Property Advisory Group: annual report 2001 On 5th May 2006 the responsibilities of the Office of the Deputy Prime Minister (ODPM) transferred to the Department for Communities and Local Government. Department for Communities and Local Government Eland House Bressenden Place London SW1E 5DU Telephone: 020 7944 4400 Website: www.communities.gov.uk Documents downloaded from the www.communities.gov.uk website areCrown Copyright unless otherwise stated, in which case copyright is assigned to Queens Printer and Controller of Her Majestys Stationery Office. Copyright in the typographical arrangement rests with the Crown. This publication, excluding logos, may be reproduced free of charge in any format or medium for research, private study or for internal circulation within an organisation. This is subject to it being reproduced accurately and not used in a misleading context. The material must be acknowledged as Crown copyright and the title of the publication specified. Any other use of the contents of this publication would require a copyright licence. Please apply for a Click-Use Licence for core material at www.opsi.gov.uk/click-use/system/online/pLogin.asp or by writing to the Office of Public Sector Information, Information Policy Team, St Clements House, 2-16 Colegate, Norwich NR3 1BQ. Fax: 01603 723000 or e-mail: HMSOlicensing@cabinet-office.x.gsi.gov.uk. This publication is only available online via the Communities and Local Government website: www.communities.gov.uk Alternative formats under Disability Discrimination Act (DDA):if you require this publication in an alternative format please email email@example.com Contents Message from DTLR Ministers Chairmans Report I am pleased to submit the Chairmans Report for 2001. DTLR Property Advisory Group Background and Terms of Reference Appointments Current Membership Terms of Appointment Conflicts of Interest Working Methods Meetings in 2001 Topics Considered in 2001 Secretariat Administrative Costs Topics Considered During 2001 COMMERCIAL PROPERTY LEASING ISSUES DETR ESTATES STRATEGY LAND REGISTRATION PLANNING PROPERTY MARKETS SUSTAINABLE DEVELOPMENT TECHNOLOGY APPENDIX A Membership of the PropertyAdvisory Group in 2001 CHAIRMAN MEMBERS CHANGES IN MEMBERSHIP NEW MEMBERS APPENDIX B Property Advisory Group Studies of E-commerce INTRODUCTION 1. Geographical andSpatial Impacts IMPLICATION OF E-COMMERCE FOR UK GEOGRAPHY THE ECONOMIC EFFECTS OF E-COMMERCE II. Implications for Infrastructure PHYSICAL INFRASTRUCTURE ADMINISTRATIVE INFRASTRUCTURES SOCIAL INFRASTRUCTURE PROPERTY SECTOR ISSUES Residential sector Retail sector Industrial sector Office sector OTHER DRIVERS OF CHANGE TECHNOLOGY DEVELOPMENTS III. Suburbs: Implicationsof E-commerce THE SUBURBS WHERE AND WHAT ARE THEY DRIVERS FOR CHANGE ACTIONS IV. Building Use Issues:the Property Requirementsof Telehouses DRIVERS OF DEMAND GROWTH THE SHIFT TO APPLICATION SERVICE PROVISION SUPPLY BUILDING SPECIFICATIONS LOCATIONAL CRITERIA V. General Conclusions POTENTIAL DRIVERS FOR CHANGE Locational influences Influences on development patterns IMPLICATIONS FOR DTLR POLICIES Table 1: The large-scale geographic effects of e-commerce Table 2: E-commerce and metropolitan areas Table 3: The effect of E-commerce on town areas Table 4: The effects of e-commerce on differenttypes of urban area Table 5: Types of suburbs Table 6: Decentralisation of services APPENDIX C Glossary of Technical TermsUsed in the Report Message from DTLR Ministers We are pleased to introduce the Property AdvisoryGroups 2001 Annual Report. Besides carrying out its specialist remit to advise oncommercial property issues, the Property AdvisoryGroup (PAG) has advised the Department on a widevariety of issues. Its work has ranged across planning,sustainable development, technology, regionaldevelopment and urban regeneration. The Group performs a valuable function in keepingus closely in touch with the commercial propertymarkets. That helps us to understand what is goingon and to frame policies which take account ofcommercial realities. This is particularly importantwhen so much of what we want to achieve in urbanpolicy and planning depends on a lively butresponsive commercial property market. We are particularly grateful for the work the Grouphas done on commercial leasing issues. Reflectingmany of the different players in the property market,they have helped us to draw up a strategy that I hopewill encourage greater flexibility while avoiding thepotential pitfalls of legislation. We are most grateful for the hard work andcommitment of PAG members, and look forwardto working with the Group during the coming year. CHARLES FALCONER SALLY KEEBLE Minister for Housing, Planningand Parliamentary Under SecretaryMessage from Regeneration DTLR Ministers Chairmans Report I am pleased to submit the Chairmans Report for 2001. Over the course of the year, we carried out ourspecialist remit to provide an overview of theworkings of the property market, while also bringingour experience of different parts of the propertysector to bear on current policy issues for theDepartment. 2001 opened with concerns about theimpact of the slowdown in the USA on the UKeconomy in general and the commercial propertymarkets in particular. These concerns were intensifiedby the dramatic and tragic events in New York on 11September. It is pleasing to be able to say that at theend of a rather sombre year, there are grounds forcautious optimism, certainly relative to otherinvestment media. Over much of the year, there was some slowingdown in the property markets. There was still a gooddeal of interest, particularly in the City office market,but some areas of the market which had previouslyexperienced strong growth, for example the ThamesValley and the West End, faltered. Fortunately,however, concerns that these might be presaginga more serious fall in the market were not realised. Many of the issues we have discussed touch on theretail sector. At the beginning of the year, the sectorwas facing difficult trading conditions: competitionglobalisation and price deflation were putting pressureon margins. By the end of the year, against thebackground of a generally buoyant economy andstrong consumer demand, there were signs of amarked revival in the fortunes of the sector, withstrong Christmas sales. In our regular reports on the state of the propertymarkets, we have noted signs of Departmentalpolicies working. To mention one or two examples:the increasing interest in mixed use development; thegrowing demand for brownfield sites for new housingdevelopment; and signs that the Departments policyof encouraging development in town centres hasbeen having a growing impact. The Group has had concerns that the planningsystem, with its complexity and lack of strategicfocus, has not always helped to deliver the requiredchanges. The need for change in the planning systemwas highlighted in our work on e-commerce. Amongour conclusions were the need for a mechanism toresolve tensions between conservation anddevelopment, as environmentally sensitive areascome under increasing pressure for development,while on the other hand there is a need to enablebusinesses to expand by meeting their changinglocational needs. We therefore particularly welcomedthe Government s Green Paper on the planningsystem, which addresses such concerns amongothers. We stand ready to assist the Department indeveloping the system so that it facilitates economicdevelopment while protecting local communities andgiving them a quality environment. On specific issues, we have continued to take a keeninterest in sustainable development. We welcomesigns that businesses are taking more of an interestin sustainable buildings. We wish to encourage thesetrends and have considered how to motivate propertyowners and users to enhance the environmentalquality of their buildings. This is a theme to whichwe will want to return in due course. The other major theme running through our work in2002 was continuing work on technology. Followingthe publication in March of our overview of thepotential impact of e-commerce on the propertysector, we completed our series of studies onparticular issues arising from e-commerce moregenerally, which I mentioned briefly above. Theseare published with this Report. I think they provideconsiderable food for thought for both Governmentand the private sector. Robin Broadhurst, FRICS Chairman of the Property Advisory Group DTLR Property Advisory Group Background and Terms of Reference The Property Advisory Group (PAG) is a sourceof external advice for Ministers and officials in theDepartment for Transport, Local Government and theRegions (DTLR) on commercial property matters andrelated issues. It also occasionally provides advice toother Government Departments. The PAG provides a link with the property world,giving Government access to sources of specialistexpertise. Its current terms of reference are:to keep under review changes in the land andproperty market, advise on matters concerning thedevelopment process and advise the Departmentgenerally on property issues, having regard to thegoals of sustainable development Appointments The Secretary of State for Transport, LocalGovernment and the Regions is responsible formaking appointments to the Group. The primary aimis to equip the Group to provide informed andunbiased advice, of a high calibre. Care is also takento ensure that the membership reflects a diverserange of interests, backgrounds and specialisms inthe commercial property world. However, membersserve in their own right, on account of their personalqualities, rather than representing any particularinterests or specialism. The present Group has experience of a range ofdifferent activities in the commercial property world,with members drawn from the office, retailing andcorporate sectors among others. Besides owners andoccupiers of commercial property, the Group includesdevelopers, planners, lawyers, funders, agents,surveyors and bankers. Current Membership The membership of the Group and their mainprofessional and financial interests are set out atAppendix A. Terms of Appointment Members serve for an initial three-year period, butsome members have been reappointed for a furtherperiod. The Chair and members are unpaid, butmembers may claim travel and subsistence. Conflicts of Interest The Group works to a published Code of Practice.Members disclose their current and recent businessinterests when they first join the Group. They keepthis information up-to-date in a public Register ofInterests, which the Secretariat maintains. While members quite properly draw on their ownexperience and expertise in addressing issues whichcome before the Group, they are expected not topursue their own interests. The Group generallydeliberates on broad policy issues, rarely advising onexecutive decisions. Direct conflicts of interest do notoften arise. However, any member experiencing adirect conflict of interests in the course of theGroups work, would be asked to declare it formally.The minutes of the meeting would then record anysuch declaration. The Group is expected to give unbiased advice,and does not act as a representative body for thecommercial property sector. It does not operateas a lobby group. The Department formally consultsthe property industry through a separate body,the Property Industry Forum*, whose role andcomposition is quite distinct from that of theProperty Advisory Group. Working