In conversation: Real estate’s new leaders on the art of the possible

Change can be good. Change can be challenging. Change can, as the coronavirus pandemic has shown, happen whether we want it to or not. At the top of several of the UK’s largest listed real estate companies, change has been rife as new chief executives settle into their seats to lead their businesses out of what remains of the Covid-19 crisis and into what comes next. The leadership of the sector is now arguably more diverse than it has ever been, at a time when fresh thinking and new approaches will be crucial. EG invited five of the industry’s new chief executives to share their thoughts – with us and with each other – on the challenges real estate now faces, in terms of how its businesses are run, how its buildings are designed, developed and managed, and how its economic and social benefits are communicated. Offering their takes were Mark Allan, who early last year swapped his chief executive seat at St Modwen for that at Landsec; Simon Carter, who stepped up from CFO at British Land to take over the lead from Chris Grigg; Rita-Rose Gagné, who moved from Ivanhoé Cambridge to take charge at Hammerson; Sarwjit Sambhi, an ex-energy executive who replaced Allan at St Modwen; and Lynda Shillaw, formerly property director at Town Centre Securities and now chief executive at Harworth. What follows is an edited transcript of the 90-minute discussion, held over Teams. As our guests underlined, Covid-19 has changed much about how real estate must operate, and some of those changes will likely be permanent. But with an optimistic approach, there is everything to play for and a valuable chance for real estate to make its voice heard in a way it may not have done until now. As St Modwen’s Sambhi says as he takes his first role in the industry: “Real estate likes to keep itself to itself. One of my provocations to my team is we should be putting our head above the parapet.” Remote control: Becoming chief executive during lockdown EG: What have your experiences been when it comes to the challenges of taking a chief executive post when our working practices have been upended, when we may not be able to introduce ourselves to new colleagues in the way that we thought we would? Gagné: Not being able to meet the team in person has been a real challenge, although video-conferencing has proved the next best thing for all colleagues in both work and for family. Ultimately, nothing beats seeing people face to face when it comes to sharing ideas and building relationships. So I can’t wait to get back into the office when we’re able to do so. Allan: I started at the outset of a lockdown – the first one, when lockdowns were still a novelty – on 14 April. I spent the first seven to 10 days of that lockdown still in post at St Modwen. The picture was changing rapidly. I remember having discussions one day about keeping our housebuilding sites open and then three hours later having a discussion that we were going to close our sites because things were changing so quickly.  The first thing I noticed, having had a change of job over the weekend, effectively, was you don’t know where to go within the organisation now. I was fortunate at Landsec that there was already a business resilience team leading the response to this. But that lack of understanding of how the organisation works, where the teams are, who the key people are to speak to in different areas – you navigate that much more quickly and much more naturally if you’re in a physical environment where you can get out and about and meet people.  Shillaw: I was in process during the first lockdown. That process was largely conducted on Teams, because in the early days you couldn’t meet anybody. Luckily it started to ease as we got to the end of the process so I was able, in a socially distanced way, to meet my chairman. I think that hiring has changed fundamentally and probably will never go back to how it was before. We’ve realised we can actually do a lot through the medium of Teams or Zoom or whatever we are using. I have been on panels to hire non-execs and, in one instance, the chairman for one of my boards, where a lot of that early interface and selection process has been through Teams. Obviously, the final decision has to be face to face. EG: Sarwjit, this is a new sector to you. How was it joining a sector that is very people-focused, very network-focused, and do that pretty much virtually? Sambhi: It felt like the best of both worlds in a way. We are fortunate that the construction sites were open and that was a great chance to meet people and to really get at the sharp end of the business.  