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2020 vision: predictions for the year ahead

Wednesday 16 December 2020 Property Development

Alex McCulloch's picture
By Alex McCulloch

2021 will be a year of revolution not evolution, but we will see it unfold in 2 stages. The first part of the year will make 2020 look like a walk in the park. In January alone there is a triple whammy of potential pitfalls to look out for:

  • The fall-out from a heavily disrupted Christmas trading period which will likely see a number of high profile failures in retail, leisure and property.
  • After the initial pre-Christmas hype a realisation that roll-out of the vaccine will take time as the high priority groups for the vaccine are low priority for the economy and a return to ‘normality’ for high streets, shops, offices and public spaces is not happening until summer at least.
  • The last minute scramble over Brexit, regardless of the outcome (and at the time of writing its not looking good), will put an immediate and urgent strain on anyone operating business reliant on Europe – which is most owners and occupiers.

And big as these topics are they are just the immediate challenge on top of more structural issues – namely the long-term economic outlook and shifting consumer behaviours.

We saw in the first 2 weeks of the pandemic consumer behaviour accelerate 5 years forward with a step-change in: online spending, a growing sense of ‘collective wellness’ – greater focus on the community, increased loyalty to smaller, independent brands, a deeper self-awareness on how our choices impact the environment, sustainability and each other, and a huge shift towards greater working form home.

All these changes are here to stay and will completely transform how we live our lives in 2021. Many of these developments should result in positive outcomes in the long-term with stronger communities, better work/life balance and an ethical ethos running through consumers and brands.

However, for every ying there is a yang – and beneath the surface of this positivity is the menacing undercurrent of an uncertain economy. We will, as a result of Covid, be in a recession. Alongside this there is rising unemployment and job insecurity, a fall in real-terms consumer spending, a likely shift to Treasury cost-saving/increased taxation and the miasma of Brexit uncertainty. Only the most ardent Brexiteers are still advocating sunlit uplands and whatever the long-term outcomes hold there will be short term pain. This in turn will temper many of the good intentions that people have, challenging ‘collective wellness’ with ‘personal value-seeking’. As a result we will see a polarisation of consumer, those who can afford it will adopt a more sustainable, ethical lifestyle whereas for many value will be the number one watchword.

 

So what does that mean for property?

There are 3 big things that will be transformative through 2021:

  1. The role of space will change –2/3 of the people currently working from home intend to carry on doing so in a significant way after the pandemic is over. This will transform the physical landscape, flattening the previously very peaky day time economic spend away from cities and into suburbs and communities. The office becomes a collegiate space, with flexible meeting rooms and an acceleration of the ‘we-work-ification’ of offices. This means the ground floor provision is less grab and go sandwich and more sit-down lunch with the team. In addition retail actually sees a revival as people are more inclined to stay on after work and engage with their surroundings. You are only in 3 days a week so you make the most of it. The suburbs and communities will see a revival of day time trade – a spring flowering of entrepreneurship – coffee shops, flexible work space, grab & go lunch spots and other innovations reviving previously moribund commuter belts.
  2. The ongoing Covid uncertainty in the first part of the year, followed by a new consumer reality with a greater blurring of channels will mean that the pressure to move leases from the current outdated, redundant 67 year-old model to performance based model will be intense. All parties need to recognise that this cannot be solely turnover based, it must reflect the value of stores through showrooming, online halo, and influencing impressions. By the year end a number of these modified leases will be live, either via 3rd party objective adjudicators like CACI or run in-house. But performance based leases are the future and are the route out of the uncertainty of 2020.
  3. And where leases go rates must follow. If rent is flexing to reflect performance, so to should rates – which at the moment are effectively a land tax but need to evolve to become a performance tax (or abolished all together!) Regardless, rates will undergo wholesale reform by year end. Occupiers need to see occupancy cost become more transparent and better mirror the benefit they get from being there.

By the end of 2021 we will have a landscape that bears little resemblance to that with which we ended 2019. Some things about this year just gone we never want to repeat, but from the trash can fire of 2020 we should be able to salvage a new, more sustainable reality that sees innovation rewarded, spaces evolve to better reflect their uses and communities revitalised. At the heart of all of this is data. Many businesses at the moment have the data, but do not recognise the value accurate implementation can have. 2021 will be the year that good businesses harness that information and move forward at the same pace their customers are. Perhaps for them those sunlit uplands do await.

For further information on how CACI can support you please contact:
Alex McCulloch, Director, amcculloch@caci.co.uk

2021 will be a year of revolution not evolution, but we will see it unfold in 2 stages. The first part of the year will make 2020 look like a walk in the park.

2020 vision: predictions for the year ahead