Methods The Group holds one or two main meetings eachyear, supplemented by regular evening meetings atroughly monthly intervals. The Chair will alsosometimes ask individual members, or sub-groups, toconsider particular issues in more detail and to reportto the main Group. At each meeting of the Group, members assess thecurrent state of the commercial property markets,providing a regular overview for Government on theworkings of the markets. They then consider otheragenda items, usually raised by the Department as theneed arises. The general pattern is for the Group toconsider a paper prepared by the Department or torespond to an oral presentation. Members occasionallywill suggest their own items for the agenda, and theyhave the opportunity to raise matters of interest orconcern under any other business. All meetings are formally minuted. The minutes recordthe discussion without attributing views to individualmembers, representing in the first instance the formalviews of the Group on the topic concerned. Where theGroup is called on to submit formal written comments(for example, a response to a consultation paper), theSecretariat prepares a formal draft response for theGroup, drawing on the discussion and any writtenviews submitted separately by members. The Groupis then invited to endorse the draft response, exceptin cases of urgency where the Chair alone mayapprove the response. As well as responding to current requests for advicefrom the Department, the Group undertakes longerterm work, such as its work on technology andsustainable development. Longer term work sometimesforms the basis for published reports by the Group. The Group observes a set of publishedOperating Guidelines. Meetings in 2001 During 2001 the Group held one main meeting,and eight evening meetings. Sally Keeble MP,Parliamentary Under Secretary for Housing, Planningand Regeneration, joined the Group for a discussionat its main meeting on 15 November 2001. Topics Considered in 2001 The Group has provided advice on a wide range ofissues during the period of this report. A summaryof topics considered is on pages [9-12] Secretariat DTLR Land and Property Division provides theSecretariat for the Group. The DTLR Chief EstatesOfficer, Martin Leigh-Pollitt, acts as a link betweenthe Department and PAG, while Patrick Martin acts asthe Secretary to the Group. Steve Carter providesadministrative support. Administrative Costs Expenditure on the Group comes out of DTLR Land andProperty Divisions administrative budget, funded fromthe Departments Administrative Vote. Expenditure forthe financial year 2000-2001 is set out below. Staff costs* 38,972 Printing and publications: 5,069 Property Advisory Group Annual Report 2000 Report Electronic Communications and 2,000 Commercial Property Transactions Stationery 100 Other administrative costs 1,202 (including travel, subsistence and hospitality) TOTAL £47,343 *Staff costs reflect the time of Departmental staff servicing the PAG Secretariat * The Property Industry Forum is a separate group consisting of some of the main bodies representing funders, landlords, developers, occupiers and the propertyprofessions. It meets Ministers three times a year, raising matters of concern to the commercial property industry. Unlike the Property Advisory Group, it functionsas a lobby group for the commercial property industry. Bodies currently represented on the Forum are the Association of British Insurers, the Association of PropertyBankers, the British Council for Offices, the British Property Federation, the British Retail Consortium, the Law Society, and the Royal Institution of Chartered Surveyors. Topics Considered During 2001 COMMERCIAL PROPERTY LEASING ISSUES Business tenancies legislation The Department kept the Group informed aboutplans to modernise the Landlord and Tenant Act1954, which PAG had helped to shape. The Groupwas represented on a Sounding Board representingproperty industry stakeholders and practising lawyers,which considered detailed issues arising from theDepartments March 2001 consultation paper. Code of Practice on Commercial Property Leases Following substantial work by the Group in theprevious year, DTLR kept members informed aboutprogress on discussions on a revised voluntary Codeof Practice, and sought their views on issues arisingfrom them. There were differing views on the meritsof a new voluntary Code, particularly on the issue ofupward only rent review clauses. Some membersconsidered that the property industry would be ableto offer alternatives to upward only clauses, takingaccount of the relative risk and cost of capital forvarious permutations of lease length and rent reviewarrangements, while others favoured legislation. Therewere some views that the market would move toup/down rent reviews that would be subject to a floor of the initial base rent. Some members consideredthat the active discouragement of longer leases mightbe more productive than action on rent reviews. Distress for rent Following the Groups earlier advice on modifyingmethods of commercial rent recovery, the LordChancellors Department (LCD) consulted the Groupon specific issues in preparing a consultation paperon a new human rights-compliant scheme. LCD alsoconsulted the Group on its subsequent Green Paperon generic civil enforcement issues, proposing asingle piece of bailiff law. Among the issuesdiscussed were requirements for advance notice andservice charges. The Group favoured advance noticebeing given, but it was important that this should nothave to notify the tenant of the precise date or timeat which distress would be levied. Membersconsidered that distress should only be levied againstthe default of known, fixed sums; service chargeswere sometimes the subject of genuine disputebetween landlord and tenant. The legislation wouldneed to define clearly which elements of occupationalcharges were eligible for recovery by distraint. DETR ESTATES STRATEGY The Department (then the Department for theEnvironment, Transport and the Regions) soughtthe Groups views on its Estates Strategy. It supportedthe overall approach, considering the strategy veryambitious. The Department was right to gather andconsolidate all the information before attempting togo out to Private Finance Initiative (PFI), but shouldnot discount early resort to PFI. The Group consideredthere should be a clear set of priorities, with the aimof producing quick wins. The Strategy should have aclear financial framework, with a cost benefit analysis.It would require considerable resource input, includingexternal support, research and the necessary ITresources. It would need to take account of the scopefor homeworking and flexible working. The Strategyshould embrace the concept of intelligent buildings,building design policy (in particular the Better PublicBuildings initiative) and other locational criteria,including access to public transport. LAND REGISTRATION HM Land Registry consulted the Group about its tenyearstrategy. The Group welcomed the work beingundertaken. HM Land Registry already provided anefficient service, but both Government and the widerpublic stood to gain substantial benefits from the tenyearstrategy. There would be some advantage inclearly setting out the overall objectives, beliefs andvalues underlying the work as a means of stimulatingprogress. It would be useful for the Registry tofacilitate bulk registration, a service for which therewould be a ready market. PLANNING Reform of the planning system DTLR consulted the Group before publishing itsGreen Paper. PAG warmly welcomed the review.The planning system needed a sense of overallstrategy and co-ordination. In determining the publicgood, it needed to understand business pressuresof competition and globalisation. To restore the selfconfidenceand spirit of planning there was a needfor creative, positive and intelligent leadership, andcouncillors and officers would need to work togetherto boost morale. Public sector resources devoted toplanning should be reallocated to provide better localauthority support. The Group was concerned thatwell-resourced parties could call expert witnesseswho could give biased evidence at public inquiries.There was a case for appointing joint experts, whoseduty would be to the Inspector rather than to theindividual parties. With most householder applications,mediation would be more appropriate than anadversarial process. The Group considered thatplanning inquiries should be organised to allow smallbusinesses to devote a proportionate amount oftime. There needed to be greater consistency incall-in procedures. Use Classes Order The Group discussed the review of the Use ClassesOrder (UCO) before publication of the DTLRconsultation paper. They welcomed the prospectof a policy review. It would need to take a differentapproach to that of the external report, which had notfully taken on board changes in modern living patternsand the current business environment, particularly theneed to promote competition. It would be useful toestablish a new use category to support the policyemphasis on mixed use. Discussion about food, barsand restaurants should be simplified, to enable thepublic to contribute to the debate. There would be aneed to follow through policy objectives identified inthe report, such as the delivery of an urban renaissanceand support for economic development. The reviewwould need to consider how the UCO related todevelopment plans, and the use of zoning; howplanning officers would deal with the UCO in supportingor building sustainable communities; and the impacton town centres of more onerous requirements thanfor greenfield sites. There was also a need to addressenforcement issues: where planning permission wasrequired, it was often not enforced. PROPERTY MARKETS State of the property market The Group provides regular appraisal of the functioningof the investment, occupiers and retail markets. TheGroups assessment of market conditions in 2001 issummarised in the Chairmans report. Property industry institutional arrangements The Group discussed the institutional framework forthe commercial property industry. The propertyindustry was undergoing considerable change. Whilethere were still some feudal overtones, landlords were increasingly seeing occupiers as customers. It wasimportant to distinguish between mechanisms foragreeing terms, which could be seen as adversarialbut which actually played a positive part in thefunctioning of the market, and adversarial attitudesstemming from engrained cultural attitudes rooted inhistory. The Group saw considerable merit in theproposal for a single body representing the propertyindustry. But there would be a need to avoid theconstituent bodies engaging in competitive posturing. Regional disparities in property investment Professor John Henneberry, University of Sheffieldand Simon Guy, University of Newcastle, discussedtheir recent research with the Group. This sought toconsider why property development and investmentin different UK regions did not match levels ofeconomic activity, exacerbating existing regionaleconomic differences. Provisionally this hadconcluded that property markets were moreheterogeneous than previously thought; there weremultiple pathways for urban regeneration. There wasa need to consider the role of the institutional investorin urban regeneration. PAG members saw bankfinance as being more important than institutionalfinance in funding regional