Real Estate

Smart and Sustainable Future Series - Building a Smarter Future

2020-04-21T10:51:27+01:00

A revolution is coming, and our cities are changing. Following on from the previous post in our Smart and Sustainable Future Series on a Net Zero Future, there is an increasing focus on developing smart and sustainable real estate and infrastructure among governments, corporates and households alike. In this post we’ll take a look at some new materials and construction methods, smart solutions to the increase in demand on the electricity grid, as well as connected devices, the Future of Mobility and what a smart city of the future might look like.

With the built environment estimated to account for 40% of carbon emissions, developers and construction companies are looking to new materials and new technologies to fulfil their net zero pledges. One material making a comeback has actually been used for thousands of years but became overlooked during the rise and rise of steel and concrete. With both of those materials guilty for significant carbon emissions during their creation, the focus has shifted back to humble pieces of wood.

Modern techniques lay the pieces perpendicular to each other to create larger segments of cross-laminated timber (‘CLT’). Not only can this ‘Mass Timber’ meet strength requirements as well as steel, they also pass modern fire regulations through an inclination to char rather than burn. Often these are actually used as fire retardants to shield steel cores. As buildings become taller there are complications with wooden construction as they sway more quickly in high winds than steel buildings, but for the majority of buildings wood may well be the future.

Indeed, the wood revolution has already begun in many countries who have active lumber industries, such as Norway. Recently in France, President Macron announced that all new buildings funded by the French state must contain at least 50% wood while already, all buildings for the Paris 2024 Olympics must be 100% wood if they are under eight storeys.

This transition is possible under two key conditions, firstly that harvested forests are sustainably managed, and secondly that the embodied carbon in the wood is also managed at the end of its useful life, being converted for other uses rather than burned back into the atmosphere.

This revolution is coming hand in hand with another advancement – modular construction. The concept is to pre-fabricate sections of construction off-site and assemble them on-site in a manner akin to a giant Lego set. Using standardisation, automation and 3D printing these pieces can be made more accurately under controlled conditions, and also reduce traffic, noise and pollution at the construction site itself. Working together with new materials like Mass Timber these construction methods can actually be faster and cheaper once built at scale, and these savings can be felt by developers, construction companies and consumers alike.

These techniques could not only make housing more affordable, but also more adaptable. As a couple start a family or children move out, modular floor layouts could be flexed to match current needs much more easily than under current construction methods.

With the cost of electric vehicles expected to reach parity with petrol and diesel vehicles in the middle of this decade, and the sale of petrol and diesel vehicles being banned from as early as 2032, the pool of electric cars will rapidly rise from the 230,000 on the roads today to a much greater portion of the 38 million total number of cars in the UK. Developers will have to rethink how and where cars can be stored in order for them to charge, and once vehicles become autonomous it opens possibilities for central charging depots where cars are shared and called up where needed. Sensible solutions need to be found to embrace the possibility of opening up old parking space for pedestrian areas while minimising autonomous vehicles driving around with no passengers. Building infrastructure in modular ways will allow for easier upgrades as new technology emerges and for swifter maintenance, reducing the need for long roadwork delays.

How we heat our buildings will also need to change. Currently only 4.5% of heating in the UK is from low carbon sources but the Committee on Climate Change (‘CCC’) proposes that this will need to rise to 90% of homes and 100% of non-residential buildings to get to the UK’s net zero carbon goals by 2050. Heat networks using electric heat pumps, hydrogen, biomass and waste heat will all need to be considered and used in different proportions for different use cases. Focus on developing energy efficient buildings will only increase, including incorporating on-site renewable energy in line with the UK Green Building Council advice.

With the onset of 5G and the Internet of Things, millions more devices will be coming online and will need to be powered, while switching to renewable energy sources will mean that the energy supply is a lot less predictable than under current fossil fuels.

This will bring significant challenges to the national grid but also potentially some novel solutions. The vast increase in the number of large batteries available gives the opportunity to fill car batteries when the grid is in peak supply and feed back into the grid for rebates during times of peak demand. The Government is consulting on mandating that all charge points are made smart for these purposes. Peer to peer trading of electricity and artificial intelligence to manage the complex processes of powering millions of different devices will also likely come to the fore.

Connected devices will help revolutionise the Future of Mobility, helping to deal with the first/last mile problem of connecting people to mass transit. They will also help to solve the same issue with freight, where solutions are considered from autonomous underground freight deliveries to local storage centres, to the use of drones to deliver your groceries.

The rise of big data and analysis will use embedded connected sensors to assess the efficiencies of all aspects of the city from energy usage to waste management to traffic systems. By knowing where vehicles are and where they’re going, artificial intelligence will be able to analyse the most efficient way to move them around the city through ‘green waves’ of traffic lights. Roads could be cleared for emergency services to get straight to the scene while avoiding traffic.

