Why Investors Have Woken Up To Property’s Impact on Society
As technology has given us tools to discover more about the impact we have on the world, we have become more questioning, more demanding. Today, we question the origins of the items we buy and the food we consume. Increasingly, we are demanding companies to be more transparent about how goods are produced and the sustainability of the supply chain to ensure its impact on the world causes as little harm as possible, and ideally some good.
As with commodities such as food and clothing, property's impact on society is being placed under increasing scrutiny. There are two sides to this pressure: the pressure for the sector to create the properties that today’s society wants and needs; and the pressure from investors to ensure the wider impacts of creating and managing these properties are sustainable.
“For a long time, investors and developers thought they could just put up a building and the rental income would just flow,” Fried Frank partner Patrick Williams said. “Now both sides want to know there’s a long-term plan to create a sense of place, to protect the environment, to be more reflective of society and to give back. The benefit will be greater, broader returns and not solely financial.”
The Growth Of Live-Work-Play Environments
Societal changes are impacting all types of property, Williams said. “In terms of retail, rapid overexpansion and online shopping are changing how much space is needed. In residential, once people wanted to own their own property. Now there is build to rent giving people the flexibility of renting but with all the mod-cons and connected services. In commercial, no longer is it just a building but it's anchored by social and sporting amenities.”
Crucially, being connected doesn’t just mean transport and reliable WiFi. People want a community and connections with those around them, and property is a way to achieve that. BTR, and its most recent iteration co-living, are accompanied by coworking and managed office models that include many services and promote a sense of joining in.
WeWork recently commissioned Cebr to create a report, The economic impact of the WeWork network in London. The report detailed the average growth rate of members and the savings they can make versus a traditional office. It also detailed how much members appreciate community benefits — 44% of members value WeWork’s events while 38% value working with like-minded people.
Taking a wider view, WeWork members spend £55 on average each week in the local neighbourhood, three times what an average London adult spends according to the report. Ninety-seven percent of WeWork members commute via public transport, versus the central London average of 89%, while the company estimated it helped to save 0.5% of total London office emissions in 2017-18 by offering a more efficient use of space. This is only one coworking operator, of course, but it illustrates the change that new models of using property is having on society.
Arguably, the property sector is reacting to a need in society to do more for each other. In 2018 the government launched the UK’s first loneliness strategy and appointed a minister for loneliness, increasing the remit of the minister for sport and civil society. The property sector has a strong part to play in creating the facilities society needs to achieve a sense of togetherness.
“Property can be a force for good and change,” Williams said. “For all the advances in technology and the digitisation of life, society is calling out for human interaction, social connectivity and belonging."
Investors Add To The Pressure
Of course, the types of properties being developed will only evolve if the people who hold the purse strings are behind the idea. Increasingly, they are.
“This is about societal change but also investor change,” Williams said. “No longer do investors say here’s our money, go and achieve a minimum return of X. There's been a realisation that to make property long lasting you need to create community. The occupier demand for those properties will be greater.”
Investors have two ways to ensure that the money they invest in property is affecting social change. First, they could focus on impact investing, investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return. This market is currently worth $502B and growing, according to the Global Impact Investing Network. Second, they can enforce their own environmental, social and governance, or ESG, requirements onto the property companies that spend their money.
“For example, sustainability requirements are being enforced in part by the local authority and in part by tenants saying they want staff to occupy an environment where they are doing the right thing,” Williams said. “Private and institutional investors are now telling fund managers that their money must be invested in a property that doesn’t just bring a large return but abides by the green principles and ESG commitments the investor believes in. They are under greater pressure to give back rather than to just reap the rewards.”
The property industry is changing but, as with all sectors, the change won’t happen overnight. Already the larger property funds and developers are vocal in their own ESG requirements and their commitment to making a positive impact on society. Smaller property companies will follow, though the costs of doing so will hit them harder. Whether they like it or not, the reality is they have to. Society says so.
This feature was produced by Bisnow Branded Content in collaboration with Fried Frank. Bisnow news staff was not involved in the production of this content.