How we live and work was already changing...
The commercial property landscape has been experiencing its greatest shift in a generation: new industries, ideas, and consumer appetites have all resulted in demand for updated and more relevant asset classes. The old norms of office, industrial and retail are needing diversification and new classes are emerging. In order to satisfy the growing industries centered around tech and delivery, the traditional asset classes are having to adapt and the development industry itself is having to rethink how to create opportunities from scratch.
At this time of global crisis this is especially relevant, with the global population now largely confined to their homes, the traditional rules of consumerism have temporarily been put on hold. The effect this has, whether simply accelerative or more fundamental, is yet to be understood but there is no doubt it has already changed the way we live and work in a timeframe nobody anticipated: a speed of behavioural change we would not expect to see in ‘peace time’.
For the property industry, driven often by indecision as well as the physical constraints inherent across the industry, this will present considerable challenges.
A new demand for Urban Light Industrial
A prominent example of changing needs is in urban light industrial which is seeing a resurgence in demand driven by new consumer habits and the services that surround them. Whether it be the exponential requirement for near side distribution for just in time delivery and online shopping, or our changing eating habits driving the rise of the ghost kitchen. With the demand for delivery food so high, there are now operators that offer only this and have redeveloped their menu concepts specifically for the purpose of delivery, to best travel on the back of a scooter or bicycle.
The need to house these industries in densely urban areas goes against the established norm where much of the existing stock is earmarked for future residential development. Currently the operators of these emerging industries are enjoying a honeymoon period only paying light industrial rents, but with redevelopment pressures this demand for urban light industrial will result in decreased supply and therefore rental growth.
A trend with big potential scale
In November of last year, Travis Kalanick indicated to the whole world that he saw the potential of cloud or ghost kitchens by fully exiting his interests from Uber and placing a $150m ‘bet’ through his investment inCloud Kitchens, a US based operator. Since then London’s Food Stars has been acquired, taking it from a portfolio of five, largely within railway arches and adding two new bespoke facilities with a further 12 sites under offer nationwide. In addition, we are seeing the Chinese operators turning an eye to the London market:one such company is Panda Selected which operates over 160 locations across the eastern seaboard, suggesting the market for delivery food solutions is at the beginning of a strong growth curve.
A solution to reconcile growing needs and a decreasing marketplace
In the near to medium term, understanding these new users will become paramount for the property industry, investors and developers alike. A light industrial investor or developer, used to the provision of large sheds, with heavy but infrequent traffic requirements, now needs to consider the possibility of having a tenant with a very capital-intensive requirement and a deluge of scooter and cycle visitors. Satisfying these needs will present immediate challenges with some existing stock and a potential additional cost to any proposed development looking to accommodate these tenants.
With the decreasing amount of urban light industrial, largely lost residential development, the challenge will be how to accommodate these new user classes into an ever-decreasing marketplace. When considering the requirement to be located near to the customer, ideally within a two mile cycle ride, these solutions have yet to be clear.
Looking at the wider industry however, it would appear that retail may offer the solution. With further changes in the way consumers shop, retail is finding itself on the opposing side of the supply and demand curve with an ever-increasing glut of stock. The existing locations of retail, and compatible base build for many, means this type of stock could offer the ideal solution. The potential to repurpose individual units and whole shopping centres to meet these new industries is a question and challenge being considered by all major holders of these assets.