From global trade wars to Brexit, climate change to automation, the world certainly has its challenges at the moment. And of course, all of those issues have a direct impact on the property industry. But which of them poses the greatest threat?
MIPIM UK caught up with Bill Hughes, head of real assets at Legal & General Investment Management, to hear his views on the biggest challenges facing the UK property market.
What are you most concerned about at the moment?
Bill Hughes : It’s actually about public perception. I think as a sector we are horribly underappreciated in terms of the contribution that we make to the UK economy and society. That’s because the motivation behind a lot of what we do is profit driven. I sense that what we get from the public and the media is that we’re capitalists and self-interested. I don’t think that’s fair or representative of what we do.
It’s interesting that other parts of the economy don’t come in for the same approbation…
B.H: Exactly. So, what do we do about it? Well, I think we have to be better at communicating and articulating the value that we add. It’s about careful exposition and profiling of the things that are happening and that are going well. It’s about making sure the government continues to understand the benefits that we can bring and, through words and deeds, to rebalancing the relatively prejudicial view that people have of us. The social value of investing is now being measured more. We need to profile that so that people can see it.
What other challenges do you believe need to be tackled head on?
B.H: We need to respond to the flexibility that occupiers are requiring. The business that we’re in, particular in terms of retail and offices, is characterised by long term institutional leases and upward only rent reviews, and it pays relatively little attention to the fact that those who occupy buildings need to have some versatility, adaptability and flexibility. So, the whole industry over the next decade or two will have to wrap its arms around that and acknowledge that we have to be doing things beyond the standard institutional lease.
Do you think property has been slow to respond to changes in the wider economy?
B.H: I think as ever the industry that we’re in has been very slow to adapt. I think the role of technology has been significant in terms of the speed of business decision making and the real estate sector has not really responded to that. The challenge is coming from behavioural change driven by new technology and the industry that I’m in has been asleep at the wheel, quite frankly.
Dare I ask you about the ‘B’ word?
B.H: I think that we’ve got to capture a Brexit premium, rather than see everything as negative. For instance, the OJEU process has been incredibly damaging to UK investment in real estate for many years because it means you get stuck in procurement and it’s expensive and long-winded. That’s all because of an interpretation of EU regulations. So, the industry should be seeing part of being released from Europe as an opportunity to innovate and challenge the status quo.
We will still need procurement rules, but are you saying it can be done in a slicker way?
B.H: The answer is that the system we’ve been running with is a gold-plated version of what the EU intended, with very little latitude to be creative or streamlined. There will have to be something to replace the current system, but it has to be imaginative rather than a straight read across. What we have at the moment is profoundly unproductive.