Radical Capital: Landmark Report

Bringing together 60 major players across the private and public sector.

Businesses must get more vocal over lockdown

Winston Churchill once said: “Those who fail to learn from history are condemned to repeat it.”

Real estate will play a central role in capturing the potential of UK life sciences

UK life sciences may be the perfect coronavirus cure for the UK economy, but real estate must be on hand to support the science.

Budget 2020: what’s the outlook for real estate?

Blackstock Consulting's clients' share their analysis of what the new budget means for the property industry.

ASA rules in favour of flatfair

The ASA has backed deposit replacement firm flatfair’s promise to protect landlords and tenants, as it throws out a spurious complaint from a rival.

Proptech's potential must not be overshadowed by the failings of major players

Is proptech's growth being overshadowed by recent news of online and hybrid estate agents falling short of the mark?

Blackstock’s 18 for ‘18: A review

Last year, the Blackstock team put forward some predictions for how 2018 would play out. Let’s see if we were right:

Alternative lenders to fill the development void amid housing crisis

Latest Blackstock PropCast episode digs into property finance & appetite for alternative lending

https://soundcloud.com/user-633998792/disruption-in-property-finance

Ten years on from the collapse of Lehman Brothers, banks and regulators have reined in their behaviour but as part of their drive to reduce their risk are now funding less property projects by smaller developers, potentially exacerbating the housing crisis.

Banks are still prepared to lend to the big, listed builders and developers but, with their new reduced risk appetite, are more reluctant to lend to small and medium-sized firms due to the perceived risk.

“Banks have learnt their lesson but have probably over-corrected, especially in terms of investing in riskier activities such as property development, which has led to a void in developments,” says Parul Scampion, co-founder of new online property investment platform propio.com. “We want to unblock some of those lending streams that have closed, which have meant that small developers haven’t been able to build as much as they could have.”

“There were a lot of lessons for everyone to learn after ,” said Peter Cosmetatos, the CEO of Commercial Real Estate Finance Council Europe (CREFCE). He added that “property is highly cyclical, which mean you need to be careful how you manage leverage as a borrower and as a lender you need to be careful as to when you are lending during the cycle. During the last cycle everybody got this wrong. Lenders lent a great deal into the peak and were left licking wounds and dealing with legacy books for many years after the peak. It wasn’t just lenders who went off the rails, regulators fell asleep at the wheel.”

This overcompensation has led to a funding blockage which could have implications for the ongoing UK housing crisis and the government’s ambitious housing targets of building 300,000 new homes a year.

“Finance is a utility and we need to build houses in this country. There might be risk associated with development, but as long as the reward is appropriate it’s a good thing. Otherwise, we will not be able to address the acute shortage of housing,” said Parul Scampion, co-founder of Propio.

In the past smaller developers would have picked one of the many high street banks as their lender for a project but today – in response to tighter lending by most banks – a number of challenger banks, bridging finance firms and crowdfunding platforms have emerged to fill the gap and disrupt the lending industry.

“It’s a difficult world to navigate because now there are hundreds of lenders that you might go to. But now there is a real role technology can play in terms of connecting people looking for debt and those who could provide it,” Peter Cosmetatos, the CEO of Commercial Real Estate Finance Council Europe (CREFCE). “There is an opportunity for online platforms that can aggregate and show what offers are available, while such platforms can also be used by capital providers to find out what is available and where they can put their money.”

Scampion and Cosmetatos both agree on the need for further development within the UK market and that alternative lenders are vital for filling the development void created by the conservative lending regimes currently in place. Peter Cosmetatos noted that “the most useful thing the property industry does is building new stock for which there is an economic need. That is more important and more valuable than simple transactional activity when existing buildings get traded. That doesn’t generate value for the wider economy but new construction absolutely does.”

Alternative lenders are vital for filling the development void created by the conservative lending regimes currently in place.

Listen to the full episode of PropCast, and all out other episodes HERE.

The new Luddities: automation and opportunity

Talk about robots and artificial intelligence and all kind of images of Terminators running riot may pop into your head. But the approaching surge of automation is not a threat; it offers a wealth of opportunities to change the way we work, increase productivity and move into new sectors.

In The Times last week, Clare Foges, David Cameron’s former speechwriter, described automation as “one of the biggest issues we face” and criticised a utopian mind-set in the tech community that everything would be fine.

