Nov 16, 2017 - Increased cross-industry collaboration and sharing best practice among the occupier community is required
The Innovation Savvy Business Executive Summary of the discussions at Burlington House London - 16th November 2017
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2017 has not been as bad as predicted but businesses will need to continue to ‘do more with less’ in 2018. To minimise uncertainty, occupiers should work together with peers to avoid the more hazardous pitfalls of Brexit and other risks and challenges. Occupiers should take advantage of the sector-specific opportunities arising in 2018, including those in retail, manufacturing and IT. In 2018, occupiers will be looking to innovation to improve the performance of their portfolios. This will include ways to reduce costs and make people work smarter and more efficiently. Increased cross-industry collaboration and sharing best practice among the occupier community is required to source the best innovation, and access its benefits more quickly. Offices and warehousing are thought to lead in the innovative use of space and technology. Landlords are not proactive enough when it comes to introducing innovations into buildings. Having an agile and flexible strategy approach to innovation will be vital to selecting the right innovations to achieve business goals. Occupiers may need to bring in external advisors to help them put innovation on the corporate strategy agenda. The members of the PDF should co-operate and collaborate to share best practice and to de-risk innovation. Occupiers should consider using the Property Directors Forum as an opportunity for driving better deals e.g. buying groups.
Financial markets post Brexit & Trump – apocalypse or opportunity? Summary of a presentation by George Bromfield, Investment Director, Brooks Macdonald
The following key points for consideration by occupiers were highlighted: ■
2017 has been a good year for financial markets – Despite the uncertainty surrounding Brexit and Trump, financial markets have performed well. However, this is despite a parallel increase in consumer debt.
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The global economy outlook for 2018 is looking OK - Data shows that the growth rate in the global economy throughout 2017 has been well above trend for both the advanced and emerging economies. But UK growth rates look dismal. Stability for long-term investments may be found in the European markets – Despite the widespread expectation post Trump election and Brexit, the populist politics in the majority of western European countries have not gained as much ground as expected, making these markets more stable for longterm investments. Avoiding UK elections mid-Brexit should help protect the economy from instability – If the current government can stay in power, there should be better opportunities for international property investments. Keeping an eye on political developments will be key - The global political scene needs to be closely monitored to avoid pitfalls or miss out on potential opportunities. Brexit, the consolidation of presidential position in China, frictions over North Korea, Trump’s tax reform in the US – and many others – will have an impact on property. Central bank policy will remain accommodative to minimise market impact - Global financial conditions have been kept highly accommodative, in part by the liquidity being injected into markets by the world’s major central banks. The Federal Reserve is starting to remove some of this, but other central banks are set to continue – thus creating a balance from a global perspective. Changes by the Federal Reserve and other central banks are likely to be gradual and well signposted to minimise market impact. Inflation outside of the UK continues to be muted – Global inflation remains below long-term expectations. Businesses have not yet passed the costs to consumers as their focus remains on keeping prices down. Central Banks have been successful in controlling inflation expectations and inflation remains reasonably contained for now, driven by Debt/Demographics/Disruption/Automation. Debt continues to rise faster than GDP - Easy financial conditions are perpetuating the build-up of debt among governments, corporates and individuals. This is supporting demand, but is unsustainable in the longer term. There remains risk of a credit event “Minsky moment” in China, where credit growth is outpacing GDP growth. However, some countries have moved the other way and improved their debt sustainability. The primary example being the US household sector, which has deleveraged significantly since the financial crisis. These countries subsequently have higher potential to maintain or increase their level of demand. Long-term interest rate projections remain low – UK Interest rates are expected to remain low throughout Brexit negotiations process. It therefore remains a good time for businesses to borrow. The risk scenarios caused by rising debt need to be drawn – The potential shifts in the UK inflation and interest rates can create risky scenarios and occupiers need to create plans for each scenario. Occupiers need to take the account of possible ‘stretched valuations’ scenario – While equity markets continue to perform well, there is a risk of them becoming too expensive. This could cause property prices to fall. UK property may become more attractive to foreign buyers - As the currency is getting weaker there is a realistic prospect of the influx of foreign buyers taking advantage of the weaker £ and buying more UK properties. China in particular has indicated UK could be a target post Brexit. 2
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A major government regulation concerning the technology sector is possible – As major companies such as Google, Microsoft or Apple are getting increasingly bigger, governments may want to find a way to regulate the technology sector. Brexit remains the great unknown and occupiers need to prepare for its outcomes. There is a continuing trend of businesses needing to ‘do more with less.’
You can download George Bromfield’s full presentation here.