In terms of doing it virtually, one of the things that I initiated was a number of listening sessions across the organisation. It was 20 people online. What I liked about that is that it was a really quick way to get input. Because it was done virtually, we got people who didn’t know each other in the organisation or wouldn’t naturally come across each other to share views as well. So that was quite an interesting part of having an induction, using the tech to accelerate networking. On the point of the networks’ importance in real estate, the tech has allowed me to get to folks in the industry quicker than it might have done otherwise. I did manage to grab Mark in real life before I joined, which I really appreciated. But I think in terms of networking, the technology allowed you to do it quicker. The big caveat is it doesn’t necessarily mean that you build relationships. There’s this expression that a lot of this [use of video meetings] is empty calories when it comes to building social relationships. I do agree with that. I think everybody is itching to get out and meet in real life. EG: Simon, for you this was a little different, because you’ve been in the business and knew a lot of people, knew the business. Carter: Because I was moving from CFO to CEO, it was both changing the nature of my role and also the organisation seeing that change. That’s been quite hard to do in a virtual world. The first thing you would have done taking on the role is sit down with your management team. That’s been done virtually. It works fine but, as to the other comments, it’s not as good as the in-person interaction.  The thing I realised pretty quickly was that I needed to get an interim CFO. So we appointed David Walker because otherwise I was going to end up doing both jobs. EG: Given the ongoing volatility and market uncertainty your businesses face, what kind of priorities do you set for the tone you want to send across the business from the boardroom? Shillaw: My predecessor was there for a decade. In my mind, what was really important was not to walk into the organisation and have them think I was going to tear up the plan and start again. That’s important not just from a people and a board perspective – it’s really important from an investor perspective. I knew Harworth had a great culture from the outside looking in. I was really making sure that I understand the culture. I’ve embraced the culture. I don’t want to lose the culture. But, like probably everyone else, I’m doing a review of the strategy, which can bring some real uncertainty into a business with everything else that’s going on. I’ve not brought a load of consultants in to do the strategy. We are basically going to lead it from key people who have been appointed to work streams within the business with some external support, and trying to make sure that everybody is involved and, as we go on that journey, they take ownership. Allan: Focusing on how we come out of this and making sure we can take advantage of the opportunities that will emerge, and not getting lost too much in worrying about the day to day, is really important for the tone of the organisation. This is going to end. There will then be opportunities. And our job is to make sure that we are in position to take advantage of those.  It’s actually a great time to do a strategy review because everyone has just had a very sharp, shocking reminder that the unthinkable can and does happen. And therefore we need to be planning and be prepared to be radical. Being radical in a listed environment, in the middle of a pandemic, before a vaccination is not necessarily what shareholders want to hear. But I think as leaders we do need to be prepared to be radical. Next normal: Looking beyond Covid EG: How will the pandemic change the places you create, what trends has it sped up and what unexpected shifts have occurred that you are now getting to grips with? Gagné: The impact of the pandemic has clearly highlighted that as humans we crave contact and are hardwired as social animals. As a business, we provide the places and social infrastructure that are central to our communities, where people want and need to meet. We will continue to have a vital role in shaping city centres in the future – how people meet, live and work together will change. However, the fundamental desire to create connections and be a part of a community has never been greater. Carter: In a world where you’ve just had a pandemic, we’re probably not going to pack people in as tightly as has been the case in London offices in the past. But one thing that does come through in the customer conversations we are having is that people are really clear about what they miss about the office. It is about all of those things that we are aware of – training your staff, building your culture. The one that shines through the most is interacting with customers. Businesses want to interact with their customers face to face. People are going to want the best space where they can showcase what their company does. They can make environments in which their teams are most effective… People want high-quality real estate. They want buildings that inspire them. One thing that we have become increasingly convinced about with our London office campuses is that we make sure there is really good connection between our customers and the local community. Sambhi: In homebuilding, the trends are clear from talking to customers. There’s the obvious stuff – broadband connection reliability and speed has gone up in terms of needs, and when customers are looking at a new property, they’re looking at where can I work in this house? We are having to adjust products so that the space for homeworking is as flexible as it can be, because not everybody can afford to have a dedicated homeworking space. Access to outdoor space and having the amenities available that everybody’s got used to during the lockdown has gone up in terms of the hierarchy of needs. And there’s probably more of a premium put on quality as well. As everybody’s been staring at the same four walls, they’ve made up their mind as to what they want from a new home and quality is definitely right up there in terms of an important requirement.  