Labour’s deputy leader Tom Watson displayed the same reticence to an audience in Weymouth recently, quoting a Deloitte report that 11 million jobs were under threat from automation in the next decade. It’s worth noting the report is titled “From brawn to brains”, as the shift we’re witnessing is not removing jobs, but replacing them. To be fair to Watson, he’s concerned with an “hourglass economy” of inequality, supposedly forming around the digital revolution. The fact that Instagram only employed 13 people when Facebook purchased it in 2012 is proof of this apparently. It’s true that blue-collar jobs, like manufacturing, face the most immediate threat, but white-collar work is not safe either – just look at accountancy software and personal assistant apps.

Disruptive technology has the ability to fundamentally reshape our economy for the better. There are, and always will be, cases where a few get rich, but this is not necessarily at the expense of the many. Watson goes on to say that “Uber, Facebook, Google and the other successful tech platforms have brought immense gains to the lives of millions of people, but they are part of an emerging “winner takes all” economy.” Heaven forbid companies that spot a gap in the market might profit from that, especially ones like Google and Facebook which offer their services for free! And all
credit to Instagram for reaching a stage where they earned a 10-figure sale price with only a Baker’s Dozen of employees.

It may be a cliché to say that in the middle of adversity lies opportunity, but in this case it really does. The labour market is moving away from manual work to a knowledge-based economy – from brawn to brains. As Deloitte points out, “this technology-driven shift has already created four times more jobs than have been lost, and it has brought considerable additional value to the UK’s economy. It also accentuates the importance of generating and retaining the right skills in the workforce.”

As Foges rightly says: 25 years ago we couldn’t have dreamt of jobs in social media, virtual reality or fintech being as prevalent as they are today. So who’s to say what the future will look like? New jobs will replace those forced into obsolescence: cabs supplant carriages, and are overtaken by Uber themselves. This isn’t a bad thing. You only need to look at car manufacturing, which, having gone pretty much fully automated, has increased its productivity by 35 per cent since 2010. This allows employees, whose work by definition was less productive, to retrain and extract more value from their efforts.

Some may be left by the wayside, which is when government should perhaps step in to offer a hand up. And there are legitimate questions to ask on how prepared we are for this shift. Kids going through school now will be the captains of industry in 30 years’ time, and while there are valiant attempts to teach schoolchildren how to code, there’s a feeling of unease when lessons on  smartboards are still seen as cutting edge.

We’re going through a technological revolution to rival anything that went before it. But this is an opportunity, not a challenge. By embracing technology and innovation, we can shift our focus from what worked last century to what will work for the next hundred years. When the robots take over, it won’t be the end of the world, but it may be the start of a new one.

Is the regulation of crowdfunding fit for purpose?

Crowdfunding has surged in popularity over the last five years. Fuelled by the rise of Kickstarter, a website that lets you share the cost of ideas online, the emergence of sites like Crowdcube, Seedrs and Indiegogo has helped start-ups and SMEs obtain finance from the masses. The innovation charity Nesta estimates that British companies raised £245 million through crowdfunding in 2015, opening new doors for the country’s budding entrepreneurs.

This rapid growth has predictably left a trail of failures in its wake. While the media has reported numerous stories of leaky companies giving budding investors the run around, there has yet to turn into a flood. Calls to increase regulation of these promising platforms should focus on how we enforce current regulation – not whether we introduce more.

The Times reported recently on Rebus Group, a claims management company which went into administration soon after it raised more than £800,000 via Crowdcube. The company reportedly failed to warn that it had brought in restructuring experts to plug a cashflow crisis, setting off alarm bells over the lack of protection granted to investors. Regardless of what occurred here, the simple fact is that regulators are still largely powerless to stop companies that give misleading pitches on inflated valuations. The company responded that nothing was hidden in the financial documents – which bidders may have failed to properly read.

It follows the case of Hokkei, a Cardiff takeaway which raised more than £300,000 on Seedrs in the summer of 2015, and went bust less than six months later. Upper Street, a shoe brand, raised close to £250,000 also through Seedrs and has since gone into liquidation. LumeJet, a high tech photo printing company which raised £1.54m through CrowdBnk, is another high profile collapse of recent months.

There’s no clear proof that any of these companies’ pitches were fraudulent. However, it is true that crowdfunding platforms can often be the place of last resort for a company seeking finance. Those who invest are largely amateur investors. This clearly means they may not necessarily grasp the risk of what’s on offer, even if presented with a stack of financial documents.

The Financial Conduct Authority (FCA) brought in new regulations covering loan and investment-based crowdfunding in 2014. The new rules mean firms can only seek professional investors, and any ordinary investors can only stump up 10 per cent of their investable cash at any one time. This is on top of the standard protections offered to consumers against fraudulent pitches and business plans. But something can be misleading without being actively fraudulent.