As with any revolution, with change comes uncertainty. Understanding the changing landscape, breaking it down into the key drivers and risks, and then being able to model out scenarios can help to simplify even the most complex of business decisions. Getting comfortable with the worst case scenario means that for your base case and above it will be all upside, and understanding the sensitivity to key drivers gives a better feel for the risks to returns and operational metrics. Smarter modelling allows businesses to move forward sustainably into the future with confidence.

Stephen Gunnell – Assistant Director, Deloitte Business Modelling & Analytics

Stephen is an experienced member of Deloitte’s Business Modelling Centre of Excellence, joining the team in 2015, and undertaking a secondment to grow the Modelling team in the US firm between 2017 and 2019. He has provided a range of modelling, analytics and project management services across a number of industries, mainly developing, testing and documenting complex financial and operational Models. His focus is to develop smart cities, the Future of Mobility, renewable energy, and sustainable real estate and infrastructure to help society meet net zero carbon goals and the needs of the future.

Email | LinkedIn

Smart and Sustainable Future Series - Building towards Net Zero

2020-04-16T13:56:40+01:00

At the start of a new decade, climate change, sustainability and the environment are climbing higher and higher on the agenda of governments, corporates and households alike. The science is now showing with alarming clarity that decisive action needs to be taken soon to avoid catastrophic and irreversible changes to the world around us. From the Australian bushfires to Greta Thunberg becoming Time Magazine’s Person of the Year in 2019 and a household name, there has never been a bigger focus on these issues. In this first post in our Smart and Sustainable Future Series, we’ll look at emissions targets over the next 30 years, how real estate can step up to these challenges, how energy infrastructure will need to change and how modelling can help break down the change.

Since 1990 the UK has made good progress in reducing greenhouse gas emissions by over 40%, more than any other major advanced economy. But in June 2019 the UK Parliament took this one step further by making a historic commitment to achieve net zero greenhouse gas emissions by 2050.

Achieving this goal will require major step changes in investments into and adoption of new technologies, grid infrastructure, building materials and sustainable operations, data collection and analysis as well as consumer behaviour. Government frameworks and regulation will play a large role and will need to be adaptive to the changing landscape and technology.

^{* *Source: Charts and Data - Chapter 1}

Buildings and the built environment are estimated to account for 40% of carbon emissions, so the property industry has a huge opportunity to drive change towards a sustainable future. In April 2019 the UK Green Building Council (‘UK GBC’) issued its framework definition for Net Zero Carbon Buildings to help define what net zero means for the property industry and deliver buildings that are in line with the 2016 Paris Climate Agreement. This is enabling the industry to sign up to the framework and commit to a single standard, namely being net zero carbon across the whole life of the building through a 5 step plan:

Establish a Net Zero Carbon Scope, across Construction and Operations, End-of-life demolition waste and disposal, and carbon savings from material re-use beyond the life cycle;
Reduce the Construction Impacts, through sustainable building materials and assessing embodied carbon impacts, which should be assessed and offset at practical completion;
Reduce Operational Energy Use, through reduction and management of demand, efficient maintenance, repair, refurbishment and water use, and calculation and disclosure of consumption;
Increase Renewable Energy Supply, prioritising on-site renewable energy or purchase agreements of off-site renewables; and
Offset any Remaining Carbon, where a deficit still exists using recognised offsetting frameworks and disclosing where used.

However, with legislation in parliament focused on Brexit, fulfilling election pledges and the Covid-19 crisis, the driving force will need to come from industries themselves. In January 2020 the UK GBC joined forces with Property Week to launch the Climate Crisis Challenge calling on the property industry to take urgent action to reduce its carbon footprint, and almost every day new developers commit to becoming carbon-neutral. Many are already incorporating concepts through their developments, with Argent Related building a central energy centre for heating, cooling and electricity across their King’s Cross development, so no single building has its own boiler. The result helped them to achieve BREEAM ‘outstanding’ ratings for every office building across the development.

Last month, Ofgem published their decarbonisation programme action plan in line with the 2050 net zero targets covering the need for electrification to drive sustainability, the increased demand on the grid from electric vehicles, the peaks and troughs of renewable supply, and the need for a flexible grid to cover the growing network of devices.

Going forwards there are many challenges for the property industry to meet these targets, but also many opportunities. The need for flexible, transparent, robust financial and economic models to understand the impact of innovation can be hugely beneficial to governments, developers and construction firms alike across a wide number of areas from:

Understanding the impact of using sustainable building materials like mass timber;
Utilising new methods of construction such as offsite modular construction;
Installing renewable energy on-site and acquiring power purchase agreements for off-site renewables;
Long term operational benefits of energy efficient construction;
Offsetting the cost of retrofitting old building stock to new efficiency standards against ongoing operational cost savings and ‘green premium’ rental prices; to
The widespread adoption of electric and autonomous vehicles with layouts for smart charging, using electric car batteries for cheap energy storage at off-peak times and releasing to the grid during peak times for rebates.

While the climate crisis is the greatest challenge of our times, it’s also the greatest opportunity for those willing to grasp new opportunities to develop a sustainable future.