investment. Ifentrepreneurs had difficulty in raising cash, therewould be a case for looking at other investmentvehicles, such as Real Estate Investment Trusts.Institutional investors inevitably had a risk-averseapproach to investment, which led them to look forbond-like features, more often found in London andthe South East than the regions. The mostfundamental problem for regional investment was thelack of local demand. Innovative regional developershad played an important role in anticipating and thus helping to create demand. Successful developers hadcreated a sense of place and excitement, with mixedcommunities; with residential development animportant element. Some proactive local authoritieshad helped to create a sense of vision. There wasa need for other authorities to develop similar skills,to facilitate development in their areas. Town centres and independent traders The Group discussed claims that landlords werereluctant to let to independent traders withestablished businesses who wished to move into anew managed town centre development, sometimespreferring to leave properties vacant. PAG consideredthat town centres were in competition with oneanother. Landlords would generally prefer to let toestablished retailers with strong covenants buttraders with a competent business plan would receivea hearing, especially in malls where some landlordshad a policy of encouraging independent businessesin the interest of securing a suitable mix. Trends toshort leases without security of tenure, where longtermcovenant strength would be less important,could help level the playing field in the longer term. SUSTAINABLE DEVELOPMENT The business case for more sustainable property Commenting on a report by Kingston Universityand Drivers Jonas on the business case for moresustainable property, members agreed that sustainableproperty had moved up the business agenda.There was a more positive attitude, but the reportperhaps over-estimated the degree of enthusiasmamong developers and investors. It was still difficult toensure that commitment to sustainable developmentinfluenced day-to-day working on a range of matterswhere sustainability was not the most obvious issue.There were a number of specific constraints, includingdifficulties in applying life-cycle costing, which oftenrequired a commitment well beyond present businessplanning horizons. Property investors often reacteddisproportionately to bad publicity. They tended toover-specify design requirements, rather than consultusers about their actual requirements. The appraisalprocess did not take full account of sustainability.There were perceptions of a conflict between gooddesign and the achievement of environmental criteria.Members considered that regulation would havea growing impact in identifying drivers for change.They suggested that there was scope to evaluateand rank property portfolios according toenvironmental criteria. Ranking property portfolios Following up their discussion on sustainableproperty (see above) the Group discussed the mainprinciples for a scheme to evaluate and rank propertyportfolios according to environmental criteria. It wouldbe preferable to begin with a simple well-designedscheme, aiming for incremental improvements, ratherthan a complex and over-ambitious scheme. Initially,this might score energy efficiency, with a ratingsimilar to one in the sellers pack, and use ofsustainable materials. Such a score would have animpact on the market. The scheme should measuresustainability in maintenance as well as new build.It should take account of the age profile of buildings,so as not to penalise listed buildings. It should buildon work elsewhere for example, the proposedEU directive on energy performance buildings, andwork undertaken by Forum for the Future. It mightinitially seek primarily to measure improvementin sustainability, rather than absolute scores;companies with a poor legacy of buildings shouldnot be disadvantaged. TECHNOLOGY Electronic communications and commercial property transactions The Groups work on electronic transactions was summarised in its Annual Report 2000. In March 2001 it published a report Electronic Communications and Commercial Property Transactions. The report is on the DTLR website at http://www.planning.communities.gov.uk/pag/eccpt/index.htm. Electronic conveyancing In its report Electronic Communications andCommercial Property Transactions (see above),the Group favoured moving towards electronicconveyancing. Subsequently, the Law Commissionand HM Land Registry consulted the Group on theintroduction of electronic conveyancing and thepreparation of a Land Registration Bill to provide anappropriate legal framework for electronic registered conveyancing. Members warmly welcomed thiswork. They considered that there might be resourceimplications for the Land Registry having to sort outqueries as early as the marketing stage. They sawsome dangers in the potential impetus for DIYconveyancing, and suggested that some control couldbe exerted via the intranet that would be establishedfor solicitors. E-commerce The Group has undertaken work on studies ofe-commerce in four discrete areas where trends arealready discernible: geographical and spatial impacts;infrastructure; the impact on the suburbs; and buildinguse issues. The Group has identified potential driversfor change and has drawn some general conclusionsfor DTLR policies on planning, regeneration andsustainable development. The Groups compositework is at Appendix B. Information on how and where you can obtain this document and other publications produced by the Office of the Deputy Prime Minister is available from the ODPM publications home page. APPENDIX A Membership of the PropertyAdvisory Group in 2001 CHAIRMAN Robin Broadhurst, FRICS European Chairman, Jones Lang LaSalle. Memberof the Council of the British Property Federation. MEMBERS Stuart Beevor, FRICS Formerly Managing Director Property, Legal andGeneral Property Limited, now Group FundManagement Director, Grosvenor Tom Bloxham, MBE, Hon FRIBA FRSA Chairman, Urban Splash. Chair North West Arts Board Charles Brocklehurst, BSc, FRICS Director, Brocklehurst Associates. Mark Burton Managing Director, AIG Global Real EstateInvestment (Europe) Ltd. Graham Chase, FRICS FCIArb Chairman, Chase and Partners. Immediate PastPresident RICS General Practice Division. ChairmanRICS Commercial Property Faculty Roy Dantzic, CA Managing Director, Lattice Property HoldingsLtd. Member of the Council of the BritishProperty Federation. Christine Emmett, BA (Econ.) Partner in BEE Services. Management consultantand property management. Lynn Gilbert Executive Director, Morgan Stanley & CoInternational Limited Roger Groom, FRICS Development Director, London & Continental Stations &Property Limited. Formerly Executive Director, Sears plc.Past President of British Council of Shopping Centres. Wally Kumar, MA, FRICS Director, Development Securities (Projects) Ltd. Paul McNamara, BSc, PhD, UKSIP Director, Head of Property Research, PrudentialProperty Investment Managers Ltd. Visiting Professor,Oxford Brookes University. Chairman of InvestmentProperty Forum Education Strategy Committee.Member, Society of Property Researchers. Lesley Punter, MA, BA, MRTPI Urban Strategist, Reading Borough Council. Ronald Spinney, FRICS Chairman, Hammerson plc. David Stathers, CBE, FRICS Head of Policy Development, Boots the ChemistsLtd. Non Executive Director of the VOA Managementand Advisory Boards. Chairman, BRC PropertyCommittee. Member of RICS Council. Corinne Swain, OBE, MA (Cantab), MPhil,FRTPI, FRSA Consultant to Ove Arup & Partners. Chair of theAdvisory Panel on Standards for the PlanningInspectorate. Former member of the DETRs PlanningResearch Advisory Group, and of the Research andConsultancy Panels, Royal Town Planning Institute. Lesley Webber LLB, FCIARB Partner at Beachcroft Wansbroughs Solicitors.Honorary member of ARBRIX. Member of LawSociety/RICS Working Party on the Landlord andTenant Act 1954. Alan White, BSc, FRICS Formerly Director, BT Property, BritishTelecommunications plc., now Head of CorporateConsulting, DTZ Pieda Consulting. Hazel Williamson, QC, MA (Oxon), FCI Arb Barrister, Maitland Chambers. Recorder. Deputy HighCourt Judge (Chancery). Former Chairman of theChancery Bar Association. CHANGES IN MEMBERSHIP During 2001, the following members stood down: Charles Brocklehurst, Mark Burton and Lesley Punter. NEW MEMBERS The following new members joined the Group in 2002: Simon Kirkham Director of Great Western Studios Wendy Shillam Partner, Shillam & Smith Associates APPENDIX B Property Advisory Group Studies of E-commerce INTRODUCTION 1 During the course of 2000, the Property Advisory Group had a series of discussions on e-commerce. It wasagreed that the use of e-commerce would have profound implications for the economy in general, and forproperty, development and land use in particular. However, while momentous changes were in prospect, themarket would determine the pace of change, and in turn this would depend on the pace of human adaptationto new technological options. 2 The Group then considered that it would be difficult to provide specific advice on long-term trends in viewof the range of possible technological outcomes and the uncertain pace of social acceptance of change. Ratherthan attempting to provide advice on uncertain assumptions about technological futures, the Group decided thatit would be preferable to focus on already discernible trends in e-commerce, with a view to considering theirimpact for planning, regeneration and sustainable development. The Group embarked on a series of studiesof the following areas: geographical and spatial impacts; the implications for infrastructure; the impact on the suburbs; and building use issues. The Group took as its working definition for e-commerce: The exchange of information across electronic networks, at any stage in the supply chain, whether within anorganisation, between businesses, between businesses and customers, or between the public and privatesectors, whether paid or unpaid. (Cabinet Office, 1999, firstname.lastname@example.org). 3 This report incorporates the four studies. While separate from one another, there are some common themesrunning through them. The final, concluding section of the report, draws the threads together in identifyingimplications for Departmental policies on planning, regeneration and sustainable development. 1. Geographical andSpatial Impacts IMPLICATION OF E-COMMERCE FOR UK GEOGRAPHY 4 The Group began its work by identifying the main implications of e-commerce for the future geography of theUK. It traced: the economic effects of e-commerce; the economic activities that e-commerce will influence. Where possible, we have sought to assess how farsocial attitudes are likely to restrain economic imperatives for change; the main areas where these activities are currently carried out; and the main effects on UK geography. 5 The geography of the UK is the result of thousands of years of accumulated social and economic activity.A single force, such as the growth of e-commerce, is unlikely to change this geography quickly. Furthermore,rarely has a single force driven change in urban geography. One exception, however, was the developmentof railways and canals in the 19th Century, and there has been some speculation that the installation of cablinginfrastructure may have a similar impact. However, our working assumption is that we are essentially lookingat marginal rather than dramatic changes in UK geography. 