An audience of 300 joined our recent inaugural Annual Breakfast Briefing alongside David Smith, the Sunday Times’ Economics Editor and Mark Long, Head of Strategy at Orchard Street Investment Management. We caught up with James Routledge afterwards to find out his thoughts on the discussions and his view on the challenges ahead of us in 2023.
“When a question was raised in The House recently about the lack of tomatoes in our shops, I finally had to acknowledge how bad things really are.
“I have to confess that being an optimist, I’ve tried not to let reality depress me, despite the fact that inflation is hovering around 9%, Electricity prices are up by almost 70% and gas by almost 130% in a year, the Bank Rate at 4%, is at a 14-year high and all this has resulted in a huge fall in households’ real income across the country.
“So imagine how pleased I was to hear David Smith say economists predict a ‘mild’ recession, perhaps the mildest in the past 40 years, the economy will flat line, not crash through the floor and despite low unemployment and high vacancy rates, a wage-price spiral has not been evident which underpins the predictions that inflation will fall to around 4% by the end of the year and the shift from QE (Quantitative Easing) to QT (Quantitative Tightening) has eased the fear that the Bank Rate will peak at 6% - as previously predicted.
“Mark was able to focus on the property sector and he held a mirror to the realities our sector faces. The retail sector has, as we know, suffered profoundly from structural changes and Covid-imposed restrictions which have benefitted the retail warehouse and industrial sectors and whilst hybrid working has impacted the office sector, firms are still taking more space. The battle for talent and new customers continues to drive demand for quality offices in bigger, vibrant city centres. The share of town centre retail and offices continues to decline (as a percentage of investment portfolios), industrial and alternatives continue their sustained growth.
“The projections for the student market look particularly interesting because following a Covid-related trough, in the number of domestic students applying for higher education, it is anticipated that numbers will exceed the 2009/2010 high by 2026 and, will continue to rise. International university applications, especially from India, China and the USA, have risen meteorically after a Covid low and as with the office sector, there has been and will continue to be a ‘flight to quality’.
“What really grabbed me was research undertaken by Allen & Macomber, entitled ‘Healthy Buildings’. The study focused on the health and cognitive functions of employees working in conventional buildings, Green buildings and Enhanced Green buildings.
“It concluded that the greener a building, measured by levels of carbon dioxide, particulates, humidity, pollution and a toxic soup of volatile organic compounds from everyday products, the higher the levels of productivity. Could green buildings be the silver key to turnaround a ‘national economy plagued by anaemic productivity growth since the 2008-09 global financial crisis’?
“In addition, given the fact that by the time you reach 80, you will have spent 72 years of your life indoors, air quality considerations are critical, especially in a post-Covid era. The truth is we are now an ‘indoor species’, spending up to 90% of our time in indoor environments. The good news is that we now have the knowledge and technology to keep people safe indoors and enhance our productivity.
“The authors concluded that we are likely to be exposed to a bigger dose of outdoor air pollution whilst being indoors, than we would if we were outdoors, suggesting that perhaps the indoor ‘environment’ is far more critical than space design, when planning an office move, or reimaging an existing office.
“The second arresting moment during Mark’s address for me, was the revelation that a Tesla Electric Vehicle (EV) charging bank, working at ‘full whack’, consumed the same amount of energy as an average sized Lidl store. In truth, this would probably apply to any grocery store but an image of a Lidl store was used in the presentation.
“Whilst the UK government is ‘nudging’ us towards EVs and hybrid vehicles, the truth is, as Mark reiterated is that we need a ‘massive investment in our infrastructure’ if we are to achieve our 2030 target of banning new petrol and diesel cars and vans.
“I believe that what we really need is an economy wide net-zero goal, rather than just focussing on reducing emissions in particular sectors, such as buildings or transport.
“Whilst some local authorities have already introduced a requirement for all new residential property developments to be net zero carbon compliant, a few cities, including London, have gone further. They have set net zero targets which focus on consumption-based emissions i.e. indirect Green House Gas (GHG) emissions generated by their city residents’, which includes consumption of goods and services such as food, clothing, and electronics.
“Perhaps in time new carbon specific protocols will be introduced, to regulate items such as fuel and energy-related activities, transportation and distribution, operational related waste generation, business travel and employee commuting.
“Current Climate Action Plans tend to focus on specific sources of emission reductions, for example building-related energy emissions have become a primary strategic imperative to encourage the transition away from gas boilers.
“If we are going to meet our Paris Agreement pledges, we should be focusing on economy wide net-zero goals and not just on emissions.”