Stephen Gunnell – Assistant Director, Deloitte Business Modelling & Analytics

Email | LinkedIn

Navigating supplier risk

2020-01-23T16:19:10+00:00

The recent failure of one of the largest FM providers in the market has generated significant concern for customers who procure FM services. Though there has been no subsequent collapse of another major provider to date, the prevailing business and industry market conditions create ongoing operational risks for suppliers and risks to service delivery for customers. The following short form paper describes some of the challenges faced by FM providers and, importantly, the practical steps that customers can implement to mitigate risks to service delivery.

Download the publication

Haroon Akram – Assistant Director, Deloitte Real Estate

Haroon is a member of the Real Estate Consulting team and has covered an extensive range of commercially based RE advisory work including estates strategy, asset value release and generation, business case development and RE sourcing. Across strategic sourcing engagements in particular, he has led various procurement related activities including contract reviews, single source renegotiations, evaluation of alternative delivery models and development of performance management mechanisms within national and global contracts.

Email | LinkedIn

What’s that cracking noise…?

2019-12-25T18:26:21+00:00

Time to put landlords and tenants on the same side

Since the demise of Woolworths, I have spent much of my career at Deloitte reviewing the store portfolios of distressed retailers. Acting for administrators I have been both a landlord and a tenant; elsewhere in my career I have represented occupiers and managed retail portfolios for investors. I have experienced the landlord and tenant relationship from all angles, and it’s a relationship which is under strain like never before.

Tracing the relationship back to its origins is instructive. In Saxon law a landhlaford was a proprietor of land. These were generally members of the warrior class whose role was to protect the land and their tenants from marauders. In return for their protection the tenants would pay a tithe based on a proportion of the crops grown on the land. The landlord’s role was to enable the tenant to be economically productive, the tenant’s rent was limited to a proportion of what the land was capable of producing.

Nowadays, this might seem like a pretty balanced relationship, especially when the current wave of failures, and the constant demands for concessions by struggling occupiers, seems to be threatening the fundamentals of the modern commercial model. While retailers argue that they won’t survive if they have to pay their contractual rents; landlords, understandably, reply that they can’t survive otherwise - and both parties complain about business rates! It’s no wonder that landlords now feel that they are the ones that need protection from marauders!

With the Christmas quarter day being the next big test for retailers - is now the time for a reset on the tenant / landlord relationship?

How might the ancient tithe concept translate to today’s market? Traditionally, a tithe is interpreted as 10% and, over time, I have come to look for 10% of gross turnover as a crude, but reasonable, benchmark for rental affordability. There’s very little science behind this and a reasonable percentage differs wildly between, say, a supermarket and a high-end jeweller but as a rule of thumb it generally seems leave enough margin to meet all other costs (including, of course, significant amounts attributable to business rates.) Increasingly, my reviews have seen portfolios where rent has crept up to 20% or even 30% of sales making profitability all but impossible.

This is, by the way, very seldom due to landlords increasing rents – it’s simply that the maths was wrong from the outset and both parties have been complicit in turning a blind eye.

Take a sandwich shop with an annual rent of £75,000. By my measure that would be £750,000 worth of sarnies that need to go out of the door every year – a little over £14,000 per week (every week), £2,000 a day (assuming a 7 day week). Based on an average spend of £6 per customer that’s 330 customers a day. Is that feasible? How realistic and robust are the assumptions of both sides when a tenant first enters into a lease?

What can landlords do? Given the way that commercial property investments are generally funded and valued, the answer seems to be very little. Many landlords have invested huge amounts of time and money working with retailers to make their schemes the most attractive possible destinations. But creating a fantastic environment in which people can touch and feel products sadly does little for the bottom line of retail tenants.

Customer demand and turnover at store level are simply no longer sufficient for many retailers to be able to meet their rental obligations and turn a profit. In response landlords can’t simply cut rents because of the inequality that creates amongst tenants.

There are no quick fixes but both sides need to start the conversation. We need to move away from the combative and adversarial relationship that has become embedded in the industry and work together to develop new rental models that will be sustainable in the long term if both sides are to stand together to repel the marauders from online.

Hugo Clark – Director, Deloitte Real Estate

Hugo Clark is a Director and Head of Retail Property Strategy for Deloitte Real Estate. Hugo has extensive commercial property asset and investment management experience and specialises in distressed and turnaround real estate situations with particular focus on the retail sector.

Email | LinkedIn

Diversity in the workplace

2019-12-16T09:14:44+00:00

At Deloitte we promote all aspects of diversity, and aspire to grow a work environment that is truly inclusive and reflective of our broader society. In support of this working goal, Maggie and Christy from the London Planning team talk about their roles in championing Black, Asian and Minority Ethnic (BAME) representation across the wider Financial Advisory service line and Real Estate business unit respectively.