6 In attempting to isolate the effects of e-commerce, we have identified instances where other factorswill enhance or offset the likely effects of e-commerce. For example, the current tendency for e-commercecompanies to locate in inner city areas is likely to be supported by a more general trend for certain age groupsin the UK to favour urban living. Moreover, should e-commerce give rise to land use changes, the planningsystem and other spatially-oriented Government policy effects will mediate these changes. We are thereforeonly looking at the drivers for change and not anticipating the likely government response to that change. THE ECONOMIC EFFECTS OF E-COMMERCE 7 The two most generally recorded economic effects of e-commerce are: lower costs The Internet enables purchasers to search more effectively for lowest cost suppliers of goods and services.Transaction costs will also fall, as improved technology reduces the clerical cost of purchasing transactions.Suppliers will need to be more efficient to remain competitive; and disintermediation and re-intermediation The Internet removes the need for suppliers to use agents to link them to purchasers, and vice versa,resulting in cost savings (disintermediation). New transaction methods will give rise to a growth of newservices (re-intermediation), for example, agencies to authenticate the trustworthiness of transactingparties. But they will not match the loss of services from disintermediation. 8 The combined effect will be to put downward pressure on the pricing of goods and services. Economieswill be able to grow faster without triggering inflationary pressures. E-commerce will increase the general rateof economic growth to a new equilibrium level. This will be reinforced by continued growth in the developmentof infrastructure for e-commerce: the production of equipment and software to support this burgeoning formof activity. 9 Within this context, it is possible to assess the impact of e-commerce on economic behaviour. But it isimportant to note that while e-commerce throws up numerous opportunities, many will require socialacceptance to be realised. Higher sustainable economic growth 10 The ability to run an economy faster for a given level of inflation is likely to result in increased productionand consumption, and therefore increased exchange. This on its own is likely to increase the aggregate demandfor all types of property. 11 At a more micro-level, the development of e-commerce will depend on growth and development intelecommunications and in computer software and hardware. Significant growth in this area is already observable. 12 We can already observe the tendency for these burgeoning activities to cluster. This is particularly markedin the case of the ideas and development functions; less so with the manufacture of the kit driving suchtechnologies. In the UK, clustering is concentrated in the area to the west of London, grafted onto a longstandingdefence-related information technology node, close to the UKs largest international airport and wherethe quality of life is high. As land and labour costs there rise, this concentration of activity growth could wellexpand into neighbouring areas. Lowest cost provision 13 Gaining access to a wide range of suppliers enables purchasers to drive costs down. Suppliers who cankeep costs low will perform relatively better. 14 If the ability to make production more efficient is common to similar enterprises, then two of the determiningfeatures for keeping costs down will increasingly be cheaper labour and property costs. This should give someadvantages to areas of the UK that are currently seen as peripheral. Technological advances will diminish theneed for proximity to clients. This trend will be less marked for primary goods and bulky manufactured goods:for heavier goods, the greater the distance between client and supplier, the greater the costs of delivery. Butfor information services with minimal delivery costs, the scope to source services from peripheral locationsis almost unlimited, as can be seen in the growth in software development activity in India. Besides workingat a whole organisation level, these effects can also be achieved, through outsourcing, for specificoperational areas. 15 The tendency towards lower labour and property costs works at both the national and the metropolitanscale. E-commerce and its associated technology gives it not only the opportunity, but the imperative, to spread.But social attitudes and behaviour will crucially affect the scope for change and its speed. If this type of changerequires labour migration, potential migrants will need to choose where to to move to and where to avoid.The same will be true, at a micro-level, with mobile working and home-working. 16 Without the migration of labour, the use of outsourcing in the periphery will require a labour force in therecipient area that can perform the tasks required. This may favour larger settlements with a more sizeableand varied labour pool. 17 The other means by which e-commerce lowers costs is through the elimination, by electronic means,of clerical elements of the transaction process.Evidence so far has been that forecasts have exaggeratedthe impact of ICT on the need for office workers. However, there is the distinct possibility that e-commercecan help eliminate clerical activity. This would suggest a reduction in the need for back-office facilities. 18 This lowering of cost will also facilitate the provision of improved products at the same cost as before.Value-added activities can thus be expected to grow and therefore re-absorb some of the losses seen inother areas of the service sector. Disintermediation 19 While e-commerce is likely to give a general boost to the need for accommodation, this is likely to be morethan offset by its disintermediating effects. In facilitating direct communication between supplier and purchaser,there is much less need for catalytic agencies to link the two. Travel agents, insurance brokers, financial advisersand estate agents are all types of intermediary that e-commerce might by-pass. Retailers could also be regardedas intermediaries interposed between producer (or wholesaler) and consumer. Wherever such intermediariesexist, e-commerce will reduce the demand for their services. In many instances, this is a form of customerself-service. 20 Disintermediation will be most prevalent for standard goods and services where the cost of delivery islowest. Hence, only some retail goods (and retailers) are likely to be disintermediated. Similarly, where personalservice adds value, disintermediation is less likely. 21 As a general rule, there will be a reduction in demand for accommodation in places where intermediariesare dominant. In these areas, the remaining demand will be for the best current locations. Retailers willretreat from the more secondary locations, while there will also be some effect on prime areas. This effectwill be less marked in the office sector, where locational factors are less important. 22 Finally, changes in the nature and operation of the supply chain will lead to changes in distribution patterns.There will be trends towards direct delivery of goods to homes. Many believe this will create the need for newforms of warehouse and more localised pick up points, from which smaller vans will make local deliveries orcustomers will collect their goods. It is also worth noting that new technology stands to improve inventorymanagement, which could marginally reduce the need for warehousing space. Re-intermediation 23 E-commerce creates new needs and opportunities. The Internet throws up new demands forcommunications and web-hosting and other organisations to help manage, sift and interpret the massivelyincreased flows of information. These functions, though probably modest in scale, will need accommodation.Given the nature of their business, they could establish themselves in a wide range of low cost areas. Impact of e-commerce on UK geography 24 Bearing in mind the above considerations, Tables 1 to 4 summarise the main features of the impact ofe-commerce on the national and urban geography of the UK. Given the complexity of the subject and its likelydirect and vicarious effects, this cannot be comprehensive. II. Implications for Infrastructure 25 The Group then studied the effects on infrastructure of the growing use of Information and CommunicationsTechnology (ICT). At this stage any study can only be speculative and superficial, as we are only at the thresholdof potentially revolutionary developments. It is worth noting that many outputs of the technological revolutionmay result from pressures other than from ICT developments for example, environmental, economic andsocial issues which may find whole or partial solutions through the use of technology. But, as noted in thediscussion of geographical impacts, many of the opportunities thrown up by e-commerce will require socialacceptance to be realised. 26 Much of the e-commerce revolution is driven by global corporations, either in the day-to-day conduct of theirbusinesses or in the development of products and services which add to the ICT available for others to utilise.However, ICT products and services give a unique opportunity for smaller businesses to network together togain the advantages of corporate size but in a virtual format and enable them to challenge the dominance of thelarge multinational players. 27 This section reviews the effects of ICT on the physical infrastructure, and then provides an outline analysisof the effects on the administrative and social infrastructures. Finally it looks at particular property sector relatedissues and future technological developments that are likely to be the next steps in the ICT revolution. PHYSICAL INFRASTRUCTURE 28 Inevitably, there is particularly keen interest in transport as an infrastructure/ICT topic, focusing especially onimprovements to operational efficiency which ICT can bring. There is also interest in the effects on commutingpatterns of more flexible working practices and on the way people deliver work to employers. Issues include: Road use charging both in cities and on inter-urban routes. ICT offers a reliable and efficient method oftaxing road use and town/city access by vehicles which authorities wish to reduce. While ICT is the enabler,taxing schemes depend on investment in improved public transport infrastructure, otherwise competitionbetween authorities using no charging or competitive charging mechanisms could affect the local and regionaldistribution of homes and businesses. Likewise, inadequate public access arrangements could bring aboutextensive economic damage to taxed areas. Public and private transport user information. The use of ICT to provide live, urban-wide information aboutboth private and public transport performance will greatly improve effectiveness and efficiency for users. ICT effects on commuting. ICT could have a dramatic effect on traffic levels as people work at home or local business centres rather than travel to a city location to work each day. 29 ICT also places considerable pressure on other utility infrastructures, principally the power industry.The principal issue for consideration here is business location and power consumption. The very high powerconsumption associated with, for example web-hosting hotels, may begin to drive the locations, not only ofthese operations but also of businesses using their services. It is possible that such operations will be drawnto power-rich locations or countries. Power infrastructure planning to service increasingly ICT-dependentbusiness and domestic markets is of vital importance at regional and national level. 