“Access to the world without long-term responsibilities” – that is what one of the property industry’s most ambitious young entrepreneurs believes people want from modern life.
Ross Bailey, founder of retail pop-up start-up Appear Here, attributes this bold statement to the exponential growth of companies such as Uber and Airbnb – services that operate through apps and technology to produce instant results. Such services are fuelling a new phenomenon, he says: “No one wants to be tied down to anything any more. They want to have an entirely ‘on-demand’ life.”
As to what that actually means, Bailey says it is part of an “inevitable” move towards quicker, more efficient lifestyles based on flexibility rather than longevity. “People, and young people in particular, want to pay as they go, keep contracts short, stay agile and flexible,” he says. And he warns this is likely to impact on the property sector as demand grows for shorter leases and more relaxed contract terms.
And that’s not all. The second, crucial element to ‘life on demand’ is that it opens up opportunities that would otherwise be inaccessible. Whether it’s plush holiday homes and chauffeur-driven cars or centrally located pop-up retail and office spaces, the transient nature of the deal makes the unaffordable a reality for a short period of time.
So how seriously should the real estate world be taking the impact of the living-on-demand phenomenon? And will those who do not adapt quickly enough find themselves left behind?
Instant gratification
Ultimately, what lies at the heart of on-demand leaders such as Uber and Airbnb is flexibility.
People can dip into and out of the lifestyle. There is no membership fee, no upfront cost – you have instant access and instant results whenever you chose to use the service, and you pay as you go.
Such agility has traditionally been harder to achieve in the property sector, where companies are used to being tied into long leases. But times are changing rapidly, thanks to a swathe of start-ups entering the sector that have been set up specifically to cash in on this shift – all of them using business models that operate on exceptionally short leases.
As a result, some longer-standing companies are adapting to compete. And there are others that have actually always been better suited to the new, flexible culture and are now feeling the benefits of changing demands by default.
On the start-up side, disruptive companies include aparthotels and serviced office providers, as well as Bailey’s Appear Here, which is growing at 500% a year and specialises in short-term pop-up retail deals.
A year ago, most landlords would have argued that signing 10 shops or brands to a batch of five-year leases was the best thing to do and the safest way to get returns. Transport for London confirms that what Appear Here has done at Old Street Station, EC1 – bringing a rotation of brands into those 10 spaces – has “roughly doubled” rental income.
It has also given TfL access to brands it would never have been able to sign on long-term leases, such as The Cambridge Satchel Company, Moleskine and Coca-Cola.
But there is also evidence of the opportunities up for grabs for existing property companies if they are prepared to adapt. For example, Citibase provides serviced office space for SMEs and focuses on high-value, central locations.
Over 90% of the company’s growth over the past five years has stemmed from a new, pay-as-you-go office space leasing model based on firms signing up for just three months at a time on rolling contracts.
“This is not a fashion trend,” says Citibase chief executive Steve Jude. “This is about the fundamental tectonic plates around what people want irreversibly shifting. The way people work has changed.
“All our growth has come from our new model. We sign people up for three months, but the average length of stay is actually nine as we have an 80% renewal rate.
“And for small businesses and start-ups that don’t always know what sort of revenue they are going to see months in advance, their cycles are very short, so they need a much more flexible option when it comes to renting space,” he adds.
Jude says that in a recent survey Citibase conducted with 200 companies, just 6% said they would commit to a three-year lease and none said they would sign a lease for five years or more.
“Lease lengths are going to have to come down across the board,” he says. “In 1991, the average lease length in the UK was 21 years; last year it was 4.5 years. Businesses today – particularly smaller ones – want agility. If you don’t have that, you might die.”
Will Duncan, head of broking at Instant Offices, adds that it is not just SMEs that are seeking flexible office space. “There is a wider trend of large, blue-chip firms that are now relying on flexible solutions to scale up for project work rather than taking on leases for office space,” he says.