BAME in Financial Advisory – Maggie Zhu

I joined Deloitte’s BAME in Financial Advisory working group because I felt there has always been a lack of diversity and representation across the general real estate sector. However, after speaking with my peers, I’ve now realised that this isn’t unique to real estate and is experienced across all sectors.

Deloitte’s BAME in Financial Advisory working group was formed to enable a collective voice and to help drive firm-wide diversity initiatives. Some of the recent projects that I have been working on with the group include:

Setting up an internal event to introduce the working group to other peers in order to promote pilot projects and increase awareness of diversity in the work place;
Attendance to a BAME women’s round table discussion hosted by Deloitte’s Multicultural Network (MCN), where women of BAME backgrounds can openly discuss their experiences in the workplace and what improvements can be made;
Piloting a questionnaire for BAME and non-BAME colleagues alike, who have been on international assignments and how their experience can be improved when they are met with unfamiliar locale.

I am excited to see how far our working group progresses in the next year and what achievements and the impacts we can make. I am a firm believer that a diverse workforce inspires creativity, drives innovation and fosters closer ties in our increasing cross-border operations.

From Insight to Inside – Christy Ng

Deloitte takes pride in its graduate recruitment processes which go beyond industry standards to ensure unconscious bias during the candidate selection process is avoided. One measure is our academic institution-blind approach, which make certain that job offers are made on the basis of the interviewees’ potential, rather than their backgrounds or past personal circumstances. These measures are proving positive with Deloitte’ autumn 2019 BAME student intake at 34%, up from 29% the year before (Deloitte Ethnicity Pay Gap Report, November 2019).

Having joined the firm over a year ago as a graduate Town Planner and proud BAME recruit, I have seen first-hand how Deloitte continuously promotes respect and inclusion, particularly among our Summer Vacation Scheme students and prospective graduates.

As a member of MCN, we hosted the 2019 Graduate Insight Evening and invited over 100 prospective graduates from BAME backgrounds. The aim was to provide the prospective graduates with Deloitte career insights and our approach to promoting respect and inclusion in the workplace.

As part of this event, I was proud to introduce what we are doing to promote diversity in Real Estate, particularly within Planning and Development and share my own cultural background and experiences as a graduate.

This event provided me with great means to share my personal journey from being an international student, who used to attend similar career insight events, to being a second year Deloitte graduate.

At Deloitte we continue to focus on ensuring that all of our recruitment efforts, both at a student and experienced hire level, attract a more diverse mix of people.

Useful links

Did you know that Deloitte has voluntarily published their ethnicity pay gap report since 2017? Check out the latest report here.

See here for student opportunities at Deloitte Real Estate, or here for our Expired Hire vacancies.

Maggie Zhu – Assistant Manager, Deloitte Real Estate

Maggie joined Deloitte Real Estate as an experienced hire, before qualifying as a chartered member of the Royal Town Planning Institute in 2019. She has worked on a range of projects that range from residential, commercial, retail and logistic developments.

Email | LinkedIn

Christy Ng – Senior Associate, Deloitte Real Estate

Christy joined Deloitte Real Estate as Graduate Planner in 2018. Since joining, she has gained experience working on a range of projects across South East England, including for retail, commercial and master-planning developments. She is currently working towards being fully qualified as a chartered member of the Royal Town Planning Institute.

Email | LinkedIn | Twitter

The housing sector is huffing and puffing to increase productivity

2019-11-21T17:31:40+00:00

We all remember the tale of ‘The Three Little Pigs’. The Big Bad Wolf blows down the first two pigs' houses, made of straw and sticks respectively, but is unable to destroy the third pig's house, made of bricks. The moral of the story is that hard work, dedication, bricks and mortar for homes pay off; that whilst the first two pigs quickly built homes and had more free time to play, the third pig laboured in the construction of the house of bricks, with the hope that the structure will eventually lead to the most favourable outcomes. However, perhaps this story doesn’t hold true in today’s world?

Some in the UK’s housebuilding sector continue to be slow to innovate. Most still build homes using the labour-intensive method of bricks and mortar (much like the third little pig), believing this is what customers and our culture still want. The first bricks that we know about were being made in Jericho as long ago as 7000 BC, so it is a hard habit to break. However, we see the Government is increasingly on the march to champion change, to see the sector embrace and pioneer technology and innovation. There’s a growing message that if the sector doesn’t change fast then we will miss our housing delivery targets e.g. for England set at 300,000 new homes being provided per year from 2025, where outturn for the sector was at 217,000 homes being built in 2018, which was noted as the largest increase in almost a decade (reference to number of homes included in this government article).

Mankind may have a long affinity with bricks and mortar, but the UK Government is asking the sector to rethink this traditional approach to address the housing crisis, and citizens are expecting it. Demand for new housing is growing and the supply is too low. Innovation is a fundamental driver of economic growth and competitiveness, which is as true of housing as it is for any other sector in the UK. As with the advent of the production line, the house building environment feels on the cusp of rapid change.