30 Developing the ICT infrastructure to drive e-commerce is of particular importance. This includes: New fibre highways: the inter-urban and urban fibre networks around which developers seek to locate inorder to access high speed broadband services which multinational occupiers demand. These virtual highwayswill raise the value of developments on their routes, but routings are not necessarily driven by normal planningprinciples. There is perhaps a need for careful collaboration between local/regional planners and ICT providersin this area. Web-hosting facilities: the location for internet-related service application providers. Transmission masts, dishes and earth stations to drive existing and emerging technologies and theplanning, environmental and other issues which attach to these facilities. In particular, the health concernsassociated with mast and dish siting will become more problematic as demand, associated with thirdgeneration and other developing wireless technologies, increases. ADMINISTRATIVE INFRASTRUCTURES 31 Administrative infrastructures will be enhanced by ICT but will need to improve, particularly in the planningarea, if the competitive advantage of the UK as a location for ICT businesses is to be maintained. Benefits ofe-enabled administration extend to the NHS where waiting lists, personnel and accommodation costs could besubstantially reduced. E-education will become more accepted as a useful format for at least higher education,so reducing space and staff requirements. Issues of relevance include: on-line planning applications with automatic authorisation for the simpler non-contentious schemes; e-enabled planning administration for all applications with on-line organisation of the whole process; full personal medical records being stored on a smart card or embedded chip, always being available andautomatically updated; and on-line consultation with GPs and consultants with remote diagnosis. SOCIAL INFRASTRUCTURE 32 The perceived more laid-back approach to work patterns and work traditions of those actually involved inthe ICT industry have been and continue to be a driver for new workstyles and locations. The lack of supplyof appropriately qualified people, their wish to live and work in pleasant suburban locations and the flexibilityof location which the technology brings produces a new agenda for the property industry in terms of buildinginfrastructures and location. 33 Although these lifestyle aspirations are attributed specifically to ICT workers, most staff in knowledge,service and light industries share them. Space infrastructures must develop to accommodate the requirementsof the 21st century occupier, owner and user. However, insufficient attention has been paid to spacerequirements for work, home and leisure: issues of physical format, finance and tenure need to be addressed. 34 The ICT sector produces largely intangible products and services. It relies on knowledge and intellect.Products are shifted electronically and businesses do not need a traditional industrial infrastructure for survival,although the employees seek to locate in cluster locations where good quality facilities and environments existand from which movement by road, rail or air is efficient. 35 Planning authorities will need to place close attention to this more flexible, lifestyle-driven approach tolocation and work delivery, differing from the traditional corporation-driven approach. So will those in theproperty and institutional markets. PROPERTY SECTOR ISSUES 36 The effects of ICT upon the various property sectors, on building, development, servicing and financialinfrastructures supporting the industry is of particular importance. While it is very difficult to predict the impactof technology on the various sectors, some of the issues listed below are worthy of consideration. Residential sector Broadband provision to residential areas by service vendors provides an opportunity for captive audienceservices which could have a profound effect upon the local infrastructure: local service businesses,retailers, newspapers. It is important to design many more homes to cater more sensibly for the needs of 21st Century working,education and leisure patterns, in particular, people working from home. ICT effects will become much more noticeable when interactive digital TV becomes established as theprincipal domestic portal to the Internet. Retail sector While the prospects for some retail schemes are disappointing, informed mall owners are taking advantageof the opportunity which ICT brings to promote their centres and support tenants using Internet-basedadvertising and business to customer services. ICT will be used to create whole family experiences at retail centres: for example in Las Vegas, one of thecentres is networked to retail and fashion centres around the world to offer continuous shows to visitors,broadly linked to the retailers in the centre. Business to tenant services will become increasingly important in retaining tenants in a centre, driving up baserentals and reducing overall administration costs. The conclusion is that for those owners prepared to contemplate an ICT infrastructure strategy for a centre,e-commerce effects are likely to be positive rather than negative. Industrial sector The orderly fulfilment of e-tailed (electronic retail) orders is key to the success of business to consumerbusinesses. The infrastructure changes needed by logistics businesses to deal with these new operationsand, as a result, to their space needs and locations, are important for the property industry and the planningauthorities to understand. The requirement for uninterrupted power supplies for many ICT- related operations may mean that developersshould look to build power generation facilities into business parks or into individual buildings. Office sector Locational needs are changing: less inner city, more suburban; public transport-centric rather than privatetransport only; locations near to the people rather than the corporation. The property and financial marketswill need to change in order to accommodate these user-driven demands. This does not mean a fall-off in demand for locations in the central business district (CBD). On the contrary,where there is a dense fibre network demand for space, particularly from high bandwidth users such asthe financial institutions continues. The ICT infrastructure in the ground and an increasing tendency for thebuilding infrastructure to support occupiers high bandwidth demand ensures a ready supply of tenants. The requirements for building configurations are changing: there are demands for more communal, meetingroom, conference facility space with video conferencing arrangements. These building infrastructurerequirement changes reflect the ICT influence on businesses and the people working for them. The use of wireless technologies in the workplace will produce a change in building infrastructures therewill be less need for raised floors for ICT infrastructures. Financing infrastructures to support the shorter term commitments preferred by ICT businesses are a challengeto the property industry. OTHER DRIVERS OF CHANGE 37 The move increasingly to tax environmentally unfriendly activity is likely to increase the presently slowacceptance of remote working in many businesses. In addition, as technology-illiterate senior managers arereplaced by more technology aware people, the rate of take-up of ICT in businesses will accelerate, bringingwith it a shift towards more close-to-home work space needs, reductions in commuting congestion and moredemand for ICT support services. 38 Remote working at local level is just as easy for inter-regional, national and international operations. It isimportant for local and national government to understand how mobile multinational corporations are throughthe use of ICT. This means that moving not only administrative, but also manufacturing operations around theworld to the most economically appropriate locations is now easily accomplished, bringing potentially enormouschanges to both physical and social infrastructures. TECHNOLOGY DEVELOPMENTS 39 The development of more powerful but smaller chips will continue, bringing about the availability of fasterrunning, more compact equipment. While this kit will become largely wireless and so more mobile, the greatestcontribution to more user friendly ICT equipment will be voice activation and, in due course, intuitive activation.Costs of operation will decline rapidly both in terms of the kit itself but more particularly, the cost of access toand use of internet-related services. 40 Other likely developments include: The use of ICT to organise the convoying of vehicles on inter-urban highways, thereby increasing capacityand safety. This will have potentially advantageous longer-term effects. The use of 3-D holograms, life-size video conferencing and more natural movement to video representationswill increase the acceptance of this format for virtual meetings. However, the more flexible, audioconferencing service is likely to remain the most popular format for remote meetings. III. Suburbs: Implicationsof E-commerce 41 In the third of its series of studies of e-commerce, the Group examined the implications for the suburbs.Much of the thinking about the impact of e-commerce has been on the effect on urban centres. Traditionally,the commercial property sector has shown little interest in outlying suburban areas. Nevertheless, e-commerceis likely to have a significant impact in suburban areas as defined below. THE SUBURBS WHERE AND WHAT ARE THEY 42 Suburbs are subordinate to a town (from the Latin sub urbs). They are predominantly medium-low densityresidential areas with homes and gardens of similar size and type, next to the city but dependent on it foremployment, services and trade. They can be divided into six main types: the 19th and early 20th century publictransport suburb; the modern car suburb; the historic inner suburb; the planned suburb; the social housingsuburb; and the suburban town (see Table 5) DRIVERS FOR CHANGE 43 There are various drivers for change in the commercial, retail/leisure and industrial sectors. Commercial sector 44 In knowledge-based industries, there is less need for suppliers and consultants to be near their clients.There has been an increase in out-sourcing. With information now easily accessible from the web, there isa premium on added value services. The reduction in paper transactions is likely to result in a reduction inclerical staff. The increase in globalisation has resulted in trends to 24-hour working. 45 Newer forms of activity have not found the suburbs attractive: for example, dot com companies tendto prefer mixed use inner city areas, and call centres tend to be located in low wage areas on out of centrebusiness parks. There may be some potential for the historic inner suburbs, however: properties may becheaper for conversion, and it may be possible to promote a sense of identity there. 