On the logistics side, I think it’s obvious that it’s not just Covid, but the impact of Brexit, shortening supply chains, the shift to online – the shift in logistics is away from a supplier-led push on ‘it’s in the Golden Triangle, this is the best place that you can get’ to customers being a lot more demanding in terms of the size of space that they want and where they want it. I think that is going to be the next thing that creates clear blue water between winners and losers in logistics. EG: And Brexit? What are the early reactions to the EU trade deal that was hammered out and how it might how it might affect your businesses? Shillaw: The immediate risk to us as an industry is around supply chain, resource within the supply chain, and access to talent. That’s going to play out as we go through the next couple of years. But we have known for four years it’s been coming and many businesses have planned for it as effectively as they can. The lack of detail around the financial and business services is another big impact, certainly for us as PLCs. Allan: I don’t think there was anyone who expected anything other than an 11th-hour, very thin deal that everyone tries to pitch to their own stakeholders as being a win. It looks like products: no real impact, apart from lots more paperwork. Services: no deal. And we have known really it was going to be no deal for quite a while. So there is going to be lots of arguments over equivalence and things over the next X number of years. We now need to see what the long-term economic consequences are, and where the benefits that start to come from these sorts of things are. Politically, people will package up anything they can possibly find as being a clear benefit of Brexit. But, of course, that does get dwarfed by the economic consequences of what we are dealing with at the moment. Teamwork: Finding, keeping and caring for talent EG: How do we look after the talent within our businesses? And what are the key focuses for making sure that real estate attracts and retains the right people, the best people, a diverse group of people? Shillaw: We have got a long way still to go on diversity in its widest sense. I see a lot more gender diversity in the sector than ethnicity or otherwise. But that’s not peculiar to real estate. All businesses, I think, are acutely aware and focused on it. As listed companies we are judged by our investors on this and increasingly I think businesses are being held to account. I think this focus as businesses and as employers on the health and wellbeing of our people has never been as high, in all my years in business. The depth of understanding that you can train people, you can pay them a great wage, you can give them all sorts of things, but if you’re not looking after their mental health and their wellbeing, you’re failing that person and potentially failing the organisation in due course. The pandemic has brought that very much to the fore. Gagné: One of our biggest priorities has been the welfare of colleagues, particularly their mental health. The past 12 months have tested us all in ways we could never have foreseen, so making sure our people had the right support and flexibility at work has been so important. How and what we communicate with colleagues has changed; more frequent, more informal and more innovation, to find new ways of working. Staying connected with everyone remains critical. Sambhi: Post-Covid there is going to be a need to develop a more empathetic style of leadership. That’s not going to be easy, especially with leaders who perhaps have come from more of a command and control school of leadership. But I think that is going to be absolutely critical for the next generation of leaders. How do you create empathy in the organisation? You asked the question, what has the tone from the top been? For me, it is making sure that empathy comes down from the top and it starts to permeate through all parts of the organisation. Shillaw: How are you making sure that you and your teams are still having fun in the world that we’re in? Sambhi: I think it’s a great question, Lynda. At the moment, I think it’s been substituted by making sure that they’re OK. And I think that’s one of the things that I’ve paid more attention to, just checking in and making sure that they’re OK. And when asking them the question, are they OK, not accepting that answer of ‘yeah, I’m OK, it’s fine’. Nobody’s fine at the moment, right? You’ve got to get two layers beneath that to really understand whether the team is OK. Allan: I agree with that. I think we all suspended fun in about October, but I think making sure people come out of this in a place where they feel they don’t collapse over the line at the end, exhausted and spent… It’s just helping people through this. Carter: For me, I guess the biggest challenge has been taking on the new role and then homeworking and the