a limited liability partnership registered in England and Wales (registered number OC334031). It is a law firm authorised and regulated by the Solicitors Regulation Authority. A list of members of Nabarro LLP and of the non-members who are designated as partners is open to inspection at the registered office. The term partner is used to refer to a member of Nabarro LLP or to an employee or consultant with equivalent standing and qualifications in one of Nabarro LLP’s affiliated undertakings. Detailed specialist advice should be obtained before taking or refraining from any action as a result of the comments made in this publication, which are only intended as a brief introduction to the particular subject. This information is correct on the date of publication.

© Nabarro LLP 2016

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Nabarro offices London 125 London Wall London EC2Y 5AL T +44 (0)20 7524 6000

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