A warm welcome to better performance

COMMENT All real estate is operational, and you are kidding yourself if you think otherwise. This point has been overstated, but what investors still often fail to appreciate is that you can materially improve your financial performance, as well as your reputation, if you genuinely engage with this concept. We have three key strategies in the UK – office buildings, self-storage and hotels – but our experience in hotels, which are at the coalface of operational real estate, has been transformational for how we think about the rest of our portfolio. We have all seen the rise in investor interest in the hotel sector since the pandemic, driven largely by high demand from guests, which is pushing up average daily rates and occupancy, in some cases to extraordinary levels. This interest can be seen no better than in the investment brochures – an office building that 12 months ago was being pitched as a life sciences repositioning opportunity has now morphed into a potential hotel scheme. At the same time, offices and retail have fallen out of favour as work and shopping patterns remain unsettled. Operational complexity Hotels, which historically have been more on the edge of the investment sphere, are coming into the mainstream as an asset class, but there remains some caution because of the operational complexity. And rightly so. It’s easy to think that because you have stayed in a bunch of nice hotels then you could also run one, but it is trickier than changing sheets and setting up a breakfast buffet. We are very lucky to be working across our hotel estate with David Orr and his team at Resident Hotels, who share our values around providing genuine hospitality to our guests and being very focused on reputation, from the perspective of all our stakeholders. If we think about offices specifically, the sector has moved on from the joke about the operative part of the word “landlord” being “lord” and the operative part of the word tenant being “ant”. It is no longer the case that you sign a lease and that’s the end of the relationship; tenants are demanding so much more, and for a landlord it’s a case of either keeping up or falling behind. Now there is far more meeting in the middle. We have made huge strides to be more operational with our office tenants, while working within the physical limitations of the portfolio. We spend a lot of time thinking about how the way the people in our building shop, work and travel has changed, and how we can reflect that in their experience of working in what is still essentially a traditional office building. This clearly flows through to the amenities provided, but also to the ways in which you encourage staff on the front desk to engage with the people in the building. For prospective tenants, how might we market the space to respond to the ways in which people now make purchasing decisions? What is their expectation for how long and complicated the process might be? Fundamentally, as the landlord, the question is: do you have a relationship with your tenants, and if so, is it one that adds value to both parties? We think it should. Competitive advantage We really believe that owning and operating hotels has also given us a competitive advantage elsewhere in the portfolio: even in self-storage, people’s demands and expectations are that much higher now in terms of the experience. With our first site opening early next year and others in the pipeline, we are focused on delivering a product that responds to the shift. The business case here is that it should feed through to financial performance, such as we have seen elsewhere in the portfolio, allowing us to justify making the improvements, as well as it being a nicer, better way to do business. For example, if you can design self-storage sites with more glass than is necessary, so that there is lots of natural light, maybe use softer colours throughout, have user-friendly opening times enabled by technology, and have highly trained and engaging staff working on-site, it should lead to a much more pleasant user experience, as well as making people feel safer. You could argue that it’s not mandatory, that you can expect people to store their sofa just as well without adding these touch points, but we think it’s a goal worth aiming for. For those big investors that are trying to increase their operational experience or their exposure to hotels as an institutional-level asset class, don’t underestimate how much more competitive it can make your whole portfolio. Jack Mactaggart is a director at Mactaggart Family & Partners Photo © Vojtech Bruzek/Unsplash