Leading Innovation for Resilience – The Power of Many The summary of presentation by Henry Majed, Director & Partnerships, Innovation Gateway The following key points for consideration by occupiers were highlighted: ■
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More cooperation and sharing best practice among the occupier community is required - Property Directors need to start using their collective strength to build resilience, and transform the performance of their buildings to cope with the following: ▪ VUCA - volatility, uncertainty, complexity and ambiguity of the current business conditions ▪ Increasing pressure on resources and its impact on property markets ▪ Unpredictable and out of control risks such as flooding, water shortages, surging energy prices, political uncertainty etc ▪ Constantly shifting demands and expectations of both customers and employees. Managing innovation effectively across new and existing buildings is key – Collaboration can help to address cost, risk and environmental challenges, including: ▪ Finding the best technologies ▪ Selecting the innovations that are most appropriate for the business ▪ Managing the risks of introducing new technologies ▪ Managing the cost of investing and maintaining resilience vs. ROI, etc.
■ Collaboration needs to happen cross-industries to add value – Challenges facing occupiers across different industries are universal and working together to reduce the operational costs, risks and environmental impacts of their properties is needed. The Innovation Gateway is an alliance of organisations working in partnership to reduce the costs and environmental impacts of their buildings; through innovations in energy, waste, water, productivity and wellbeing. Its partners, from across a wide range of industries manage substantial property portfolios (Tesco 3.6M m2, RBS – 1.6M m2 Unite – 1M m2, University of Cambridge – 645K m2) and collaborate to: ▪
Share best practice/experience and performance data to address common challenges across the group
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Work together to source, validate and adopt high impact innovations at scale.
You can download Henry Majed’s full presentation here.
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Panel Debate - Leading Innovation for Resilience The summary of discussions with the following panellist: Tim Golding, UK Property Director, Tesco Plc; Jo Saunders, Innovation Project Manager, RBS; James Tiernan, Group Energy & Environment Manager, Unite Students; moderated by Henry Majed, Innovation Gateway and chaired by Piers Leigh, Avison Young. The Panel debate identified the Top 10 benefits of collaborating to innovate: 1. Keeping up with the pace of innovation – The pace at which technology is changing how businesses operate means occupiers need to constantly scan the horizon and adopt a more agile approach, to be able to source and adopt the best innovation. Through collaboration, organisations can respond to these needs faster and at scale. 2. Sharing best practice and experience – Challenges facing occupiers across different industries are universal and working together to address those common challenges is essential. 3. Managing the risks of introducing new technologies – Information and data exchanged helps organisations choose only the best and most efficient innovation available on the market. 4. Saving time and costs – Sourcing innovation can be a time consuming and resource-heavy activity. By working together occupiers can save time taken to source, validate and adopt high impact innovations. 5. Gaining access to performance data – Access to data from other organisations that have already tested or implemented the same innovation can help sift out solutions that are right for your business and those that may not work well. The better-informed businesses are, the more proactive they can be to use it, control it, and change things quickly if needed. 6. Responding quicker to changing needs of customers and employees – Customer and employee demands and expectations are constantly shifting and occupiers need to be able to respond to them quickly to remain competitive and retain best talent. 7. Getting buy-in to innovation – By sharing challenges in a collective manner, organisations can drive innovation in the right direction much more quickly. This can also help change suppliers’ or landlords’ attitudes to innovation. 8. Identifying the right targets or benchmarks – When organisations collaborate they can help establish appropriate performance targets or set benchmarks. This is helpful to occupiers as they can learn which of their properties are doing well, and which are underperforming. 9. Gaining competitive advantage – The smart application of innovation can deliver a performance advantage over competitors. 10. Getting quicker buy-in from the board and stakeholders to invest in new technology – Sharing performance data can help occupiers build a business case and provide the necessary proof points for improved performance and ROI. The following examples of innovations were shared: Behavioural change innovation such as ‘JUMP’ at RBS Jump is an online platform and mobile app that helped to influence the behaviour change among staff to become more environmentally aware. This is achieved by fostering competition, nurturing engagement and facilitating action whilst rewarding people that make positive changes.
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The trial results included: ■ 5% reduction in energy use ■ 10% reduction in out of hours use ■ 90% engagement amongst employees ■ RBS estimated savings of £3m per year. Water saving solutions such as: Waterblade – An insert for mixers taps that saves on water usage, thus reducing bills for water and water heating. The innovation takes a trickle of water and shapes it into a jelly fish shaped, paper-thin sheet of water that is as wide as a hand to deliver the following results: ■ Overall saving: 5.2m³ per tap per year ■ Hot water saving: 4.3m³ per tap per year ■ Saving £26.51 per tap p.a. HSG’s Hygiene Products & Washroom Services – These systems help to prevent costly urinal blockages and assists with prevention of foul odours. It also saves huge amounts of money and water by controlling the amount of flushes. Tesco has seen a return on investment within the first month of usage. Energy saving solutions such as: State-of-the-art aerofoil technology - which borrows from the world of Formula 1 and prevents cold air from fridges spilling out into the aisle by steering it directly back down into the fridge unit. The aerofoil system is attached to the front of the refrigerator unit shelves to keep more of the cool air inside the fridges in the cold aisle of a supermarket. Savings can account for an energy reduction that equates to over 320M kettles boiled and over 360M toaster pops-ups. The fridges can remain at the same temperature to keep food cool and fresh, however the aisles will be warmer for customers by up to 4°C – helping to make the shopping experience more comfortable. Other innovations mentioned were electric cars, honey bee hives, smart meters, waste recycling, dishwashers that re-use their own heat produced during operating to run again, various uses of algae to form insulating construction materials which provide thermal and noise insulation, generate fresh air indoors or clean energy generation.
