In the last tech boom of 1998-2000, UK property investment went out of vogue as investors flooded to risky but novel technology and internet companies, many of which had strategies that were hard to understand.
We are now experiencing the next tech boom. This is different from 20 years ago in that it now also seeks to provide new capital, occupational and management solutions to the property industry rather than simply replace its functions.
To follow one strand, the confident, tech-savvy, millennial generation promoting occupational solutions talks of new ways of living and working. At Newcore we try to imagine where the future needs of physical society will take us, so I recently attended a conference organised by millennials for the wider property industry to see whether we should be pursuing strategies in co-living and co-working. I heard from WeWork, Facebook, co-living company Node and the owners of a very high-end piece of London retail and leisure where, it seems, all the people who work at WeWork go to shop when not at work.
It is forecast that the global trend of urbanisation will continue apace, with the percentage of the population living in cities increasing from 54% today to 70% by 2050. Technology is seen as the solution to tackling this project of fitting in more people to live, work and take their leisure in these ‘global’ cities – such as London and Manchester.
The view of the conference participants was that tech has the answers and property owners who don’t embrace the new modes of office and accommodation strategy ignore them at their peril.
This seemed to me to miss the wider societal point, which is much more relevant for property investors: what is going to happen to people who continue to live in Swindon, say, and other second- and third-tier cities and towns, or other cities that are forecast to lose population to the global cities? Even in the big cities, what social impact do WeWork and high-end co-living really make in an ever-urbanising age? These companies cater for a narrow band of the professional population but not the majority of those living and working in cities.
Surely the key questions for property investors in the technologising society of our age are: first, if second-tier cities start to see outflows of people, industry and taxes, how do we deal with the decay that comes with their decline; and second, in the increasingly crowded first-tier cities, how do we make room for schools, healthcare, senior living and key-worker accommodation, namely that which can truly be afforded by low-paid employees?
It is a concern that those making the most headlines about technological innovation in the UK business world focus on the technology of the last and highest level of human needs – “self-actualisation” to borrow from Abraham Maslow – rather than on the basic physiological needs of society.
I am not convinced by the WeWork office model – a funky and well-marketed operation for sure, but ultimately a repackaging of the office occupational dynamic, where the net income deliverable from office and ancillary leisure space is split between different risk-takers.
A landlord backs WeWork ‘long’ on a long lease at a low percentage of the deliverable EBITDA from the building and WeWork lets this space ‘short’ to capitalise on the remainder, presumably hoping to ride occupational cycles. This allocates risk and return in ways that suit lower- and higher-risk business models each with their merit in different parts of the cycle.
I am not convinced either that new co-living strategies are materially any different from before. A wise Greek person once told me that they have had these for years in Greece – they are called villages.
For now, we will continue to acquire nurseries, schools and acute and residential healthcare facilities in growing cities and continue to avoid investment theses that we don’t understand.