Crucially, these investments are not covered by the Financial Services Compensation Scheme. Investors still run the risk of losing everything. In fairness the FCA does warn on its website – in bold letters no less – that investors should only chip in money they can afford to lose. There’s no such thing as a safe investment, after all.

Wannabe investors need to keep in mind the cold, hard truth that most start-ups fail, as do a high number of crowdfunding campaigns. A study last year by AltFi Data found that one in five companies that had sought equity funding through crowdfunding between 2011 and 2013 had since gone bankrupt. The same survey found that £5 million was invested in companies which had either ceased trading or were showing signs of distress.

While this figure may not seem high, it’s made up of the companies which have passed the platforms’ vetting procedures and still didn’t make it. If you invest in a start-up through these platforms, with the intention of making a profit, there’s a significant chance you could lose your money. So, is the protection for consumers adequate? Certainly there should be added safeguards for investors who have been misled and compensation when fraud has taken place. But we should not rush to point the finger or join the push for more regulation. The issue here is not lack of regulation, but a failure on the part of the crowdfunding platforms to properly vet those seeking funds – as seemed to happen with Rebus – on top of amateur investors not reading the fine print.

In the same way that public hysteria and calls for further press regulation peaked in the aftermath of the phone hacking scandal, a few more cases like Rebus Group could light a fire under the regulators of crowdfunding.

Techxit – Why the tech sector shouldn’t fear Brexit

The referendum is still weeks away and it feels like there’s not much more to be said on the topic. But as the battle lines are drawn, attempts to lump businesses one way or the other – small versus large firms, hedge fund chiefs versus investment bankers – have dominated the debate. But Britain’s thriving tech sector hasn’t had these clashes. There’s been a massive PR push to declare ‘near universal’ support for Remain from Britain’s geeks, with lobby group Tech London Advocates saying 87 per cent of tech professionals want to stay in the Union.

Whichever way the country votes in June, London’s and Britain’s tech sector will continue to go from strength to strength.

The digital sector is global and borderless by its very nature. If anything makes bodies like the EU irrelevant, it’s the flow of knowledge and information across the world in milliseconds. As Michael Gove put it, it’s an ‘analogue union in a digital age.’

Chief among techies’ concerns is how digital companies can continue to attract the best talent when Berlin, Stockholm and Tel Aviv are snapping at London’s heels.

Yet Taavet Hinrikus, one of the founders of TransferWise, made sure to spell out to politicians last year that “the biggest constriction to growth is hiring people” – regardless of EU membership.

This strikes at the heart of the referendum debate: which direction Britain will go should we decide to leave. Will we go down the anti-immigration, populist route, favoured by Farage? Or will we adopt a globalist outlook that doesn’t prejudice based on a migrant’s country of origin? “People should be treated equally whether they are from Austria or Australia” is how Tory MEP, Syed Kamall puts it. Which is not possible in the EU.

As important as European labour is, most digital companies in the UK want to attract experienced workers from the US, coders who have cut their teeth in Silicon Valley. And London is the premier European destination for tech professionals, seen as one of the ‘Big Three’ alongside New York and San Francisco. In this respect, continued membership of the EU is a hindrance as the government counterbalances free movement on the Continent with restrictions on those from outside the club.

Schemes like the noteworthy Tech Nation Visa, where exceptional talents are endorsed by Tech City UK, a publicly-funded body, show we can attract the best talent regardless of whatever migration regime we sign up to. This would continue to flourish no matter the referendum result.

Regardless of visa issues, the government should be doing more to train kids in the art and science of coding, like they do in Estonia. The issue here is that teaching on tablets is still seen as ‘cutting edge’ in Britain. There needs to be a fundamental re-evaluation of education and how school leavers are going to survive the approaching surge of automation forcing industries into obsolescence.

All of this isn’t to say that the tech sector should support Brexit, there are legitimate questions over what a Britain post-breakup would look like. But membership of the EU won’t be a defining factor in its long term success. It’s the analogue union after all. The horse and carriage to tech’s automobile.

The internet is a global platform and these companies will need to access markets on a global level if they’re to become the next ‘unicorn’. The government will obviously continue to support startups around the country after June, whatever the result, as 99% of all British businesses are SMEs and they can’t afford not to. Whatever the 23rd of June brings, Britain’s techies have nothing to fear.

