The more things change, the more things stay the same

I’ve loved being involved in UK real estate in its many forms since I retired from parliament when it was obvious a young lad called Tony Blair was going to be in power for at least 10 years. Not long after I left, I started writing about the industry and have loved doing so ever since.

We’ve seen good times and bad. Throughout, much has remained the same, but much has also changed, which prompts me to ask: why on earth does anyone still think fixed price lump sum construction contracts make any sense at all?

What other industry would routinely accept less than 3% margins on turnover? Given the inevitability of cost increases for all sorts of external and internal reasons, and boy have we seen enough of those in the last decade, why does any sane businessperson take that risk? Why do we still see so many respectable businesses go to the wall, which is a tragedy not just for the businesses themselves but for the tier twos often forced into bankruptcy because a tier one on which they assumed they could rely screws up?

No other industry that is so pivotal to the national economy acts this way. Please can we accept that it is far safer for developer and contractor to work on a basis on which risk is shared much more equitably and where unforeseen price hikes are dealt with jointly? Is it too much to ask that this should be the last decade in which we lose so many great names and so many smaller decent businesses because we cling to a business model that make no sense to man or beast?

Much in this industry remains the same. During the pandemic, when shops were closed, having everything delivered to your door turned out to be quite agreeable and Amazon boomed. But since then, physical retail has seen a resurgence because it turns out we quite like seeing, feeling and trying on before buying. Ironically, while sheds are still an attractive investment, the sector’s exponential growth is no longer seen as inevitable. Reforming business rates to cut physical retailers some slack should still be a priority for government, though I fear we will wait in vain for significant change.

But the area that has seen the biggest change is surely the office market. We have moved away from an institutional approach involving anchor tenants that effectively underpin a development and yields that could be predicted over decades. The pandemic massively accelerated a process that had actually begun earlier, as technological advances made it easier for many staff to work at least part of the time at home. WFH is now everywhere and while now more people are being asked back to the office for longer, it is clear that many of the working practices that dominated our lives for centuries are now dead.

Add into the mix the challenge of AI and many businesses will be struggling to predict how many staff they will need five years from now let alone 10. WeWork might have given serviced offices a bad name for a short while, but the concept was spot on. Is it not obvious that the principle of minimum six-month tenancies of fully furnished and serviced premises with no dilaps but no rent frees either is now rapidly and rightly becoming the new normal? Plus ça change, as our neighbours across the Channel would say.