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Jackson Franks| 17 August 2020

Fast forward 10 years

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For those gamers out there, who have ever enjoyed the likes of SimCity, TROPICO or even Age of Empires, former R&B singer and now entrepreneur Akon is set to bring our gaming visions to reality. Akon, originally from Senegal, announced in January 2020 that his vision is becoming ever closer to reality as he finalised the agreement to develop Akon City. Akon City is set to be developed over the next 10 years in two phases. Situated near Mbodième, a small coastal village in the west of Senegal, Akon City will be 100% cryptocurrency based with AKoin (a cryptocurrency established by Akon) at the centre of all transactional life. Additionally, Akon City’s energy resources will be renewable, with a focus on solar energy led by the charity Akon established in 2014, Akon Lighting Africa, which has already scaled solar power solutions throughout 18 African countries to date, impacting millions of households. Although many people may question Akon’s futuristic vision, it spurred me to think about how global real estate may look 10 years from now, and it could be very different.

Fast forward ten years and questions from children born within this decade may be very strange to anyone born prior to COVID-19; what was a shopping mall? What do you mean you travelled to the same building every day to work? Hold on, you used to wait one to three days for a delivery? There is no doubt that COVID-19 has had an impact on the global real estate market but with the sector made up of tangible assets a reversionary value can be attributable to each development, despite the be all or end all trends being reported in sub-sectors today.

Over the next decade, I believe landlords will spend less CAPEX on acquiring new assets and subsequently use this capital to realise the reversionary value of their existing portfolios’ non-performing assets instead of selling them at substantial discounts. Let’s take shopping malls and retail warehousing as an example. These are normally developed within a town centre or a mile outside, which results in having a fantastic catchment area. Most of these assets are not underperforming due to the location or supporting infrastructure but instead are being impacted by the underlying cashflows of tenants due to the change in the way consumers shop. With ‘last mile’ deliveries the most expensive and important factor to the success of ecommerce, landlords of shopping centres and retail warehouses could utilise the location of their assets to move with the consumer spending trends. Recently, Simon Property Group, a mall operator, announced they are in talks with Amazon about turning their department-store sites into Amazon fulfilment centres. I suspect this trend will continue and ten years from now deliveries will be one to three hours, not one to three days.

In addition, with the global economy entering its worst recession since World War II, first time home buyers looking to get on the property ladder may be forced to wait longer. This however does create an opportunity within the private rental sector (PRS). With the trend of employees and employers looking at more flexible working conditions there is growing demand for more residential and working space per household. Over the next ten years landlords may well look to regenerate all or part of their non-performing assets into residential units to rent directly to the market.

Although I don’t see the world being run on cryptocurrency anytime soon, I do believe the real estate assets we see today will look and feel very different ten years from now. We take comfort from the experience our managers have amassed across all the operational aspects that come with owning property and the active approach to managing their assets and tenants. We know our managers are highly skilled in the form of their asset management capabilities which will doubtless be an important factor in delivering positive shareholder returns as the world progresses.

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