46 Suburban centres such as Croydon risk losing large back office functions. But this space can be reused byhigher value added activities in high demand areas such as Reading. There is scope for conversion for housingin lower demand areas like Newcastle (eg DSS offices in Longbenton PFI including consolidated DSS space)or demolition to make way for new style employment premises.  47 E-commerce does present some opportunities for the suburbs, however. Studies suggest that more peopleare part-time teleworking/portfolio working from home. This will result in more use of local business and retailservices, more time for such people to contribute to community activities and less peak traffic congestion. 48 There is also likely to be demand for small business units and serviced office suites eg Barley Mow, WestLondon, for the new self employed (including early retirees from corporate life) who wanting to work close to,but not at, home. There will also be demand for touchdown space in accessible locations close to homes. Thiscould be provided commercially or in partnership with the public sector, for example, attached to libraries. Retail and leisure sectors 49 In the retail sector, there are likely to be trends towards more use of home shopping via the Internet, andup-market catalogue shopping via the telephone, with new forms of distribution. Intermediaries are likely to beby-passed as a result of direct transactions. The growth of in-home leisure opportunities has affected audiencesfor communal forms of entertainment, although there is a current resurgence in cinemas. 50 Local centres are thus likely to face a loss of occupants and suffer higher vacancy rates, with the risk ofvandalism. There will be a reduced demand for A2 uses, for example travel agents and estate agents. On theother hand there are opportunities for providing local access points to central and local government services see the example in Lewisham of video conferencing links between neighbourhood offices and the Councilsmain office (Table 6). Government on-line services could be combined with Post Office outlets. There are alsoopportunities for the decentralisation of face to face services into the suburbs 51 Where there is good access or public transport, the suburbs also provide opportunities for commercialleisure outlets, particularly for young people with high disposable incomes. Industrial sector 52 Few suburbs have a significant industrial sector. Pockets of light industry are frequently redeveloped forhousing when they become vacant. However, it is important for mixed uses and reducing the need to travel thatsome employment uses are retained on such sites. This would be compatible with ICT-related applications. ACTIONS 53 There are a number of initiatives that local authorities or partnerships and the property sector could taketo help suburbs to adapt to these challenges and exploit the available opportunities. 54 Local authorities or partnerships could: reinvigorate suburban centres, introduce a wider range of uses and reduce vacancies; consider opportunity sites (for example, former hospital or utility sites) for mixed use rather than residentialuse alone; improve public transport, both into town and city centres but also to existing out of town business parks(in extreme circumstances like North Bristol, remodel the growing suburb around business parks andretail centres); innovate, with new forms of suburban forms of transport using new technology, eg ring and ride, sharedelectric vehicles; improve the public realm and general environmental quality, thus improving confidence for householder andexternal investment); and learn from successful initiatives elsewhere. 55 The property sector could: exploit opportunities to invest in local centres, eg commercial leisure and restaurants, private health careand higher density housing. There would be particular scope for investment where the centre benefits fromimproved public transport and becomes an interchange point; and provide more serviced business units and live/work accommodation. However, this would require a change of attitude, as the property sector does not generally perceive suburbs asa good location for development. There is a need for greater awareness of opportunities around future suburbanpublic transport nodes: for example the provision in the 10 Year Plan for Transport for 25 cities to have light rapidtransit schemes. This is particularly important as city centres intensify and land prices rise in freestanding citieslike Reading and Nottingham. IV. Building Use Issues:the Property Requirementsof Telehouses 56 In its final study of specific themes on the implications of e-commerce, the Group considered buildinguse issues, focusing specifically on the issues arising from the needs of telehouses (server farms). There arepredictions that increasing ICT use will lead to a rapid growth in demand for telehouses and related services,in particular demand for: basic space for server equipment; managed services, such as fault diagnostics, maintenance and equipment upgrades; and application services: the storing and running of applications for the customer. 57 Over the next five years, the space requirements of telehouses are expected to grow rapidly. Estimatesof the rate of growth vary. Some leading observers predict average annual growth rates as high as 30% perannum. Such estimates may prove over-optimistic, but an average growth rate in demand of around 20% isstill realistic. Current demand for telehouse floorspace in the UK is estimated at around 1.5 million sq ft. A 30%compound growth rate would result in demand for 5 million sq ft by 2005, while a 20% growth rate would resultin demand for around 3.5 million sq ft by 2005. DRIVERS OF DEMAND GROWTH 58 Demand for basic space represents nearly three quarters of current demand. Demand for managed spacerepresents the bulk of the remainder. Although demand for basic space is expected to grow in the shorter term,there are predictions that over the next five years there will be no net growth, as customers switch to addedvalue services. Demand for managed space is expected to grow at a compound annual growth rate of 27%over the next five years. There are predictions that, starting from a very low base, space for application serviceswill grow at an average compound rate of 97% per annum over five years, accounting for some 60% of totalspace in 2005. THE SHIFT TO APPLICATION SERVICE PROVISION 59 Telehousing developed in the early nineties to meet disaster recovery needs, particularly of majorinvestment banks, largely in response to terrorist activity. Disaster recovery space was remote from the principalIT installation and was therefore unlikely to be affected simultaneously by a disaster event. In the later nineties,the deregulation of telecommunications and the growth of the Internet led to demand from telecommunicationscompanies (for switching and routing equipment) and internet service providers (ISPs). Security (in every sense)became a prime requirement. In the immediate future, the expansion of web hosting is likely to fuel growth asbusinesses increasingly adopt web-sites as a critical business tool. 60 Forecasters see application hosting as the major trend beyond the next couple of years. Users will shift fromowning software and storing it on their own servers and will instead rent the right to use software owned byapplication service providers (ASPs), accessed over high bandwidth fibre optic connections. The perceivedadvantages driving this trend are: renting rather than buying reduces capital expenditure and allows smaller organisations to access leadingedge applications; managing complex software and updating is the responsibility of specialist organisations; the capital cost of updating is potentially spread over many users; there would be no need for in-house IT teams; ASPs employ roving support teams; the roll-out of high bandwidth connectivity means that there is no time-lag penalty; and there are prospects of economies of scale in purchasing electricity, air-conditioning and staffing. 61 One commentator sees the Western European ASP market rising from revenues of $10 million in 1999to $1.2 billion in 2004. However, other commentators are more cautious, suggesting that: users may be reluctant to abandon complex bespoke systems built up over many years and which are vitalto their business. This is about disruption as much as cost. They may be equally reluctant to hand over runningof their systems to operators who have no experience of running them; users may have doubts about security controls, both of the ASP itself and of the carrier network; and ASP failures in the early days may affect confidence; they are mainly small private companies. SUPPLY 62 It is estimated that current supply of premises amounts to only 15% of demand (1.5 million sq ft). By theend of 2001 this is expected to have risen to 39% (of 2.5 million sq ft), still leaving a substantial shortfall. However,following the demise of technology start-up companies, bankers have been reluctant to fund telehouses withoutthe support of acceptable covenants. It is likely that in due course finance will be made available to meet pentupdemand. Landlords and developers would be prepared to meet the demand provided occupiers could payrents that were high enough to finance the necessary alterations. Fit-out costs are twice those of conventionalbuildings, while the fittings are so specialised that the tenant would have few options for disposal in the eventof business failure. BUILDING SPECIFICATIONS 63 Telehouses do not need to be purpose built. Existing buildings can often be adapted.The key requirements are: a floor to ceiling height of at least 3.5 metres (a typical modern office building is around 2.7 metres); adequate space in the ceiling for substantial air conditioning equipment; floor loadings of at least 5 kN/m2 (modern offices are typically 4.5kN/m2, industrial buildingssubstantially more); a large floor plate; and security not just from intruders but also from natural disasters such as accidents, flooding etc. The needfor protection against flooding makes basements unpopular. LOCATIONAL CRITERIA 64 A number of factors will determine the location of telehouses: Connectivity. Telehouses needs to be located on a fibre optic network. A carrier-specific telehouse (i.e. onededicated to a particular telecommunications carrier, such as BT or Cable & Wireless) will need to be close tothe backbone of that carriers network. Non-specific telehouses need to be close to several networks to allowchoice of carrier. Power supply. Telehouses consume large amounts of power for running the equipment, for air-conditioning,for security systems etc. There must be adequate capacity in the local network. It takes up to 18 months tosecure access to a major source of supply. This is well beyond the operational horizons of those operatingtelehouses, so it is necessary to find innovative short-term solutions, such as developing local loops to powersupplies and providing links to combined heat and power supplies. Staffing. A shift towards managed and ASP services will emphasise the need for an adequate supplyof IT technicians. Proximity to customers. Fibre optic signals travel at the speed of light, so proximity to customers should notbe an important factor. However, proximity can still be important for support services, access by customers ITstaff (if the telehouse service does not include management) and for psychological confidence-building reasons. Issues for design and sustainable development 65 Telehouses are often associated with large, unattractive buildings. The specifications do not, of themselves,require inherently unattractive buildings. Many office buildings, for example, could be adapted without difficulty.However, telehouses do require a high degree of security, similar to many buildings on industrial estates, so thiswould be a constraint on location. As they do not have to be near customers, they could be housed in a seriesof smaller buildings, which would have the advantage of putting less pressure on local power supplies. 