Property 2018 panel discussion | Colin Innes, Andy Martin, Ben Dimson and Andrew Jones

I actually, I mean, the theory is sound. It's a rational thought process. I think though we need to see massive rental deflation before that becomes a reality. To give you a flavor, we own what's called a Tesco dark store down in southeast London in Croydon, where we've just agreed the rent. The rent's just gone up from £7 to £10 a foot, and Tesco use it. It's fitted out. It's 200,000 square feet, fitted out like your traditional Tesco. The difference is it's staffed full of pickers who look to fulfill your online order for that part of London. The rent on it is £10 a foot. As I say, across the tram tracks there's a Sainsbury's where the rent is probably somewhere between £30 and £35. Now, comparing apples with apples, but you get the appreciation that we need to see massive rental deflation in one and continuing appreciation in the other. That's for a complete repurpose. I do think that there are opportunities in food stores where surplus space will be used as that last-mile facility. But again, the rents are gonna fall. I mean, rent on Tesco food stores at £25 a foot on 100,000 square feet is a different age. That was ten years ago. But I think the theory is sound. I think the economics don't work for me.

Well, looking at it just objectively in a broader sense, land is always valuable. There is always a question of repurposing land. And it's interesting, isn't it, that looking at a large portfolio of mainly London-based properties that's for sale at the moment, one of the most valuable uses is last-mile logistics. I think in London now, last-mile logistics is actually getting up within the £20 a foot level to an extent that there are some old office buildings that are actually seeing last-mile logistics going into them because ceiling height is not so important for that particular thing. So I think repurposing is something that continues to happen in real estate. And I guess also the thing I heard today was that there are various different uses. Furniture is a very difficult thing to do online, so basically home decoration is a pretty difficult thing to do online, timber and so on. So they're not necessarily the highest value nor the highest rent payers, but that seems to be something that will continue in that marketplace. I suspect the idea of actually mixing some of the big boxes where you are doing last-minute mild distribution, click and collect, and sales altogether would be that sort of repurposing. But of course, then you've got to look at this from a planning point of view because the two aren't necessarily compatible planning-wise as well. The other thing I would say about big pieces of land is densification. So what do you do in the airspace above this? I think that's something you'll see more and more of happening in time, that you start seeing people using the airspace above to densify uses as well when we are stuck for land in urban centers. If I may just add, I think one thing I didn't talk much about is in this world that is getting more complicated, you need to be more granular in your analysis and understanding. So if you look at categories, you can quickly see something's doing well or badly, but when you prise it apart, there are winners and losers. So if you look at clothing, you'll have a subset like a pleasure doing very well. When you then break it down to individual retailers, they have a huge range of performance. And then you go further into individual stores, you have big ranges. If you take that to the real estate analogy, all retail parks and retail warehouses aren't equal. The difference between your traditional big-box trade parks is very different to something like the Glasgow Fort or the Falconer that we have in a portfolio. Actually, the strongest performance in a portfolio has been on those forts or the five or so larger retail, what would have been called retail parts of shopping parks, where we continue to invest and evolve. But you're right, the demand is increasingly from different sorts of users, different sorts of retailers going into those spaces. So if you look ten years ago and thought about people like Hotel Chocolat or Swarovski going into those spaces, they're not the first names that you would have thought about for those kind of occupiers. So this importance of understanding the space, the dynamics, and continuing to evolve is going to be even more important.

If you try to look at the correlation over many years between bonds and real estate yields, I think the biggest way to differentiate bonds and property is that with a bond there is no growth, it is flat. Therefore, if you can, your alternative is to reinvest into the real estate sector where you are going to get growth, preferably guaranteed growth, RPI, CPI, and whatever. Then effectively, the more appropriate comparable comparison would be with index-linked bonds, which are still trading at just over 1% index-linked Treasuries at relatively low levels. And across Europe, I think index-linked Treasuries will be negative. So I think one of the decisions we made a few years ago was to rather than just ride the real estate sector up and down. In 2009, the tide went out and everything fell. Over the next five years, the money flowed back in and a lot of sectors rose. We believe real estate yields today, in a period of tranquility, will be increasingly polarized. Therefore, to ensure that you are protected from rising interest rates – because they will rise, none of us know when – is to make sure that you are in sectors that are structurally supported with some form of income growth implicit within them. So that's been our pivot. Rather than just relying on yield, you need income growth. Then you can dismember that comparison with bonds.