Digital Music Index (DMI) report

Authored on behalf of Musicmetric, the Digital Music Index (DMI) is an in-depth study into the global digital music landscape.

The DMI tracks the preferences of millions of music fans and analyses social media trends across every corner of the world.

The DMI offers record labels, promoters, artists and all other music professionals a better understanding of their fans.

Why Tube saga could be the death rattle for unions as driverless vehicles emerge

This summer London was plagued by strikes on its transport network. These could potentially carry on into the winter as union staff continue to bang their heads against the proverbial brick wall. But just as the equally controversial cab-hailing company Uber is planning driverless taxis, driverless vehicles could also have a future below ground too.

On the 8 and 9 July 2015 London went into meltdown with its largest walkout since 2002.

A second strike on 5 and 6 August was a much calmer affair and strikes at the end of August and in September were suspended.

The strikers’ demands are a nonsense: Workers have been offered a two percent salary increase and a £500 bonus as compensation for covering the night Tube. To put this in context, pay increases for other public sector employees are capped at 1 percent a year. An Institute for Fiscal Studies report from March also reported that around 40 percent of private sector employees experienced a pay freeze or cut in 2014.

The strikes will become increasingly ineffective as the more they artificially distort the drivers’ salary, the closer we get to a complete roll out of driverless trains. It’s no longer economically viable or indeed necessary to have drivers in every cab and constant strikes are only speeding up this process. We’ve already seen this change with innovative routes like the Docklands Light Railway (DLR). The reason that technology even exists is that the bloated pay of train and Tube drivers has spurred on investment into other equipment. Last October, TfL unveiled the design for a fleet of 250 driverless Tube trains, with the aim of making them operational by the mid-2020s. A summer of strikes will have no doubt put greater impetus behind the project.

Of course drivers, by definition, will resist this change but by pushing up their wages beyond the value of their labour, the strikers are simply creating a rod for their own backs.

The all night service can’t come soon enough, it’s projected to employ 2,000 more people full time and add around £360 million to the economy. Beyond that, a city of London’s stature should not grind to a halt at midnight. The other complaint, the closure of ticket offices, is and always has been inevitable.

At the end of the day however, all arguments and comparisons around Tube drivers’, soldiers’ and nurses’ pay are secondary to one fact: drivers are able to command such a weighty pay packet because the withdrawal of their labour causes sheer panic on the streets of the capital. In this respect, you have to hold a certain amount of respect for them.

Don’t get me wrong, I find the strikes equally irritating, the inflated pay of the drivers equally appalling and I do believe the night tube is a vital step in London’s evolution. But it still has to be said: if us downing tools could cause so much havoc and add so much to our pay demands, then we’d probably consider it. It’s fundamentally just a warped expression of the free market where valuable workers, in terms of the disruption they can cause, can demand higher compensation from their employers. Of course the more they do it, the firmer the stance of London Underground and TfL will become.

The strikers are understandably angry, they’re being forced to take on a new system they don’t agree with but there’s a reason many described the strikes as the ‘death rattle’ of an outdated industry. The DLR proves that a driverless network is possible. The constant strikes and pay increases will only hasten the demise of the Tube driver.

Retail's Digital Future

Technology and property aren’t two sectors you would traditionally place alongside each other. The fast-moving, volatile nature of many tech businesses is a world away from the risk-averse, conservative approach of leading retail property investors.

Yet while the fundamentals of income-producing real estate still drive rent from physical space, the world around them has shifted profoundly towards the digital sphere. With the lines between physical and online retailing merging every day, there’s a pressing need to understand what lies ahead.

In this report, we’ve sought to lift the lid on some of the most influential new trends, with insight from an array of exciting new personalities, inspirational entrepreneurs and well-respected experts. BCSC’s desire to take an active role in supporting the industry in its digital revolution speaks volumes about the value it creates for its members and about the opportunities ahead.

With so many unchartered areas now being explored, the legal implications of new technology will also demand careful scrutiny. Although big data represents the umbrella under which many new tech trends sit, such considerations extend far beyond compliance with the Data Protection Act.

Addleshaw Goddard’s integrated approach to client service means their teams are not just more informed, but better geared to offer advice across the board by collaborating far beyond any one sector niche.

One area where property as an industry has always excelled is its ability to be social and to collaborate, and this is no truer than with the sector’s approach to technology. Crucially, it is also true of how landlords and retailers are now working closer together than ever before.

With its hotbed of tech talent – as showcased throughout this report – Britain has embraced the digital word. And while Asia still leads the world in terms of digital manufacturing, digital infrastructure and tech savvy culture, Europe is catching up fast.

