Recognising scale of future changes will define who wins… and loses

Understandably, since I was a transport minister for five years, I’ve been following what’s been happening in the transport world almost as closely as I follow the fortunes of the property industry. The two are, of course, inevitably intertwined, but certainly since the start of the pandemic, the model has been changing more rapidly and in a more profound way than it had been in decades.

Until the advent of email, the vast majority of commercial travel was commuting. Seventy per cent of all journeys began from or arrived at the capital. As email became the accepted alternative to letter writing, there were those who thought that this new product would lead to less travel because why bother with face to face when you could get an answer from New Zealand in seconds at almost nil cost? In fact, around the turn of the millennium, the opposite turned out to be true. The ability to reach out to many more potential customers than had previously been the case actually led to an increase in rail travel driven by this easy ability to reach more customers.

But as this new travel pattern became the norm, London noticed in the fourth quarter of 2019 that both bus and rail volumes were down, while employment was static. This was highly unusual, because while price increases on the tube might see travellers switch to bus and if buses were slowed by congestion we might see a move to the tube, the overall travel volume was largely predictable. Of course, it turned out that by the fourth quarter of 2019, Thursday night was as busy a going home night as Friday.

And then the pandemic. Of necessity, we all learned how to work from home, comfortably or otherwise. For some, the attraction of more space, cleaner air and less prospect of catching the virus led to a rash of families simply selling up and moving out of the city. The government was obliged to subsidise bus and rail travel as volumes crashed. Employers contemplated how much they would save if they could halve or even dispose of their office space. The prospects for cities were bleak – fewer residents, less need for offices, big implications for the hospitality industry and a cost of £0.5trn for future generations to inherit.

But trends in life are often on a pendulum and some of those happy rural campers have decided that they don’t like living close to a piggery and they miss the bright city lights. Most businesses have worked out that not seeing their staff at all only works in a tiny handful of cases.

One or two changes do, however, look like being permanent. The first is that three days in the office rather than five is now as near to the norm as makes no difference. Mick Lynch has come to realise, to his members’ cost, that if I can’t catch a train I know how to work remotely. I’m not one who believes he will kill rail travel. As long as I know the train will run, I’ll be happy to use it, but only three times a week.

For the property industry, the trends are clearer. The city will still be where young people will want to live. Interest rates are more significant arbiters of price than proximity. There will certainly be less demand for offices, even including the best of the flexible operators, and yields will adjust accordingly. Home delivery will sustain the sheds market, although future growth will not be as spectacular as it has been over the last three years, and the retail market will see boutiques retain their attraction, while department stores will go multi-modal. To succeed in the property industry, you need to think smart about trends as much as anything. Today, recognising the scale of future changes will literally define who wins and who loses.