Reinvesting in Smaller U.K. Cities with Micro-units, Smart Sensors, and New Approaches to Finance

At the ULI U.K. Annual Conference, a range of speakers from across Europe provided fresh perspectives on how the real estate industry is evolving to meet the needs of both the economy and society, including use of smarter sensor technology, creation of micro-units for both housing and retail space, as well as assistance for British cities in tapping sources of capital for regeneration.

One speaker was Boudewijn Ruitenburg, chief operating officer at EDGE Technologies, developer of the Edge office building in Amsterdam, which in 2015 received achieved the highest BREEAM sustainability rating to date. (It has since been superseded by Bloomberg’s headquarters in the City of London.)

Though known for its sustainability credentials, the Edge should be just as well known for being the world’s first truly “smart” building, Ruitenburg said. With about 40,000 sensors, the building is a “computer with a roof,” he said, though he admitted it has taken time for the potential of the sensors to be realized.

“We focus on creating one language so all the tech can talk to each other,” he said. “We can produce reports on how a building is actually used, which allows occupiers to optimize efficiency and save money. Making use of the tech can also help with well-being. It’s like the iPad: nobody knew that they needed it before it was launched. You can create the need.”

Innovation at the Edge did not stop with technology. At a time when the industry is wrestling with how space leased to companies operating flexible offices (such as WeWork) should be factored into valuations, EDGE Technologies came up with a hybrid solution. “We have overflow space in the middle of the building, and set up a team to operate it,” said Ruitenburg.

“It fulfills the need of occupiers. What capital is looking for is long-term income, not complete flexibility. We provide a certain environment and some flexibility. We believe that we can provide a future-proofed building, plus a serviced element that helps keep the building alive. Investors felt that the little bit of flexibility helped them get access to future rental and value growth.”

Enhancing value was also a focus of the presentation by Rachel Dickie, head of urban regeneration at L&G Capital, which was launched four years ago to invest its own capital in U.K. cities that need support in order to compete on the world stage. “We looked at how we could use our capital to unlock projects that really need it,” she said. “We’re investing in efficient workplaces, homes—places that are physically and digitally connected.”

The idea is to invest in regeneration schemes that are finding it difficult to secure investment from other sources of capital, something L&G Capital is able to do because of its policy of working in partnership with municipalities and universities in order to eliminate risk in projects, Dickie said. “It’s about de-risking through partnership,” she said. “We provide a one-stop shop for cities to understand what their challenges are. It’s about working closely with places.”

L&G Capital wants to support economic growth and create jobs primarily because it is the right thing to do, she said, but the work also enhances L&G’s reputation, which ultimately improves its bottom line. “Reputationally, we are driven to show that we are investing in a responsible way,” she said.

“We’re not just in it to sit on assets. People need to make money, but we can do it in the right way. We can provide a return to shareholders at the same time as a return to society. I think it is pretty widely acknowledged that there is a mind-set change, and money will flow to people who are responding to challenges in society.”

If L&G Capital’s purpose is to invest in a way that shifts a city’s fortunes, Ali Ravanshad, founder and chief executive officer of dandi, said his company’s purpose is to make a difference in a smaller way—literally. Ravandhad said the idea for dandi, a micro-housing developer, was borne out of his experience living in studio apartments in London and Paris, which were generally poorly designed.

After a false start partly attributable to the 2008 global financial crisis, Ravanshad spotted a fresh opportunity to launch his product when office-to-residential permitted development (PD) rights came into play in 2013, he said. PD schemes are not subject to the usual space standards for homes, which meant that a whole new market opened up for dandi.

“We’re trying to do it in a way that is accessible, and by that I mean that people should be proud to take guests back home,” he said. The company spends a lot of time and money on research and development to ensure that its homes are as well designed as possible, he said. His company takes the views of its residents seriously and adapts both the design of apartments and the services the company provides in response to their feedback.

Ravanshad rejected the idea that micro-apartments only appeal to young people seeking an affordable space in a city center. “Yes, young people are having to live with their parents for longer,” he said. “But divorce rates have also increased. We’re catching people on their way up and their way down. Our data shows that 42 percent of our occupiers are 45 to 65 years old—and that is growing.”

John Walker, chief executive officer of CRATE, also thinks he has spotted a gap in the market. The purpose of CRATE is to build affordable space for small businesses in the form of adapted shipping containers and to provide those businesses with additional support services. The company also develops in suburban locations, where Walker says most startups are found.

“Most of these businesses are not in city centers,” he said. “The fact is that around two-thirds of startups fail, and that most working environments aren’t working for them. We want to build business centers in suburbs and small towns and cities. Our site in Loughton is in a socially deprived area, but it’s full. Businesses get a whole load of support. We want people to outgrow us, so our focus is on employment and turnover.”