Round Table Discussions - The Innovation Savvy Business The summary of the Round Table debates from Tables 1-6 were presented by the Forum’s attendees. The following key points for consideration by occupiers were highlighted: ■
In 2018, businesses will continue doing “more with less” – There is a consensus that this is a constant challenge for occupiers in the current economic climate. Occupiers will be looking for ‘easy hits and wins’ in 2018. This means businesses will be looking to implement small changes that can deliver big
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or multiple returns, e.g. switching providers, space use reduction, influencing behavioural changes among staff to reduce energy use, etc. ■
Businesses are continuing to rationalise their portfolios – Driven by the increases in rents and business rates, rising costs, and short-term occupancies, occupiers are making more efficient use of their assets and being more cautious about investments.
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Retail sector continues to feel the pressure from the ‘clunky’ rates appeal system – The new rates appeals system is more complicated and harder to win. This means the Retail sector will be carrying very heavy rates liabilities for a longer.
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Occupiers should take advantage of the sector-specific opportunities arising in 2018 - It was agreed that the outlook for the property market in 2018 will be challenging, but there will be opportunities in some sectors: ▪ Restaurant sector continues to develop as a support to retail (more restaurants in shopping centres as they stay open longer) ▪ Outside London there are opportunities for negotiating new, more favourable lease agreements with landlords ▪ Continuously changing workforce attitudes are shaping the Office sector by driving more agility, collaboration, flexible working to reduce space and improve performance. ▪ Manufacturing, financial and IT services were also mentioned as those expected to perform well in 2018. Smart meters and LED lighting are the most popular choices among occupiers when it comes to producing good ROI from innovation – Some occupiers reported savings of around 25-30% from implementing such technologies. ‘Digital property’ is starting to become more cohesive but occupiers need more proof of the benefits of innovation – Occupiers are cautious over investment in innovation, so sharing information in the PDF could accelerate the pace of investment. More agile approach to using space is needed – There is a general consensus that occupiers will continue to use less space and occupiers should drive fresh business culture in their organisations (e.g. taking away the symbolic use of space in offices etc.). Offices and warehousing are thought to lead in the innovative use of space and technology – There is a consensus that they are at the forefront of bringing in new technology and new methods for effective use of space, driven by the need to be more agile (e.g. introducing more co-working office space though the likes of WeWork, increased use of robotics in warehousing etc.). Landlords are not proactive enough when it comes to introducing innovations into buildings – Landlords seem to assume a general ‘wait and see approach’ to innovation and more contribution from their side is needed to implement changes quicker. In 2018, being able to reduce costs, meet customer expectations and act with corporate environmental responsibility (CER), will be the main drivers for implementing technology innovations. Some examples of new or existing programmes were mentioned: ▪ Implementing technology to reduce water usage by controlling the amount of flushes in urinals
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Various uses of algae to form insulating construction materials which provide thermal and noise insulation, generate fresh air indoors or clean energy generation ▪ Exploring air cooling ▪ Continuously improving LED lighting solutions ▪ Recycling refuse with the benefit of paying less for landfill waste and being more environmentally friendly ▪ Exploring more efficient use of machinery in terms of heat reduction and energy re-use – e.g. dishwashers, coffee machines ▪ Introducing car sharing schemes to encourage people to travel together. Innovative approach and technology can help with influencing desired workforce behaviour. Occupiers can benefit from: ▪ Continuing to consolidate space and improve performance by creating opportunities for flexible working, promoting collaboration and implementing staff engagement and retention programmes ▪ Using smart technology to monitor and alert on individual energy consumption ▪ Influencing positive behavioural changes among workforce by creating incentive schemes to reward employees for behaving in the desired way. Increased cross-industry collaboration and sharing best practice among the occupier community is required to source the best innovation – There is an agreement that occupiers across various industries face similar challenges and need to work together more to identify, implement and share knowledge on innovation. Occupiers should consider using the Property Directors Forum as an opportunity for driving better deals – It was noted that there is an opportunity for the Forum members to work together more to drive better prices and deals.
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The Property Directors Forum – helping you collaborate to innovate The Property Directors Forum (PDF) is an exclusive, invitation-only community that was created to provide Occupier Property Directors with a stronger VOICE in the market. Since 2013 we run several successful and well attended events with industry leading speakers and experts on the most current topics affecting the occupier community. Each event has used participants’ contributions to create value-add content on the topics concerned. The Property Directors Forum provides Occupiers with: ■
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FORESIGHT to identify current trends and challenges
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