boundaries. It’s so easy to have dinner and come back to your desk. I’m just finding I’m having to be really disciplined. I turned up on this call and I was a bit conscious that it was looking like I just got out of the shower, which was actually right, because I just had to go out for a run in the morning. If I don’t get out at the beginning of the day, it does not happen. Then homeschooling is a different experience, but making the most of having the kids at home is pretty special, isn’t it? I never sit down for breakfast, lunch and dinner with the family during the week, all three meals, and we can do that at the moment. So make the most of those things, the little silver linings. Beyond box-ticking? The sustainability agenda Sambhi: Real estate’s a bit stuck in terms of how it really does become a net-zero market or sector. Nobody has the magic answer, but I think ideas from the outside would help accelerate the path to net zero for real estate. Gagné: We were the first major real estate company globally to commit to being net positive by 2030, and that remains a real priority for this company. We have made great strides in that direction already, but there’s still more we can do. Sustainability has to be at the heart of everything you do; shareholders, customers and brands will accept nothing less, and it’s undeniable that businesses are going to be the subject of ever more scrutiny over the coming years.  Allan: The easy thing for us all to say, and this is across the sector and the equity markets as well, is that sustainability is really important. I certainly have more meetings with investors now where there are questions about the sustainability agenda, about the path to net zero and in a small number of cases – but it is a small minority – those questions are posed by people who are experts in that space. More often than not, those questions still come across more as part of the ticklist of what investors need to ask about. So I think it’s fantastic that as a sector, and as a society, we have got to the point where there is a general level of acceptance that sustainability and putting sustainability at the core of our decisions is a really important thing to do. What we haven’t seen yet is anyone make any of the really, really tough decisions that become a natural consequence of that. And there are and will be some incredibly difficult things that will come from that. You’ll hear that the built environment contributes 40% of carbon emissions. But everyone measures net zero in a different way. And there’s going to be this big argument about scope three [indirect carbon emissions in a company’s value chain]. Back in the financial crisis, the big issue was there were all these liabilities that didn’t sit on anyone’s balance sheet. I think we’re going to end up with the same thing in sustainability – we’re going to have these carbon emissions that don’t sit in anyone’s carbon emissions statement… Is it about building new buildings in a net zero way or is it about looking at the existing environment and how you recycle and reuse what’s already there, which is candidly going to be the best way to minimise the net carbon impact? If you were a single business saying we’re going to do everything sustainably in the sector at the moment, you wouldn’t be competitive today. You wouldn’t buy anything. No one would lease space from you if you put all of that cost into it. So there has to be something from a policy perspective. Shillaw: Mark is absolutely right about the policy. A business like Harworth, our traditional stomping ground has been the remediation of big, dirty sites – former coal mines, former coking works, former power stations – where they’re cleaned up, as much as can be recycled gets recycled, country parks are created, there’s a master plan for the infrastructure that goes in and the communities that are built out of that. In a lot of what I’ve just described, today we’re tracking and capturing what we do. But, historically, we wouldn’t have done. It’s easier to do if you’re a Harworth and you’ve got single, big sites that you can control end to end. If you took a typical city centre where you’ve got really fragmented ownerships and lots of people doing their version of it, actually joining that up and having some form of holistic strategy is really important. And I think that’s a combination of both business and local authorities leading and working together. It’s got to look at green infrastructure, energy, transport, walkability and cyclability, and how people move around and how places are connected… Maybe we should be working harder with government to help them make that case. Sambhi: Lynda, that’s absolutely a key point. The answers won’t come from government. We need to help the government say here is a viable pathway. And that requires creativity in terms of saying there are free allowances for emissions on stock, whether it’s office or leisure, which you just can’t change, and it’s all about the forward emissions, to give one example. I think the government would be receptive to that. But on the flip side, I think there needs to be more experimentation and it’s probably more on the housebuilding side, to say, actually, let’s just give it a go and then we can show what