This presents a window of opportunity for Western markets to see what works and adjust ideas for its own specific lifestyle needs. This means that cautious investors can align themselves with businesses that possess a track record, allowing them to innovate without taking on too much risk.

With mobile commerce and purchasing set to soar over the next few years it will have major implications for traditional retailers. Even online retailers will need to adapt or risk seeing their very existence threatened.

As our interviews with Hammerson, intu, NewRiver and Westfield reveal, shopping centres are already adapting. Their desire to enhance the retail experience is in itself nothing new, but the route being taken to get there is changing every day.

Today people seamlessly glide between their physical and virtual worlds. Customers are shopping and browsing and informing themselves on the go and they expect the same from retailers. Now the hunger for new ways to use technology is so strong that people are much more willing to be part of experimental ideas.

As Bristol based CEL proved when it raised £280,000 for its Robox 3D printer on Kickstarter, a crowdfunding website, imaginations are there to be captured and boundaries are there to be pushed.

The gulf between online and physical retail stores is becoming less acceptable. Luxury goods retailers have been the quickest to embrace new technology with open arms, but it’s those in the middle that need to adopt or die. However, there are fantastic opportunities to use mobile retail technology to expand, cross-sell and open up new revenue streams.

Both real estate and retail need to bring in technology considerations right at the start to be effective and relevant. Part of this is about finding ways to allow and plan for constant change. Strategy is being informed by ever evolving technology as well as by consumer demand. The real estate industry needs to have both tech savvy people and those who deeply understand the customer experience round the table.

Excitement around beacons, wearables, mapping and digital wallets could catapult the shopping experience to exciting new heights. Whether it’s the ability to have a Siri-guided personal shopping experience, where recommended items are ready and waiting when you walk in; or the potential for a 3D printing bakery piping out your children’s favourite cartoon character, customer experience is set to be redefined.

Our report begins by examining eight distinct areas of technological innovation, some of which are already beginning to permeate the retail space. Drawing on a range of sector specific and legal expert opinion, we consider specific opportunities and threats. The challenge of complying with existing and future legislation is considered by Addleshaw Goddard’s experts from a host of legal disciplines.

The final two sections of the report take a step back to consider the strategic implications of these developments, assessing the real estate industry context. We analyse the changing landscape around store strategy and leasing, while BCSC lays out a detailed overview of the current policy landscape.

Crucially, we also hear from four of the sector’s biggest and most influential retail landlords – Hammerson, intu, NewRiver Retail and Westfield – who offer insight into how they themselves are pushing things forward.

However much technology can and will change over the coming years, it’s clear that the role of landlords has already been critically redefined. As facilitators, bringing together retailers, technology companies and investors, their ability to keep a calm head and take a long-term view will be more vital than ever before.

Read the rest of the report here: http://retailsdigitalfuture.com

How tech will change offline retail

Much has been written about e-commerce and Internet retailing but less has been directly said on how emerging tech trends will change the way physical shopping centres are managed and developed.

In a major new report commissioned by Addleshaw Goddard and BCSC, written and edited by Blackstock, leading figures from the tech and real estate world will come together to give views on some of the emerging technological innovations.

The launch event will feature presentations from an array of experts from the likes of Samsung, Hammerson, Nokia, Gamar and Musicmetric.

Register to attend here, although places are limited: www.retailsdigitalfuture.com

With many of these trends involving new ways of collecting and sharing data, a myriad of new risks emerge around data protection, privacy, crisis management, financial regulation and reputation. Many of these things are untested in courts and may yet prove problematic given the grey areas often thrown up by emerging technology.

The report explains eight emerging trends and showcases some of the innovators turning ideas into reality with briefings from an array of start-ups.

It also looks at property policy initiatives – such as business rates incentives- which could encourage more investment in tech infrastructure and looks at how EU laws on human rights could make it more difficult to do some of the things technology makes possible.

The trends covered include:

  • Augmented reality – overlaying real world visuals with computer-generated info/graphics
  • Big data – the collection of and trend analysis drawn from large collections of data
  • 3D printing – using layered printing devices to reconstruct complex products
  • Mapping – cloud-based apps making it easy for people to navigate
  • Beacons – Bluetooth-connected devices designed to send and receive notifications
  • Wearables and fashion tech – from smart watches and Bluetooth jewelry to Robocopy-style compterised visors, wearables are computers dressed up as accessories
  • Digital wallets – payment mechanisms conducted via mobile devices
  • Biometrics