Last week, we posted the first four of eight predictions for the Scottish real estate sector in 2014. In this blog, we complete the set – full details for which can be found in our 2014 Real Estate Predictions report.
This time round, we're looking at reasons to be cheerful on the high street, the impact of online shopping, public sector property sales, and how real estate can be used in the war for talent.
5. Vacancy will (finally) fall on the high street
It would be easy to miss the first signs of new life after several barren years on Scottish and UK high streets. The last Deloitte Consumer Tracker showed that consumer confidence is gradually returning and likely to continue to do so throughout 2014. The new challenge is the rise of online shopping, which brings a new pressure to increase the convenience of high street shopping. Interestingly, the limitations of convenience stores – namely the restricted stock range they can carry – could have a ripple effect on other retailers, as more specialist shops like butchers and bakers (candlestick makers seem unlikely) fill the gaps. Click and collect will take on greater importance.
6. E-fulfilment will drive urban logistics facilities growth
Online retail's relentless growth has increased competition. Consumers can easily compare prices online, so retailers have to deliver stock to customers quicker than their competitors. In many cases, delivery is being measured in a day or two, and sometimes even hours. That means large national distribution centres are becoming inefficient – customers won't wait. The second half of 2013 saw a flurry of lease activity around smaller, regional distribution hubs, and that is an ongoing process. In 2014, these properties will see rents increase, and yields being forced down.
7. The public sector will make some progress on property sales
With depressed pricing, selling off public buildings has been as commercially undesirable as it has been politically dicey. Local government has been reasonably successful at offloading back-end facilities like office buildings, but more emotional attachments are often attached to public-facing buildings, making sales controversial. However, the prospect may be made more palatable by improving values and new rules allowing local authorities to keep up to £200 million of the one-off costs of reforming services and disposing of property. In asset-rich and income-poor areas, this could take some heat out of the debate. This will be particularly true where fresh sources of council income could be used to fund new housing stock. The establishment of a central body to manage disposals will also provide clarity over how sales transactions should be handled, and by whom.
8. Property will become a key tool in the war for talent
A recent Deloitte report, Human Capital Trends 2013, highlighted that Generation Y will make up 25% of the workforce by 2025, and they place huge stock by workplace flexibility. Organisations will need to think hard about how to align business objectives with talent management and real estate strategies. Our Deloitte Talent In Banking Survey 2013 recorded a 'creative and dynamic work environment' as one of the biggest draws for graduates; less than 40% associated this with a career in banking, however. While we don't suggest this spells the end of the traditional office, organisations can no longer consider real estate as simply a cost – it will become a key differentiator in attracting talent.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
