Bill Hughes

Bill Hughes

Head of Real Assets

Real Assets

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Time to disrupt, not conform

Legal & General’s Head of Real Assets, Bill Hughes, tells Property Week that positive disruption has to become the industry blueprint.

Bill Hughes

Legal & General’s Head of Real Assets, Bill Hughes, tells Property Week that positive disruption has to become the industry blueprint.

It’s all too easy to conform to the consensus view. Therein lies the comfort of doing what everyone else is doing. The collective outcome is that we protect the status quo; something our industry is particularly guilty of. Although conforming may feel safer, it is ignoring that one racing certainty. That the world continues to change, and at some point our old ways will become outdated. This is why industry leaders need to embrace and encourage positive disruption. 

There are many examples of where our industry critically needs disruption. Take the UK housing industry for example, which has failed to move on from practises developed in the 19th century. We are in a housing crisis and we cannot build enough homes to meet the supply/demand imbalance. This signals that our industry desperately needs to innovate.

Another obvious example would be the valuation industry for real estate. The current prescribed methodology discourages innovation and evolution in the sector. Property owners are hamstrung by concerns over a hit to values if they agree to the shorter leases occupiers increasingly demand. Modern businesses don’t really want 15 years of annual uplifts and arbitration. A fit-for-purpose process would shift the focus on to an owner/occupier relationship which embeds appropriate flexibility for all parties, but where some value is placed on good management skills and associated high occupancy.

Disruption has become the blueprint for activity across Legal & General. Through partnerships with Legal & General Capital, LGIM Real Assets is in a unique position to drive forward progress at the very earliest stages of the decision-making process. This means we can be proactive, not reactive, and as such agents of change in the market. This can be seen through our flagship Build to Rent Fund, through which we will build several thousand homes to contribute to solving the UK’s housing shortage, whilst providing a professional level of service to those customers that wish to rent rather than buy their home.

However, to make positive disruption acts as a force for good there are still some challenges that we need to be upfront about. If we are to displace traditional methods of construction the industry must recognise that there needs to be continued investment in order to create a meaningful impact. Modular building is quicker and more efficient than traditional house building, delivering homes in a matter of weeks rather than years to consistently high standards. The manufacturing process is also energy and material efficient, ensuring an economically viable and sustainable solution to deliver much needed capacity for the industry.   More output from the modular approach is inevitable, which is why Legal & General has invested in the supply chain already.

In addition, technology can assist us; intelligent adoption of new technologies, including the use of the mountain of data that is available can improve outcomes. Again this requires investment but if we can hold a long-term view and embed new technologies into our investments now we will reap the benefits in future. This means we need to recast what it means to be an owner of property. Investors into real assets must consider themselves as long-term capital partners, playing an active role in forming connections between tenants, customers and – most importantly – communities. For too long ‘progress’ in the sector has fostered short termism and narrow thinking, allowing holders of property assets to be nothing more than passive providers of homogenous space. Our market needs to concentrate more on providing a service to those with exceptional needs.  

At LGIM Real Assets we are focusing on disrupting across the totality of the built environment. At our regional regeneration schemes in Bracknell, Salford, Cardiff, Leeds and Newcastle we aspire to deliver sustainable, long-term impact rather than an opportunistic uptick in values. This means we expect to continue to innovate in providing purpose-built homes of the future, which will include a progressive view of clean energy. Our thinking needs to be longer term so that we are considering how these schemes may work well into the future.

It is too easy to conform to the consensus view. However it is our belief that the real risk lies in the stagnation of our industry, and a failure to innovate and move forward. We should embrace disruption. We need to be courageous and look through to future solutions which will enhance the built environment whilst improving returns for stakeholders.

We are going to be confronted by a wave of fundamental change; the choice is only whether to surf the wave or to drown.