“There is a real sense in the market that companies of all sizes are now looking to flexible office space for their workspace demands and that, with office supply constrained in many parts of the UK, creative use of space is only going to evolve further.”
Investment options
As for the types of business benefiting from this culture shift by default, aparthotels are a good example.
The once unglamorous hospitality sub-sector is becoming increasingly popular, partly because Airbnb is making the self-catering model more attractive.
Research released this week by design consultancy WATG in association with the Serviced Apartment Company revealed aparthotels typically provide a return on investment 25% higher than a four-star hotel.
“A mix of the impact of what the millennials want and the power of the Airbnb model has seen this sector surge,” says Rob Sykes, senior associate at WATG and author of the report.
“I have looked into the operating metrics and it is becoming clear that these sorts of property are great investment options compared to four-star hotels, which have considerably higher costs to cover thanks to the increased service element.”
Max Thorne, chief executive of SACO, adds that because of people’s changing requirements, they are realising that it is these service elements that they can do without.
“Airbnb has been so successful and it is a model that does not have a food or drink offer included,” he says. “This means that serviced apartments and hotels that also do not have such an offer are becoming more popular. And if you peel that back, at investment level, the day-to-day operational costs in an aparthotel compared to a four-star hotel are significantly reduced.”
A new player in this sector that fits in with the on-demand criteria of instant, flexible access to an otherwise inaccessible offering is Urban Villa. The 100-residence aparthotel in west London was launched in February this year with a virtual concierge. Guests can pay per night or for a month at a time, and although the concept is light on staff numbers (and therefore costs), the level of services it offers is extensive.
The virtual concierge and a number of ambassadors offer a 24-hour service that covers everything from audio-visual business equipment hire, airline scheduling and reservations, medical appointment scheduling and management, mobile phone rental, and restaurant and nightlife recommendations and booking. Guests can even choose a soft or hard mattress for their room in advance and can order an in-room fitness kit to be delivered on arrival – a luxury experience all for an average of £99 a night.
And at this year’s MIPIM conference in March, Adrian Owen, head of residential at BNP Paribas Real Estate, said that the private rented sector (PRS) was also seeing the benefits of the on-demand effect.
“People now rent their music on Spotify, they rent their movies on Netflix. They are used to it. They are used to renting, not owning. PRS is here to stay.”
What we have always wanted
But is the on-demand lifestyle also here to stay? Bailey thinks it will only become more widespread – particularly as it is what consumers have always wanted. What people want from life now is no different from what they have always wanted. It is just that now we have the technology to make it happen,” he says.
“If you had said to someone 50 years ago ‘would you like a luxury car and a suited-and booted-chauffeur within five minutes of a touch of a button?’, they would have said yes. Now you can do that with Uber exec on a pay-as-you-go basis.
“If you had said to that same person 50 years ago ‘would you like to be able to afford a luxury villa with a private pool?’, they would also have said yes. Now you can go onto Airbnb and if someone happens to be away for a few days, it can be yours for that limited time period,” he adds.
“We can do the same across property, whether it’s with centrally located office space or a short-term retail lease on South Molton Street, W1, one of the highest-profile shopping streets in central London.”
As for any future impact on the property sector, there are two schools of thought. Citibase’s Jude believes the industry will have to adapt or die. “We are not going to go backwards,” he says. “The internet is not going backwards. Companies need flexibility, good value, a good location and superfast broadband. We are saying the traditional model is no longer fit for purpose.”
But while living on demand shows no sign of being a short-lived trend, other experts say it will not necessarily be at the expense of everything else. “We are not saying that because of this culture shift, serviced apartments and aparthotels
are the only future,” says WATG’s Sykes.
“Hotels don’t need to play catch-up here. They still remain a lot sexier in many people’s opinion. It is just that now there is a strong investment case for other types of accommodation, too.”
Whether the on-demand model will force the real estate sector away from traditional procurement entirely remains to be seen. In the interim there is plenty of evidence to suggest that those that are adapting have been reaping the benefits that come from delivering access to the world without long-term responsibilities.
