Industry news

What price social value?


At its most fundamental level, real estate is just like any other asset class – merely a vehicle in which to invest money, produce income and, hopefully, generate a profit upon exit.  Add in other factors such as the debt markets, the asset class’s inherent illiquidity and the sector’s cyclical nature and it’s easy to see why industry observers get so hung up on deals.

Deals have become the only benchmark by which we can truly measure the health of the market. Trophy assets, individual properties and portfolios changing hands perpetually for new record prices have historically been taken as a signal that all is well in the world (while the reverse has the opposite effect). More recently, a growing collective social conscience alongside greater public scrutiny has emerged to challenge this conventional wisdom.

Earlier this year, @networkrail was seen to have pulled off a stellar deal in its disposal of some 5,000 railway arches to #Blackstone.  The portfolio attracted an intense bidding war and eventually achieved a sale price of around £1.5bn – some £500m in excess of market expectations.  So far so good. By all conventional standards, the sale of an under-utilised portfolio to one of the world’s most sophisticated and well-capitalised investors and thereby releasing significant sums back into the public purse surely represents a ‘good deal.’

Yet, a report this week in The Times poses some questions over whether the sale price alone should outweigh other considerations such as the needs of the existing retailers and communities in and around the arches. The report, from the @NAOorguk, concluded that when selling public assets, “Government should not, in trying to achieve the best price, lose sight of the wider societal impact when selling assets.” While this sentiment is unlikely to permeate every corner of the private sector in any hurry, history tells us that, where the public sector leads, business often follows.  Could we be at the beginning of an era in which assets are not necessarily sold off to the highest bidder, but to the best custodian?

Anecdotally, we have heard of retail landlords favouring independents over the national multiples, with even some large REITs quoting up to 40% of their tenant line-up as independent traders.  Although, they could undoubtedly secure greater rental income from national brands, there is a social dividend that comes from working with operators who are rooted in their communities and who better serve the needs of the local market.  Though it may be difficult to value this in conventional terms, all indicators point towards consumers demanding a mix of local and independent operators alongside more established brands.  Meeting this need and finding a way to accommodate diversity over ubiquity is surely the way to remain relevant and to preserve value over the long term.

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