the art of the possible is, without blowing the bank. I do think there’s more that the sector can do proactively on this to help the government. Government doesn’t have the kind of skillset to think through this. We’ve got the knowledge. We’ve got the expertise. Allan: We have a number, a pound notes number, for the investment required across our overall estate if we were to achieve [net zero on a forward basis]. And that number is so much higher than the cost of buying credits and offsets that you think, well, I may as well just go net zero by buying offsets and they can be someone else’s problem. But there must be an answer where there’s an amount that we should be investing to improve the performance, and then there’s an amount where it becomes more economic, through the internal price of carbon, to establish a proper fund and a proper number and then say, we’re not going to invest that in our own estate, we’re going to invest that in backing carbon capture technologies. That’s why I say there’s an important policy element about incentivising, doing as much as we should be able to do, rather than just say I’ll buy some offsets and then I’m net zero. Carter: We’ve focused a lot on the challenges, but I think I’m reasonably optimistic in this space now just because the customer is so focused on it and market forces can be pretty powerful in getting to the right answer. With some kind of standardisation of footprints and market forces. I think it will feel very different in three to five years’ time. Language barriers: Making real estate’s role understood EG: One of the takeaways from last year is that government and the public doesn’t really understand what real estate is or what it does. We’ve seen that in the way that landlords have been treated, some might say mistreated, during this. What sort of responsibility do you feel, as new leaders, to change the language around the real estate sector and really make individuals and government understand its importance? Carter: The starting point is the language. That term ‘landlord’ is so unhelpful. It really is Victorian, implying the upper hand. I think that’s probably the easiest win for us. We invest in and design great places. We invest in the built environment. That means jobs. I think that’s an important thing for the industry to talk about. Government looks at us as businesses, sees that we have relatively small headcounts. But that doesn’t really represent the picture. In our supply chain, there’s a huge number of employees and when our businesses are successful we are investing in the built environment, but we are also investing in jobs. Sambhi: Coming into the sector and hearing the word ‘landlord’ – it did kind of take me aback because I thought, well, they are customers, aren’t they? But, for me, it’s more than just the language. It’s that shift to being customer obsessed. I know that is harder to do in some parts of real estate than others. But definitely if I look at the logistics side… Mark started this push when he was there [at St Modwen] in terms of getting much more customer focus in the business.  If I think about the voices across all industries during the past 12 months, some have been louder than others. Real estate likes to keep itself to [itself] and doesn’t often put its head above the parapet and take a strong position. One of my provocations to my team, at least now, is we should be putting our head above the parapet. Shillaw: There’s some real pain in terms of getting us from where we are to a more flexible, more responsive way of dealing with tenants and our customers. And if we don’t do it we destroy a lot of economic value for our industry. The town centres, city centres, maybe won’t thrive or be quite as shiny or it takes longer to reinvent. I don’t know how this gets articulated to government and if they even understand the breadth of and the scope of the challenges that we as an industry will have to work through. Allan: I find a few competing thoughts going around in my head at the moment. I think a really important part of this is, as a sector, looking in the mirror and deciding that when we talk about the benefit that we bring to the economy and society, are we just trying to justify that we want things to stay the way they are because we quite like that? I think there’s stuff that we need to think much more carefully about. This will be a little bit contentious, but if you build a shopping centre, and you incentivise yourself around leasing it to who’s going to sign the lease with the biggest rent number, and I end up with far too much fashion across all of my centres because I haven’t been very imaginative about thinking about how we curate a line-up that people are going to want to spend time in, is it really someone else’s problem when all of that goes wrong? But we are shy about getting on the front foot and saying this is the value the sector brings. And so you’ve got that sort of Jekyll and Hyde element and we need to reconcile those two things. So there is change that, as a sector, we need to be making… I’m very committed to trying to reconcile what may prove to be irreconcilable. But we’re going to have a good go. To send feedback, e-mail tim.burke@egi.co.uk or tweet @_tim_burke or @estatesgazette