66 With their huge requirements for power, telehouses are, on the face of it, environmentally hostile. However,by consolidating separate requirements into one building, they could achieve economies of scale which wouldreduce the net burden on the environment. These economies would not be achieved by location in a series ofsmaller buildings as mentioned above. V. General Conclusions 67 The Group emphasises that these studies are only provisional, reflecting current trends in e-commerce.Bearing this in mind, the Group summarises below the main drivers for change, and goes on to set out themain implications for Departmental policies on planning, regeneration and sustainable development. POTENTIAL DRIVERS FOR CHANGE 68 The Group has identified the following drivers for change: Locational influences The potential to source services from peripheral, even global, locations will result in increasing pressurefor peripheral development in attractive locations on the one hand and a decline in back-office functionson the other. The development of e-commerce will reinforce existing trends for ICT-based activities to cluster. The location of the fibre highway will influence development patterns. Similarly, the need for telehousesfor location near to significant sources of power supply may influence the location of customers,business services etc. Growing pressure on retail services will result in the further loss of retail services from secondary locations. Continued pressure for business accommodation in inner city areas, with the concentration of the mostsophisticated technology in the Central Business District. Influences on development patterns Growth in value-added services, particularly to manage, sift and interpret increased information flows. Trends towards homeworking and teleworking have implications for housing design and the demand for touchdown space. The introduction of wireless technology will change building infrastructure requirements, with less need forraised floors, and hence the potential for use of older buildings. Growing demand for telehousing and other ICT support services. Growth in leisure demand in the suburbs, as more people work at home. IMPLICATIONS FOR DTLR POLICIES Planning 69 The Group considers that the development of e-commerce brings into focus the need for fundamentalchanges to the planning system. These were already becoming apparent before the widespread adoption of ICT,but the growing impact of e-commerce and globalisation makes the task of further modernisation more urgent. 70 The Group considers that the basic need is for a mechanism to resolve tensions between conservation anddevelopment. It will on the one hand be more important to protect environmentally sensitive areas, which willcome under pressure for more development, particularly for residential use, while at the same time enablingbusinesses to expand by meeting their changing locational needs. 71 There is a need to modernise the development plan system, to make it more flexible with regular updatingto reflect changing priorities, including the implications of e-commerce. There should be less emphasis ondefining and segregating uses in fine detail, now that the pollution control regime can tackle concerns aboutpollution in residential areas. 72 The development of e-commerce makes it more urgent for the planning system to respond quickly to newbusiness opportunities, as both new and existing investors now have effective choices of alternative sites ona global playing field. One way in which planning authorities could assist would be to develop kindred servicesto the business use of e-commerce: online services for the provision of information and the handling of planningapplications. In routine, uncontentious cases, the whole process from application to granting of planningpermission could be undertaken online. 73 Among the specific pressures that the planning system will need to respond to are: the impact of new patterns of working and living. The planning system does not impede homeworking, butit is only possible when there is room to create a satisfactory working environment and accommodate ICTand associated equipment, without disrupting home life. There is a concern that if current density guidanceis applied too rigidly it could restrict the scope for both full-time or partial homeworking, particularly wherethe emphasis is on maximising the number of habitable rooms per hectare. Density guidance expressed asdwellings per hectare provides more flexibility of internal layout. The planning system should also be moreresponsive to the demand for more specialised live/work units and serviced business units; the need to accommodate new physical needs, for example the provision of power generation facilitiesor access to them, masts and server farms/telehouses; new distribution patterns such as the demand forwarehousing around the urban fringe; the changing needs of the suburbs, and in particular the need to promote more mixed use development,to reflect trends away from predominantly residential use; and potential demand for larger settlements on the periphery of towns to accommodate outsourcing. Regeneration 74 Globalisation is revitalising the centres of large cities. Electronic working lies at the heart of this. However,the adoption of e-commerce is also likely to add to the needs of areas already requiring regeneration. The newfreedom of flexible location for businesses and individuals is likely to drain skills and investment away from theolder industrial areas towards the already affluent areas. This could exacerbate existing problems of marginalisationand social exclusion. Towns outside the South East are likely to lose trade to other towns. A contrary trend,however, has been for call centres to be established in lower labour cost areas such as northern England andScotland. But firms providing these services have tended to locate in modern premises on out-of-town businessparks rather than in the town centre. 75 There are nevertheless further opportunities for regeneration in the older industrial areas. For example, thereis scope for redundant factories and warehouses to be used for accommodating heavy duty ICT equipment.While this is unlikely to result in a significant direct expansion of employment, the development of requiredinfrastructure could attract new business investment in the area. 76 Trends towards online retailing will have an impact on the suburbs and smaller town centres. Thesupplanting of businesses such as travel agents and estate agents by online services will give rise to vacanciesin prime business areas, some of which will be filled by new forms of office working generated by e-commerce.However, the vacancies will also provide scope for businesses at present located in secondary areas to moveinto the prime areas. This will result in some further deterioration of secondary locations as businesses moveout. Added to this, secondary locations will themselves be affected by these trends towards online retailing.This reinforces the need for planning authorities to adopt a more flexible approach to use categorisation. Sustainable development 77 The impact of e-commerce on sustainable development is complex. On the one hand, the ability for theeconomy to grow more rapidly without inflationary constraints is likely to result in a higher trend rate ofeconomic growth. On the other hand, the growth, based on the use of electronic media, is likely to be lessresource-intensive, and hence more environmentally sustainable, than has traditionally been associated withperiods of rapid growth. 78 In some respects, e-commerce will add to environmental pressures, notably the heavy demand for powersupplies, which will add to emissions. As noted above, there will be pressure for development in the moreenvironmentally sensitive areas; one example is the area to the west of London, which is already experiencingconsiderable pressure. On the other hand, the scope for reducing the scale of commuting could reduce overalltransport use, as would the significant use of online retailing facilities. ICT also offers prospects ofimprovements in the operational efficiency of transport. In the suburbs, there is scope for the developmentof innovative forms of public transport to match the new transport requirements. 79 There are a number of implications for property and its use: the need to accommodate ICT equipment at home will have implications for housing design. It will also haveimplications for housing densities and consequently the fulfilment of targets aimed at avoiding new housingdevelopment on greenfield sites; as already noted, there is some scope for flexibility in the location of telehouses, subject to their need to benear available power sources and the cabling network. There is no overriding operational need for them to besited near the customer. This permits scope for a range of buildings of varying size to be used for telehousing,including those which are now redundant for other purposes; redundant inner city office buildings could be converted to residential use, thus contributing to achievement ofthe Governments targets for new residential development to take place on previously developed sites; and the development of wireless technology opens up the prospect of making fuller use of older buildings whichare unsuitable for current technology as they do not have the capacity for underfloor cabling. Further work 80 With rapid changes in existing technology and the development of new technology, there is a need to keepthe impact of e-commerce under constant review, and the Group will revisit these issues regularly. DTLR mightwish to consider enlarging on these studies by undertaking some comprehensive research in this area. Table 1: The large-scale geographic effects of e-commerce E-commerce effect Geographic effect 1. Higher economic growth General increased pressure for accommodation for increased economic activity. Continued growth pressures west of London, expected to spread out over time to neighbouring areas. 2. Lowest cost provision Relatively better economic performance in lower labour cost/accommodation cost areas, especially in locations with educated workforces and/or high quality of life locations. Examples might include pleasant northern towns and satellite towns around the various metropolitan areas. 3. Disintermediation Retailing locations with special features and wider choice (including RSCs) will do better as shoppers choose to use the more attractive locations. Town centres with poor infrastructure will do relatively poorly. Ordinary and smaller towns might atrophy somewhat as e-commerce brings choice to their citizens. In terms of offices, those towns most dependent on back office and clerical functions will be most affected. Productive areas, in primary (commodity production), secondary (manufacturing) and tertiary (service) sectors of the economy, should see increased activity. Changed distribution networks will increase the need for warehousing functions around the urban fringe, to better service home delivery. 