2021: The Property Opportunity of a Generation?
In 1948 Donald Gosling and Ronald Hobson, recently demobbed from the navy, took a wild gamble. They scraped together £200 and bought a section of Red Lion Square in Holborn which had been blown to smithereens by the Luftwaffe six years earlier and still lay in ruins.
Their business plan seemed eccentric at best. In an era when parking was still unrestricted their idea was to turn the plot into a car park. But it turned out that buying bomb sites in London was a brilliant idea. Not only did they end up controlling the bulk of central London’s off-street parking but the even more lucrative by-product was the property portfolio which under-pinned the business.
And in 1998 Hobson and Gosling pocketed £580 million between them when they sold National Car Parks to an American company. Gosling went on to donate £25m to fund the restoration of HMS Victory among other philanthropic gestures.
What’s the relevance? For me, this story speaks to the devastation being wrought by Corona, but also the opportunity.
As we head back into various forms of lockdown across Britain and the world, entire asset classes are silently imploding. Last week the Financial Times led on an announcement from the Corporation of London that over the next five years it wants to re-invent the country’s financial centre to cope with the ravages of Covid. Everything from building use, transport and design will need to change if the City is to have any relevance in the post-virus world.
So just as in those Luftwaffe raids on Holborn and throughout London in 1940-41, entire swathes of infrastructure have been destroyed. The difference is eighty years later, other than the apocalyptic silence and boarded up bars, there are no apparent signs of physical damage. But then and now, billions of pounds of value, built up over generations of careful investment and planning, had/have become a handful of dust.
The same can be said for city-centre offices, retail and hospitality across the country. It has become a commonplace in hospitality circles for execs to opine gloomily on the terrible impact on society, the economy and our mental health of working from home. But we all know that something has shifted deep down in society. At best, it would appear, we can expect most white-collar workers to work three days a week in their old office. And don’t forget, if you can work from home, then that job can be done anywhere, and it might end up being done in Bangalore rather than St Albans. So we can also expect – as I have written here before – a significant hollowing out of the middle class.
At best, I make that a 40-50% reduction in office occupancy and footfall in worker districts. It seems we are staring at a minimum 5-year restructuring of our city centres to make them relevant again, at a time when government money will be tight and the luxury of rethinking public realm in a beautiful/practical way may not be available to us. Meanwhile, for the first time in a generation, our suburbs and market towns are on top. Companies like Loungers and Oakman Inns report record sales. Property developers are talking about regenerating long-broken town centres to create ‘office and wellness centres’ to lure traumatised WFHers out of the broom cupboard office and back into a socialised working environment.
So what’s the opportunity? Assuming we all agree that Western Civilisation is not coming to an end, we have to believe that from this devastating value destruction there is coming an almighty property opportunity. Think of it as a meal.
For a starter, it’s a pre-requisite that any company with a leasehold estate that has any weighting at all in financial districts and/or city centres should embrace the CVA or pre-pack. I don’t think there is a choice. If there is any residual shame in insolvency it will soon have disappeared. Some sites will need to be shed. In the rest, rents need to be brought down to a level where staff can be employed, prices reduced (does anyone still think the £7 pint is a good idea?) and a healthy cash profit returned. We are only just clearing out the zombies from the ‘space race’ and don’t need Covid to create any more.
The main course will be new prime city centre leases on terms that even in January we could only dream about. Yes, there will be risk and low footfall. But sites will have existing Rolls Royce fit-outs paid for by someone else, competition will be reduced. The chance is there to offer value and quality to the customer.
And the desert might be bombsites. Sorry, I meant freeholds. Why not? I haven’t been able to afford one since the 1990s but surely the debt-laden pubcos and brewers will need to shed some, or even a lot at prices which actually make sense to operators without needing to take on mountains of debt. And who will be the Sir Donald Gosling of hospitality?