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Property Advisory Group annual report 2001 - Communities and

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					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.

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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,
e-commerce@its.best.uk).

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.
                                                                                       [1]
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.

				
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