This change to using digitally enhanced construction methods has been given a wide array of labels, including ‘modular’, ‘off-site manufacturing’, ‘volumetric housing’ and most commonly, ‘modern methods of construction (MMC)’. Ultimately the objective behind these terms is the same – use innovative methods to create more and improved homes. Technological innovations in construction can help address demand-supply imbalances; facilitate adaptable solutions so homes are built to meet the differing needs of people at different stages of their life; as well as reducing the cost of building linked to increased volume and productivity efficiencies, helping ultimately to improve affordability alongside quality and availability for people who need homes.

Pre-fabricated builds are not actually a new idea. Crystal Palace, the world’s first large-scale prefabricated building was built in 1851 from cast iron and glass. The problem is that ‘MMC’, dare we say ‘Pre-Fab’, is just not seen as fashionable for homes. In Sweden, MMC however has been embraced, with 84% of detached detached homes noted as prefabricated in 2015 (Global Construction Review 2015). Compare this with c.5% of all construction output in the UK being off-site or Pre-Fab today.

The Government is stimulating action in the market, more and more home builders whether large, medium or small enterprises are now responding, exploring opportunities to adopt MMC with increasing recognition of its extensive benefits for the future of our houses, including:

improved health and safety and reduced risks of life threatening and/or serious injury by moving more production off building sites into manufacturing plants;
the skills agenda, with more lower skilled people able to join factory production lines, working alongside the skilled trades;
higher provision of welfare facilities;
sustainability, environmental considerations; and
quality control mechanisms to reduce defects to zero prior to homes leaving the factory environment.

Given our observations in the market, some areas of house building we think ripe to be considered for further innovation and positive disruption opportunities include:

Factory construction of homes is a fast emerging trend, but it is not without its challenges including the initial cost investment and the need to be logistics savvy. Whilst such methods currently on offer may also not be the full solution immediately, it should undoubtedly become a bigger contributor to new homes. At the time of writing, an exciting collaboration between an international house builder, Homes England and a UK house builder completed in the summer 2019 is gaining traction. The international house builder, a market leader in their home country is now investing in UK housing, they seem to understand that an approach of placing an architect, thus design at the centre of the process has the ability to ensure the ‘factory benefits’ they also understand does not come at the expense of flexibility, design or bespoke input for creating homes people want to live in.

Does this emerging shift in housing noted above mean we, as a nation who place our trust in bricks and mortar can find the same comfort in alternative, more innovative and productive approaches? Culturally, there is growing recognition that the housebuilding community do not market new homes to consumers as ‘modular’ or the other titles mentioned earlier – they are just ‘new homes’ and a growing number of the modern day consumers do seem to have little interest in how they’re built as long as they can get on the housing ladder, gain a mortgage and insurance products to cover their home investment. Finding a way for more to love these manufactured homes, re-educating financiers that traditional build is typically an appreciating asset and that an MMC home can also be an appreciating home not a depreciating one is important, when these homes can be supported with warranties and servicing. These points are thought to be some of the key bumps in the road to still overcome if the sector is to continue to accelerate these types of housing products being accessed by more customers.

We do need to reduce our reliance on building homes in the same way we have for the last 9,000 years. If you always do what you’ve always done, you’ll always get what you’ve always got. Whilst some of the legacy housing community may not be embracing innovation at speed, when it comes to broader real estate and construction organisations there is no doubt that the stakeholders of this important industry are continuing to seek and drive a step-change. Much like the third little pig, hard work and dedication will continue to pay off in the future, whilst the materials will clearly need to change, alongside improving the innovation when producing things, it is likely that by being bold and striding away from past norms then this sector will stand a greater chance of keeping the wolf from their door.

Claire Handby – Director, Deloitte Real Estate

Claire is a Director in our Real Estate Consulting Team, advising on Real Estate, Capital, Infrastructure and Construction Projects. Over two decades she has gained a range of leadership, consulting and management competence covering Portfolio, Programme, Project and Assurance Roles having worked for both public and private sector businesses. Claire has an increasing focus to help our clients continue to respond to their digital disruption opportunities and challenges within these sectors.

Email | LinkedIn

Greg Salisbury – Consultant, Deloitte Real Estate

Greg is a Consultant within Deloitte Real Estate Consulting, specialising in Capital Projects, Infrastructure, Construction and Digital Innovation.

Email | LinkedIn

Chris Baldwin – Partner, Deloitte Real Estate

Chris has built up a strong track record in providing real estate insight on a range of wider multi disciplinary advisory propositions in the residential space including pan-EMEA purchase price allocations, M&A buy and sell side projects and also assurance and audit support engagements. Chris advises Housebuilders, Banks, Investors & Registered Providers on various residential property matters.

Email | LinkedIn

Have the worsening market conditions finally started to take a toll on London's office construction levels?

