As inner London house prices have risen by 30% over the last two years, the price of milk has fallen by about the same. No wonder supermarkets are examining their landholdings.
It is a slightly fatuous comparison but, like many of the best ones, it illustrates a wider point. Volatile food prices – compounded by stiff, new competition – has pushed the big four supermarkets into a vulnerable position; they are battling, desperately, to retain market share and maintain margin.
As a result they are reducing store footprints around the country. Yet in London their strategy is different. Their stores in the capital are among their most profitable – average daily turnover can reach £300,000 for inner London superstores – yet they often sit on hugely valuable land whose value could be maximised if it were freed up for housing.
It is driving development activity on a perhaps unprecedented scale: more and more sites are being sold, brought to market or pushed through planning for resi-led redevelopment.
From the potential redevelopment of the Camden Morrisons, where Barratt is now working up planning, to Sainsbury’s plans for 500 homes in Whitechapel, and 700 in Ilford, landholdings across London are being subjected to strategic review. Car parks are being built out, stores reworked and homes added.
It’s not a surprising model given the need for housing in London and that the stores sit in some of the capital’s most coveted – or at least best-connected – locations.
And, at a headline level at least, the strategies themselves make absolute sense. The core, trading business can often be retained and capital values capitalised upon.
It is also a policy that should be welcomed by London’s next mayor. Whoever is in office will prioritise housing. Either man will appreciate supermarkets’ efforts.
• Whatever the outcome of the Brexit vote, suggests M&G Real Estate chief executive Alex Jeffrey this week, the knife-edge debate offers a “wake-up call” to investors and how they should think about their portfolios. Diversification, balance and exposure matter more than ever in a world that is “more uncertain than normal”, says Jeffrey (p43).
Cushman & Wakefield chief executive Brett White concedes that Brexit isn’t dominating debate on the other side of the Atlantic (p60). (“There are much bigger issues in the US right now people are focused on than Brexit, which is on our own election which is a disaster,” he told me with some embarrassment.) But he too craves certainty: “What the market needs is not necessarily the outcome, it’s clarity around what the implications of the outcome are.”
But as Jeffrey suggests – and White no doubt recognises – we will still live in a world rife with uncertainty come 24 June (the day after the EU referendum) or 9 November (the day after the US presidential election).
Take Malaysia’s government fund for Muslim pilgrims Tabung Haji, for instance, which is looking to sell off £220m of London property (p35). It needs the money to bolster reserves used to ensure it can return money to investors who have been saving to travel to Mecca. Modelling that eventuality as part of a portfolio management strategy is difficult. But being alive to risks – known and unknown – is more important than ever.
• It is one of the most pressing problems facing the planet: as the world’s population continues to urbanise, what can be done to turn these expanding cities into legitimate, sanitary and productive communities? It is a problem that you may be able to help solve through Estates Gazette’s second annual Next Big Thing competition. Alongside Cluttons, RICS and Silverlight we want to hear your ideas. The best idea will feature on the cover of EG and the winner will receive £2,500. Full details at www.thenextbigthingcompetition.com
To send feedback, email damian.wild@estatesgazette.com or tweet @DamianWild or @estatesgazette
