As urban populations increase, we believe that the demands of the urban population will have a significant influence on the property market. We have termed this trend “urban spend”.
The term reflects our focus on how people want to use our cities and what real estate is needed to support this in order to take advantage of this growth.
A number of factors are driving this urbanisation.
The first is the increasing demand for an urban lifestyle where people live and work alongside a wide range of amenities. This demand is coming from both new entrants to the workforce and, increasingly, retiring baby boomers. We view the latter as a longer-term trend, as we expect that more of the ageing population will move towards urban living because of the convenience that it offers, as well as the greater access to cultural and leisure facilities. The addition of retirement living to mixed-used schemes could support this shift. We think it is likely that retirement living will be seen as a solution to both the challenges of an older population and the housing shortage.
The second is infrastructure. Improvements to infrastructure are bringing more people into city centres and are increasing the catchment for businesses, retailers and leisure operators. Not all areas will benefit, of course – there will be winners and losers, as an increasing catchment for one location will draw people away from another.
The third is technology. We are moving from an analogue to a digital age and this is having a significant impact on how we work and how we engage with retailers.
Offices are becoming central meeting places for a more mobile workforce who are demanding a range of supporting leisure and retail amenities that are easy to access. The efficiencies of being in an urban environment (facilitating the sharing of services and economies of scale) as well as the environmental advantages (proximity to public transport) mean that urban areas are becoming the preferred location.
With regard to retail, the physical store is seen as increasingly important as a showcase for the brand and products and as a collection point for internet shopping. The strongest retail locations are those that have a high footfall throughout the day and into the evening and, therefore, mixed-use environments should outperform.
In our view, the most significant implication of the growth in the urban population will be the need to use our real estate more intensively. As a result, we prefer mixed-use buildings in dynamic environments that have a variety of uses. Office districts that are quiet after 8pm are not attractive investment locations. Our focus is on areas that have a variety of uses and are in use 24-7; we call them “10 to 10” locations.
These areas do not necessarily have to be in the core. The ongoing challenges of affordability and congestion in cities will remain and this suggests that the growth in urban living will also manifest as a hub-and- spoke model. This will be different to the core and suburban model of the past. Successful spokes will be large enough to provide the amenities and an “urban-lite” experience, and will have efficient transport links to the hub. Examples of existing or emerging spokes in London include Acton, Walthamstow and Wimbledon.
Leisure amenities are a crucial component of a successful mixed-use urban environment. It is well documented that we are eating out more but at restaurants that have lower price points, underpinning the growth of the “fast-casual” dining concept. This is not just a London trend. There are a number of brands that are expanding into regional cities. Consequently, we continue to see investment opportunities in the leisure sector in urban areas. However, as some of these covenants can be weak, the location and building quality must be strong.
The industrial sector is also being impacted by urban spend. More urban logistics are needed to service the growing urban population. We expect to see more demand for small warehouses on the edge of urban areas. This is likely to lead to rental pressure owing to the lack of available sites, which will be exacerbated by the changes to permitted development rights to allow light industrial to residential conversions.
Urban spend will have a significant impact on the property market and understanding its requirements will be crucial to identifying opportunities for growth.
James Thornton is chief executive for Mayfair Capital