2019-11-20T07:24:22+00:00

Lowest volume of new starts in over five years
Following the three year high in construction starts reported in our summer survey (October 2018 – March 2019), we saw a 49% drop in volume in this survey. At 1.8 million sq ft recorded between April and September, the volume of new starts falls almost 15% short of the long term average and is also the lowest since our summer 2014 figures.

The number of office schemes that broke ground also fell markedly, from 37 reported in the previous survey, to only 24 new construction starts. However, there is currently up to 3 million sq ft in demolition, which suggests that the next survey could see an uptick in new starts again, albeit at a modest rate.

The City’s new construction tumbles
The overall volume under construction across London totalled 11.9 million sq ft across 92 schemes as of the end of September. While this figure is down by 10% survey on survey, it remains above the long term average of 10.6 million sq ft.

The City was notably quiet with only four new schemes breaking ground in this survey. The construction levels in the City have been gradually declining in the past few years and its dominance has diminished from 59% of central London construction activity in 2016 to 45% in the present survey.

TMT continues to drive office demand, with FinTech to follow
Technology, media and telecoms (TMT) has further increased its proportion of pre-let space under construction, from 35% to 43%. Submarkets, which have traditionally competed for financial workers, such as the City and Canary Wharf, are now also looking increasingly to lure TMT tenants from other areas.

FinTech firms are also increasingly attracted to London because of the already established financial markets, a deep tech talent pool, as well as supportive regulation. The recent proposal by the Home Office to extend the post-university visa for those who studied in the UK has been welcomed by the FinTech industry. But Brexit creates a challenge to the future FinTech talent pool.

The London skyline – not quite what it seems
To the casual observer the many tower cranes in the London skyline would suggest that there is a large amount of office accommodation for occupiers to choose from. In reality, however, much of the office space that is currently under construction is under offer or pre-let. Looking at 2020 alone, 40% of space that is expected to be added to the market, has already secured tenants.

In order to secure preferred options, businesses are having to launch their searches well ahead of lease expiries, often more than two years in advance. Ensuring the best quality office space is of growing importance for businesses wanting to attract and retain talent, while buildings are increasingly seen as part of a company’s brand.

The importance of good quality office buildings in attracting talent in the competitive labour market, coupled with further expansion by tech and FinTech will continue driving office demand. However, current economic headwinds, the impact of the rise of co-working and environmental challenges, are putting increasing pressure on property developers and landlords.

Find out more
Visit our site to find out more about the London Office Crane Survey, download the report and share our latest findings with your clients.

Bo Glowacz – Insight Manager, Deloitte Real Estate

Bo is a research professional with 10 years’ experience, specialising in the UK real estate. Previously heading up UK industrial research at Colliers International, providing thought leadership on occupational and investment trends to Colliers existing and potential clients. Bo has also extensively researched regional office markets in the UK, producing all Colliers Manchester, Leeds and Birmingham quarterly office reports.

Email | LinkedIn

Offshore Windfarms: Trends and levers for strong performance

2019-09-25T16:38:48+01:00

With the announcement of the latest Contracts for Difference Allocation Round 3 results to offshore wind projects, we thought it timely to address the emerging trends surrounding this asset class.

#1 Global Push

The global push for reduction of greenhouse gases and increase in renewable energy is causing the offshore wind industry to evolve from what was a largely European industry into a global one.

#2 Transfer of capabilities across organisations

This, more global industry, requires transfer of capabilities across organisations, which often happens through Joint Ventures agreed for the development of projects.

#3 Reduction in costs

As technology and the industry become more mature, the cost of projects is going down with strike prices in the UK at record low.

#4 Projects moving further offshore

Projects are starting to move further offshore and at an increasing depth, creating current technology challenges which need to be overcome (e.g. foundation types, installation methods).

#5 Increase in competition

Global growth is causing increased competition around the supply chain.

To find out more regarding our point of view on Offshore Windfarms please see the following publication Offshore Wind Capital Projects.

Alexandros Tsarouchis – Assistant Director, Deloitte Real Estate

Alex is a member of the Real Estate Consulting team. An engineer by background, Alex has worked on a variety of projects, across a range of industries, for both public and private sector clients. Prior to joining Deloitte, Alex worked for a contractor (Kier), a utility (RWE) and another major consultancy (KPMG), providing him with a breadth of experience across different sectors and across different client types. Alex’s area of expertise is the wider energy and construction sector and he spent over 2 years working for a contractor, over 5 years managing the development of an offshore wind farm and he has led and been involved in a number of energy and construction related assignments as a consultant.

Email | LinkedIn

The Northern Powerhouse and the value of Construction

2019-06-10T10:46:11+01:00

Construction in the North – a wealth of opportunities

The UK construction industry accounts for approximately 6% of the economy and has been a consistent source of growth over the last 50 years¹. Last month, Dr Claire Handby, a Director in Deloitte’s Real Estate Consulting team, gave a speech at a Chartered Institute of Building (Women in Property) event, and spoke about the value of construction, particularly in the North of England. The construction industry provides employment for over 2 million people in the UK, over half a million in the North of England, and has experienced a 4% growth since 2007².

