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If You Don’t Want Your Property To Become Obsolete, Here Are The 10 Things You Need To Know

Posted by Yijy8kNUMO on March 19, 2019

“As long as real estate has existed, obsolescence has been a challenge: Buildings have always deteriorated, and the way people use them has changed. But today the issue is acute.”

From working out how to make money from unloved retail, to the hidden dangers in logistics; from the need to bring hospitality into every sector, to working out how to put a value on how people feel about a building — these are the things real estate professionals will need to know to stop their property from becoming obsolete in the new world of winners and losers.

The Problem With Retail Conversion

The report had a major focus on the issues facing retail amid its seismic change. Conversion of failing retail to other uses like residential, office, leisure, logistics or public services like libraries will be a major trend over the next few years — but it will not be a short, simple or cheap process.

The New World Of Delivery

The report painted a picture where the worlds of retail and logistics become even more blurred than they are today. In Asia, consumers can walk through a store like Decathlon, pay for items via their phones without taking them to a checkout, and have them delivered to their home within three hours.

Hospitality Leads The Charge

“Five years ago, if you had asked people, they would have said that hotels were one of the asset classes that were most susceptible to obsolescence, but today good hotels are seen as a safe haven because they’ve survived the onslaught of Airbnb,” one global investor said in the report.

Everything Becomes Hospitality

Courtesy of The Crown Estate The reception at One Heddon St. Hospitality is changing, but its influence is also spreading throughout real estate.

Food Glorious Food

Technology will enable the conversion of some obsolete real estate to other uses that previously did not exist. Food delivery platforms like Deliveroo and CloudKitchens, the new company of former Uber Chief Executive Travis Kalanick, are taking obsolete real estate — offices, shops and industrial land — and using it to create kitchen space for delivery-only restaurants.

The Hidden Danger In Real Estate’s Favourite Sector

A major part of the conversation about obsolescence surrounds retail and office assets, beset as they are from disruptors like Amazon and WeWork. But logistics might be storing up problems for the future too.

The Move To Mixed-Use

Bisnow/Mike Phillips AXA’s Twentytwo skyscraper Today, mixed-use doesn’t just mean having a large campus development with multiple uses, or an office building with shops and cafés at the bottom. Truly mixed-use buildings are becoming increasingly common.

Increased Operational Intensity

All of these factors can be defined by a wider trend, the report said — real estate is becoming a business which is increasingly operationally intense, and owners will be required to manage and run assets as well as just collect the rent. This is a difficult and expensive process, and is likely to mean, over the long term, returns from real estate are not quite as high. But if owners don’t adapt to this new world, they risk being left with empty properties people simply don’t want to use.

New Forms Of Value

Another major conclusion of the report is that real estate will need to come up with new measures of value. As mixed-use buildings become more prevalent, how are these buildings valued? What value is attributed to communal amenities that might not have a direct link to an income stream? And how will valuers and appraisers see sectors like coworking or co-living, where leases are short and turnover high? “You have all of these business models that have never been seen before, and the capital market has not evolved yet to work out how to value these assets,” one investor said. A major part of real estate’s challenge to adapt to the new needs of customers will be finding how to value what has never really existed before.

Source: Mike Phillips, Bisnow London

Read more here.

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