4. Re-intermediation Short term pressure on affordable but desirable locations (e.g. Cambridge, M4 corridor, preferred inner city areas). London will do better than most from the new industries. Table 2: E-commerce and metropolitan areas E-commerce effect Geographic effect 1. Higher economic growth Generally increased pressure for accommodation for increased economic activity (though some compensatory withdrawals of pressure see below). 2. Lowest cost provision Offsetting the increased pressure for space generated through increased economic activity, those offices and office areas more focused on clerical functions will see some retrenchment. Retailing should see increased activity. 3. Disintermediation Offsetting increased pressures for retailing space, e-commerce will take away some aggregate demand for retail space (both in central areas and in the retail warehouse sector). The expectation is, given the importance of location to those remaining retailers, that retail areas will retreat to the more prime locations, abandoning more peripheral secondary areas. This will be reinforced by the fact that many of the disintermediated central area users (travel agencies, financial services, etc., occupy these areas now). Convenience retail areas probably less affected. Offsetting the increased pressure for space generated through increased economic activity, those offices and office areas more focused on brokerage and back office functions will see some retrenchment probably to the best office stock, rather than to specific prime areas. Satellite warehouse locations will grow around the urban fringe. 4. Re-intermediation Short term pressures will grow on the (newly retrenched) CBD fringes for data warehouses and other new forms of e-commerce related property. Table 3: The effect of E-commerce on town areas Sector Retail Office Industrial Residential City Core Increased sales, The contraction in Not Minor impact pressure for clerical and back office significant. from new accommodation, functions is only in-migrants offset by partially offset by wanting disintermediationproductive/value-added proximity to of some work and higher urban lifestyle. retailers. Some economic growth. retreat to prime Cities with different areas, mixes of these contraction of occupations will be secondary differentially affected. areas. Lowcost, attractive locations could do relatively better. Inner City More Given the Minor impact Minor impact abandonment on preponderance of through from new CBD borders as back-office and clerical increased in-migrants secondary retail offices in these economic wanting retreats to prime.locations, there could activity. Well proximity to be disproportionate connected urban lifestyle. impact on these areas, areas might through become focal disintermediation. points for There will be enough retail good, cheaper, space warehouses in core areas for the to supply the inner city to benefit metropolitan from the pressure areas. towards lowest cost provision. Some property might be re-used for the new forms of e-commerce properties. Suburbs and urban The effects of Clerical and back office New types of No impact on fringe disintermediationfunctions will retrench warehousing quantum. The might ease as, in time, will call facility effects will fall some of the centres as both required. on the nature of pressures for functions are the growth. disintermediated. This accommodation could take some of the required. pressure off growth in the urban fringe. Table 4: The effects of e-commerce on differenttypes of urban area Sector Retail Office Industrial Central London Special Benefits from Not significant. location, lessincreased role as hit than most global gateway to retail trade with Europe. centres. The City could see significant effects from the removal of clerical and back office functions. The West End is very much an ideas location but, particularly with respect to property, is a major brokerage location also. Outer London and South East Attractive West of London is aGeneral pressure for and larger major IT and ideas growth but, given towns do growth location. land and labour are better than Therefore pressure more expensive more continues and spills than elsewhere, will ordinary out into benefit least. towns. neighbouring areas. Generally Centres (e.g. more Croydon) with penetrated decentralised back than office and clerical northern functions could be towns given badly affected. greater Pleasant locations affluence (to will see pressure purchase for growth. A hardware) necklace of towns and more around London white-collar could benefit in this families. way. Metropolitan Areas (Ex-South East) Larger Centres with back General pressure for choice of office and clerical growth but better goods, functions could be placed to benefit therefore, badly affected. than South East less badly There will be some towns. affected thanoffsetting by the small towns. benefits of being locations of lower cost for ideas formation all will have excellent universities and labour supply. Towns (Ex-South East) Unless theseCentres with back General pressure for towns have office and clerical growth but better other functions could be placed to benefit attractions, badly affected. One than South East such as a or two major losses towns. pleasant could be very environment,damaging. Pleasant could lose locations may see trade to some offsetting, but larger towns. for most there will not be the pools of labour to benefit from greater demands for ideas formation. Country Towns Could find Centres with back General pressure for e-commerce office and clerical growth but better particularly functions could be placed to benefit attractive. badly affected. One than South East However, or two major losses towns. probably could be very Transportation sets have more damaging. Pleasantlimits. of a (less locations could affected) benefit particularly convenience from outsourced role already. work. Table 5: Types of suburbs Characteristics Examples Railway suburb Medium density Ruislip, Middlesex homogeneous speculative suburbs, usually in awell-structured urban fabric. Car suburb Low density, detached Bushey Heath, Hertsmere housing, homogeneous speculative suburbs,often in a fringe landscape (motorways, out-of-town shopping centresand golf clubs). Historic inner suburb Established terraced or Clapham, London semi-detached developments now integratedinto the rest of town; urban qualities, e.g. mix of uses, walkability,good public transport. Planned suburb Few enclaves now absorbed Bourneville, Birmingham into the rest of town; usually successful. Social housing suburb High or low rise housing St Helier, Sutton estates often with problems of maintenance,safety, vandalism, lack of social mix and non-residential uses. Suburban towns Suburbs acquiring urban Croydon centre functions for a wider sub-metropolitan area. Source: Sustainable Renewal of Suburban Areas, Civic Trust and Arup for Rowntree Foundation, 1998 Table 6: Decentralisation of services London Borough of Lewisham Lewisham Borough Council has adopted a policy of decentralisation of services in response to the difficulties which many residents experiencein accessing centralised services at Catford Town Hall, which arise because of congestion and because many residents work outside theborough and cannot pop-in when travelling to and from work. Where actual decentralisation has not proved viable the Council has attempted to create virtual decentralisation using electronic technologies,through its Telematics Initiative which has a number of applications including: a Web Site and Homepage which allows electronic access to information concerning Council services; a free Internet service accessed via the Web Site from 12 public libraries in the borough; TellyTalk, a video-conferencing link between neighbourhood offices and the Councils main offices in Catford; Lewisham Linkline, a project to provide domiciliary 24 hour monitoring services for the elderly and disabled allowing them to electronicallysummon immediate help. TellyTalk is a video-conferencing service, supplemented by document scanners to allow real-time transfer and viewing of documentaryevidence. The facility is designed to produce an experience as much like a face-to-face interview as possible, but as close to the clients homeas possible. Special rooms are set aside at existing or new local authority run sites in a number of parts of the borough, and the scheme isbeing extended to non-council controlled sites, particularly retail centres in order to extent hours of access. The goal is to allow residents toaccess services without the need to travel to the Catford Town Hall. Residents can discuss a range of issues with officers based at Catford,including various council administered tax and benefits. Lewisham Borough Council estimate that when all 15 proposed sites are operating and have been widely publicised, around 10,000 visits willbe generated to these sites annually, constituting around 20% of current visits to Catford. Even allowing for the generation of extra enquiries,this would constitute a significant saving in travel to consume. Source: Changes in Working Practices in the Service Sector, Arup for DETR (unpublished, 1999) 1 Huws 1993 found that in 1990 only 6% of employers used home-based teleworkers, while Murray et al 1997 found that (on slightly different definitions) this hadincreased to 17%. The studies sugested that there had been a large increase in the people working at home, facilitated by ICT, for a proportion of their working week.) APPENDIX C Glossary of Technical TermsUsed in the Report Brownfield sites Previously developed land. Covenant In the sense used in the report, the worth of a tenantand hence the risk of default, which will have a bearingon the value of the lease. Distraint The exercise of distress for rent (see below). Distress for rent A remedy enabling landlords to recover rent arrearsby the seizure and sale of goods within the defaultingtenants property. Life-cycle costing Financial analysis taking account of the prospectiveperformance of property over its whole lifetime. Suchan approach would encourage investors to take a longerterm view of returns on initial capital investment. Mixed use A variety of uses in a single building, or in separatebuildings on a site or in an area, for example, combinedhousing, leisure, office and shopping facilities. Real Estate Investment Trusts (REITs) REITs are a type of securitised property investmentvehicle, a means of combining some of the investmentcharacteristics of owning property directly (the rightto receive rental income and participate in capitalappreciation) with some of those of owning an equity(access to a liquid market in shares). Service charges Charges the tenant pays for any services the landlordprovides, for example, heating, telecommunications etc. Up/down review At the rent review, the rent is based on open marketvalues prevailing for new lettings. Upward only rent reviews At the rent review, the rent will be fixed either at thecurrent rent or the open market level, whichever thehigher. The rent will not fall.