In the speech Claire shared the many positives of the industry, highlighting some current risks too including how a potential loss of EU workers with adjustments to the immigration system could pull some of the Northern construction workforce towards London and the South of England, lured by the potential for higher salaries, another risk, perhaps more significant is recognising there’s a bulge in the amount of existing construction workers in the North, on the fringes of retirement leading to a declining talent pool which needs to be replenished to keep the sector moving forward, at pace.

Research from the CITB has indicated that the North of England requires more construction workers annually than any other region, needing around 5,500 new recruits per year to sustain demand within the industry³. The North presents a wealth of opportunities for construction workers to establish their own businesses – between 2015 and 2018 over 8,000 new construction businesses were set up, underpinning the entrepreneurial spirit of the North and the sustained strength of the industry.

For the construction industry in the North to fully flourish, there needs to be a change in perceptions too – a career in construction has traditionally been perceived relatively poorly, especially in terms of salary. However, in reality it’s a really rewarding, dynamic place to be, with the pay increase in the sector over the last 10 years larger than in any other, and the median graduate salary in the industry for those aged 21 – 30 comes second only to that of the manufacturing industry.

Unlocking the potential of the Northern Powerhouse

The CIOB highlighted two areas that can help construction industry practitioners continue to harness opportunities, particularly in the North – collecting better data to drive building quality and harnessing the potential benefits of collaborating to better effect across the currently disparate businesses that make up the construction sector.

The Northern Powerhouse continues to step up and demonstrate its capability in construction skills, boosted by its heritage in engineering and industry, from seizing opportunities to accelerate growth in off-site manufacturing to responding to the growing demand for bold, residential developments across the North of England. By focusing on innovation and excellence, improving perceptions and enhancing collaboration at all stages of the supply chain, the construction industry can increasingly maximise the value it adds to the UK economy, including growing export potential too. The North of England must continue to seize opportunities and work together more broadly across its already successful design, manufacturing and contracting specialists to maximise the collective benefits for the full reach of this important industry to be realised.

Deloitte Real Estate’s 2019 Regional Crane Survey further explores the link between construction and economic growth in a city, highlighting the relationship between development and prosperity. The report evidences the potential the construction industry has to offer in the North, and demonstrates the record-breaking level of construction across all sectors in the North of England.

Claire Handby – Director, Deloitte Real Estate

Claire is a Director in our Real Estate Consulting team, advising on Real Estate, Capital and Infrastructure Projects. Over two decades she has gained a range of leadership, consulting and management competence covering Portfolio, Programme, Project and Assurance Roles having worked for both public and private sector businesses. Claire has an increasing focus to help our clients continue to respond to their digital disruption opportunities and challenges within these sectors.

Email | LinkedIn

Georgina Botterill – Assistant Director, Deloitte Real Estate

Georgina is an associate director in the Real Estate Consulting team with experience of providing strategic advice to both public and private sector clients facing Real Estate related business challenges. She is also a Qualified Chartered Surveyor.

Email | LinkedIn

Alice Bak – Assistant Manager, Deloitte Real Estate

Alice is an assistant manager in the Real Estate Consulting team. She is a newly qualified Chartered Surveyor and have completed the Real Estate Graduate scheme.

Email | LinkedIn

________________________________________________________________________________

¹ Bank of England, 2019
² Office for National Statistics, 2019
³ Construction Industry Training Board, 2019

The great density debate – London housing

2019-03-11T14:15:52+00:00

London’s new look density policy is dividing opinion

By Richard Katz, Deloitte Real Estate

The ‘Draft London Plan Examination in Public’ (EiP) is now in full swing, having already examined key policy topics such as good growth, strategic regeneration, housing supply and housing strategy. The hearing on 05 March 2019 saw the issue of density take centre stage, with draft Policy D6 – Optimising Housing Potential under the spotlight.

It is well recognised that London needs more homes, as the “housing crisis” has been the key planning challenge of the last five years if not longer, not just in London but across the UK as a whole. London’s shortage of homes and the inflationary pressures this shortage has placed on housing market has been the key issue that many have tried to tackle and many a policy has sought to address. Yet the discussion and debate continues to roll on, suggesting that there are no immediate answers.

In truth, no single solution is likely to exist - I’m sure even those with the most utopic of outlooks would agree with that. Instead, and as is being more commonly recognised and accepted, a combined range of measures, from the intensification of small infill sites, to new and innovative design, to fundamentally changing the way we think about how we live, are likely to provide the closest thing we may get to an answer that works.

The pressure on London’s housing stock means that the need to increase future housing density is largely inevitable. However, what constitutes ‘optimal’ housing density in different locations, and how London’s policy framework helps to steer this, is a more complicated issue. It is an issue that the Mayor and the GLA are attempting to address through the new look draft London Plan Policy D6 – Optimising Housing Density, which replaces adopted Policy 3.4 – Optimising Housing Potential.

