The traditional concept of property ownership is coming under increased and significant pressure. Socio-economic developments and market disruption are posing questions about the future of ownership as both an aspiration and investment.
This is particularly critical for the future shape of our cities. Today’s challenge is that new strategies and solutions, including fresh approaches to ownership, will need to be identified and adopted to support fundamentally different ways of living and working.
In the world of commercial property, disruptive tech and the growth of transience are having a profound impact on the market.
Combined with the ballooning economic importance of the gig and sharing economies, this adds up to a market that is being ever more defined by flexibility as companies implement new strategies to absorb and capitalise on the impact of technology, from the use of artificial intelligence to cloud computing and remote working.
New approaches to ownership will need to be adopted to support different ways of living and working
While traditional office space saw enquiries increase 15% year on year in 2015, flexible or co-working space saw a rise in enquiries of 21%. Indeed, lease lengths have dramatically fallen from the 25-year contracts that were common a few decades ago to an average of 7.2 years today. Occupiers are future-proofing their property portfolios, building in capacity for a transition to flexible working and creative, intensified, more economical use of space.
This will have a profound impact on the strategies of investors, who own more than half of the UK’s £871bn worth of commercial property assets, and lenders. Both generally demand the cashflow stability that is provided by long leases and the permanence that the occupiers of tomorrow are unlikely to countenance.
That said, there is a strong argument to be made that the trajectory of transience and the fragmentation of ownership that we are seeing is not the only path ahead. Historically, a sense of ownership, patient capital and placemaking were critical in building the cities that have stood the test of time.
Today we often see buildings constructed - and torn down - for specific functions. Creating assets that are sustainable and adaptable to a variety of purposes will be crucial to ensuring they remain relevant to a new breed of occupiers - who will probably be focused more on the short-term.
Meanwhile, legal, regulatory and commercial structures that enable flexible approaches to ownership - learning the lessons from the sharing economy, employee ownership of companies and crowdfunding - will ensure future owners, investors and occupiers are able to maximise the social, economic and community value of the built environment. New asset classes and lending structures will be needed to facilitate this.
The changing nature of ownership is also a factor in the residential market. In November 2016, the Redfern Review found that home ownership in England had fallen by 7% between 2003 and 2014-15. Among 25- to 34-year-olds, home ownership has fallen from 59% around a decade ago to 37% today.
In London, 60% of the capital’s residents are expected to be renting their homes by 2025. Looking even further ahead, by 2050 the population of London is set to hit around 13 million, with the London Infrastructure Plan concluding that 49,000 homes would have to be built each year to meet the demands of the future. Some 21,000 homes were built in 2016. The concerns around this trend are many and well rehearsed.
For would-be owners unable to afford to buy outright, new solutions such as shared ownership will continue to be a key part of the residential system. The government has acknowledged that while the aspiration of home ownership is to be lauded and supported, the UK needs the residential market to contain a diverse mix of solutions.
However, for investor-owners, the private rented sector has, on one hand, been dealt a heavy blow by reforms to stamp duty and, on the other, been bolstered by the recently announced Private Rented Sector Housing Guarantee Scheme and the Build to Rent Fund.
In addition, proptech convergence in the sector has enabled the emergence of disruptive options such as property crowdfunding as a credible alternative and an indicator, perhaps, of the future trajectory for residential ownership and investment.
Ownership isn’t dead, but it is frayed around the edges. What will change in future cities is our definition of ownership and the types of ownership structures that we will rely on.