Is this the rise of the 'burbs and the end of the city? Are flats in trouble?

The weeks seem to roll by quickly at the moment as a lot of the economy and the housing market seems to be trying to make up for lost time! The market still seems relatively healthy outside of the cities. Inside the city centres things are quiet and I believe people are generally nervous. I'm nervous for sure because historically city centres have had local ripple effects. If we just consider Birmingham you've got a market that's moved from a cheap ￡250ish a ft 5 years ago to an expensive looking ￡425+/ft with some stuff last year sold at ￡500+/ft. That sort of appreciation leaves lots of scope for a big correction (just as this happened in London in 2016 onwards).

In 2016 I noted that 50000 flats were in development in zone 1 and 2 when there was a documented need for about 15000. The wave of outside of the UK €/$/￥ etc. Had happened between 09 and 14 (primarily) and the ship had sailed. There were those who realised it early (I didn't know him back then but I do know the actions he took at that time - Rod Turner of ITP group would be a great example). These same metrics were already repeating themselves (and that's what cycles do, remember) in Birmingham, Manchester and Leeds to pick the big 3, before Covid.

Leeds has circa 15k flats in development with a realistic demand of 5k.

My bigger concern is slightly longer term however and here's my hypothesis:

City centre living is now less attractive and less in demand, and also less necessary.

The vast majority of service industry jobs are performable remotely.

Talent is always hard to acquire in any market. Some firms are highly skilled at it but if you talk to service business owners their number one headache at any time is attracting and also retaining talented staff.

This gives the talent a considerable amount of power and even if companies think "we will all go back to normal and the office" the talent may well decide to go and work for a competitor who has a more flexible working approach.

This damages office block yields on the demand side, and also weakens covenants as ever more flexibility is demanded.

In ecommerce we've seen 5 years of growth in 3 months. I would hypothesise that that's unlikely to change/revert back to the "norm".

As such, the premium on city centre rents looks to be in serious danger. In London, where rents were already unaffordable (evidenced by affordability calculations being different in London, with all sorts of justification why which always sounded very one-sided to me, on the landlord side), it is likely to hit even harder.

On the flip side, this is the rise of the suburbs. Just think how, IF a decent percentage of the workforce will now work a decent percentage of their time from home, things change and demands may change:

1) the rise of the garden/outdoor space. From "people aren't bothered about gardens" to "it is one of the most important spaces in the house"!

2) flats. Unattractive from an investment point of view in my opinion for many years, they are now also less attractive from a lifestyle/living point of view. New build flats at the momebt selling into the private market? Looks a tough sale to me.

3) the suburbs and the broadening of the metropolitan area around cities. If I have to commute 2 days a week (say) I'm willing to make those journeys longer. And go somewhere cheaper psqft to get bigger housing. We already have much less space per head than the US which would be a comparable market - why should we stand for that? That again endangers new builds and indeed anything built since about 1990 because that's when the townhouse started to go on the rise. Skinnier houses and roads and more floors.

So how does that present opportunity? Well, think about what's important to people when they work from home. What services do they need? What local commercial premises become viable again? How will all the extra last mile fulfillment be achieved and where are the opportunities?

There will be winners and losers here in a big way and I feel the start of a sea change. Be on the right side of it because the world isn't going back to normal. The small c Conservative nature is to try and preserve the status quo but that looks unlikely in my view.

Let's look at some upside though.

With an average commute of 1 hour 20 minutes each way for a city centre london worker, that's 2 hours 40 minutes (and realistically, some extra) saved every day. How much more productive can you become!?

For years the genii of silicon valley have spent millions on great work environments. But talent can afford great housing and no employer will be able to provide something as good as the home office. It is another level.

Think of the inefficiency of paying 42-47% tax (add 1 on in Scotland) then using a decebt slug of that to pay for a season ticket on a train and a few k on parking at a station and a few more k on the tube at the other end. Instead of being able to spend that on enhancing your home environment, or anything else you choose. More vacation time/better quality breaks? Weekend breaks to benefit?

Who should be quaking in their boots? City centre office landlords, pret, Starbucks, businesses around railway stations.

This looks like a permanent change to me, once the volatility has calmed down. A study read out on the radio this week said 1% of workers in the city of London were ready to go back to business as usual. 1%! Will it just be normal come September/October? Of course not.

Fortunes will be being invested as you read this in productivity tools and tracking tools from paranoid companies - but also in teamworking and collaborative software to address some of the things that will be missing - camaraderie, competition, and care. There will be huge advancements in this space in the next 12 months.

Homeworking is here to stay in my view.

From a housing perspective, government underwritten covenants and suburban living developments/investments are a clear winner here in my view, as is light industrial as fulfilment/capacity of e-commerce demand rises and rises. Commercial will be a mixed bag and a thorny journey.

Town centres could benefit as city centres flounder. Larger spaces, cheaper rents, the emphasis will need to be on forward thinking and co-being or co-existing - eat, sleep, work, socialise. The home office space in white collar areas will be a focus, and it will be kitchens and bathrooms as always but closely followed by workspaces, in my view, that dominate the next decade.

Thoughts and comments are always welcomed!