Arguably the most significant and controversial element of the new look policy, taking up the majority of the hearing’s discussion time and dividing opinion across the panel, was the decision by the GLA to remove the Density Matrix, which had been a familiar feature within the London Plan since the first edition in 2004.

Fundamental to the removal of the Density Matrix has been a marked shift in the GLA’s approach away from a numerically driven density policy towards a more qualitative design led approach, with additional design scrutiny required for particularly high density developments. This change in emphasis has certainly not come about overnight, or without due thought and attention.

In 2016, as part of its full review of the London Plan, the GLA commissioned a suite of research studies¹ into housing density. Six studies were produced, examining key concepts such as defining and measuring density, and exploring the relationship between density, local character and accessibility. These studies have helped to shape the GLA’s approach to density within the new Policy D6.

Some of the key findings of the research studies include:

The Density Matrix is not being followed, with 50% of development being above the Matrix maximum for its location, and 25% more than double the maximum;
The history of the Density Matrix reveals that it was established as an indicative tool of what could be developed on a site, and was not to be used prescriptively. However, its apparent numeric simplicity has led to it dominating the policy approach to density;
There is no case for continuing to set a maximum acceptable level of density, as there is no universal point at which density is unacceptable; this point is based on personal and cultural perception; and
There are no inherent problems with recent high density development above the Matrix maximums, and such developments are popular with their residents.

The above findings have gone a long way in shaping Policy D6. As outlined by the GLA in their Housing Topic Paper (2017)², the new approach to density taken in Policy D6 focuses on the individual site-based factors that are required to deliver successful sustainable residential development, these include – surrounding built form; proximity and access to services; and capacity of supporting existing and planned infrastructure, particularly public transport.

Written representations to Policy D6, and the hearing discussion at the EiP, reveal that the reaction to the removal of Matrix in favour of a more qualitative design led approach has been mixed. One thing that most responders agree upon however, is that the Matrix in its current form, is not working. It is therefore the solution to this problem in policy terms that divides opinion.

Those that advocate the Matrix’s removal point to the fact that it has repeatedly failed against its key performance indicators, and as such is a largely redundant tool which serves only to complicate an already complex issue. They argue that the Matrix should be evaluated on its merits (or lack thereof) in successfully influencing development densities, and that there is no room for sentimentality just because its presence in the London Plan has been so longstanding. The GLA also point out that London was not born yesterday, and that while a numerically driven policy might work for New Towns, where development is started from scratch, London’s venerable urban form is so established and diverse that for a policy to set any kind of numerical target is ultimately futile.

In contrast, those opposed argue that simply removing the Matrix is too drastic a move. Specifically, there is concern that whereas the Matrix acted as a ‘safety net’, which to some degree set the terms of reference for discussions between developers, communities and Local Councils, its removal may result in inappropriate density at both ends of the spectrum. This concern is likely to play out in outer London Boroughs in particular, where the Draft London Plan proposes to focus much of the housing growth expected over the next 10 years, and where there is a danger of both over development and sub-optimal densities coming forward.

These concerns are shared by some community based organisations, who argue that London’s density policy should not be a binary choice between either a numerical Matrix or an open design approach, but rather both are needed, with the Matrix providing an overarching policy framework, within which individual site context and design approaches are framed.

Even those that advocate the retention of the Matrix acknowledge that improvements are needed to ensure its continued value. Again, no consensus prevails on how this can be achieved, but suggestions range from developing a numerically based density policy which can be actually enforced, to attempting to update the existing Matrix to somehow incorporate more of the contextual parameters that influence appropriate density on a given site. This is likely to require a significant amount of work, and given London’s rich urban complexity, it is difficult to see how a new Matrix could possibly reflect the highly unique factors at play in a city such as London. That is not to say that this is a feat not worth pursuing however.

The mixed reaction to Policy D6 can therefore be boiled-down to how density itself is viewed in different quarters. To some, density should be seen as a starting point which helps to shape appropriate development. To others, including the GLA, density is nothing more than a product of site-based context and good design; get that right, and the density is what it is.

The shift in London’s density policy may be welcome news to those who subscribe to the latter approach, but the challenge is now for all of us – Planners, Architects, Developers and Local Authorities, to engage with communities to make this design led approach a reality.

Richard Katz – Assistant Manager, Deloitte Real Estate

Richard has experience in local plan making and has advised a range of public sector clients in developing their Local Plans and Local Plan Evidence Bases. He has undertaken extensive research into global housing density policy, which is an area of great interest to him. Richard also has experience of large development management projects, supporting clients through complex planning applications, including pre-application discussions with Local Authorities, stakeholder engagement and consultation.

Email | LinkedIn

________________________________________________________________________________

¹ https://www.london.gov.uk/what-we-do/planning/london-plan/london-plan-technical-and-research-reports#acc-i-48973
² https://www.london.gov.uk/sites/default/files/london_plan_topic_paper_on_density_policy_and_details_of_research_-_2017_final.pdf