It may be different for property markets this time round

'Good information does not, of itself, iron out price fluctuations'

"It really is different this time" is one of those fatal investment statements, as anyone who believed that the new economy boom last year was qualitatively different from previous investment mania will know to their cost. But property may be different this time - and partly because of the communications revolution.

"It really is different this time" is one of those fatal investment statements, as anyone who believed that the new economy boom last year was qualitatively different from previous investment mania will know to their cost. But property may be different this time - and partly because of the communications revolution.

In almost all previous downswings of the global economic cycle, the property sector was among the hardest hit. The UK experience of the early 1990s was pretty typical of the genre. At a commercial level there was the usual cluster of empty shops, office blocks and factories, just as in the early 1970s and early 1980s. There was also the added twist of a residential slump: the new expression "negative equity" entered the language of the housing market.

Given this record you might reasonably expect the same thing to happen again. High streets, aside from prime sites, are certainly under considerable pressure and factories in less successful areas are standing vacant. But there are several reasons to suspect that this next property cycle will be less marked than previous ones, probably here in Britain but also elsewhere in the world.

For a start, global property had a good year in 2000 relative to global equities. In Britain, returns on commercial property gave a total return of 10.5 per cent, against 8.8 per cent on gilts and minus 5.9 per cent for the Footsie index. So far so good.

Next, there is no grinding pressure from world inflation. Yes, it may kick up a little, but nothing like it has done during the last three cycles. So central banks will be able to cut interest rates to offset declining demand, bringing cheaper finance to the property sector.

Third, the experience of previous cycles has encouraged architects and developers to plan buildings that are either multi-purpose or easily adapted. True, there are many specialist properties still being built: it is hard to think of alternative uses for the dealing rooms of financial service companies. But most new developments in the UK are planned with change in mind. After all, buildings have a design life of at least 60 years and in practice stand on average much longer. It is impossible to see how buildings might be used two generations from now, so the only sensible approach is to plan for change.

The industry has also become better at thinking of new uses for buildings that have outlived their original purpose but are well-located. Turning warehouses into homes is old hat, but now even the least promising of buildings, like 1960s office blocks, are finding new life as flats and even hotels. (In Edinburgh, a newspaper office has been converted into a hotel.) Clever design is being used to conceal the deficiencies of mediocre buildings - and enhance the glories of great ones.

But perhaps the most interesting aspect of this cycle will be the way technology affects the property scene.

LaSalle Investment Management of Chicago has done some work on this, which it has published in its new annual investment strategy review.

The theme it develops is that while technology businesses will themselves have a pretty lumpy demand for space, there are new types of property that are going to see increases in demand (like server farms and co-location centres) and that the new technologies will make real estate services more efficient.

Ultimately the estate agency business is to match supply and demand. Now it has a technology that helps enormously in that task. Apparently the UK leads the world using online auctions to sell property over the internet. LaSalle expects, quite rightly, that techniques developed in one country to spread rapidly through the rest of the world.

Of course, it is not only the property industry that has to figure out how to apply the new technologies. Its customers, buyers as well as sellers, have to feel comfortable too. Good information does not, of itself, iron out price fluctuations, but the better the information, the smaller the scope for anomalies to develop. In theory at least, any downturn in demand for property ought to be reflected in prices more swiftly than in previous cycles. And that in turn should suck in the potential buyers more swiftly than before.

Equally important, better information means that companies can try to gain competitive advantages by choosing the right location. For example, one dominant theme of the world economy now is the fight for talent: the extent to which companies are forced to bid up wage rates for clever people. But suppose they can achieve a competitive advantage by other ways, in particular by siting their operations where these people want to live.

In Europe most new technology companies are in cities. US technology companies, which have tended to choose suburban sites, are apparently now looking at moving to urban locations because that is the best way to attract young people in a tight labour market.

Another way that better information will help smooth property prices is the way in which the industry can use predictions of job creation to create the physical infrastructure that the workers, and their families, will need. Of course this has been possible long before the Net existed, but development happened on a pretty haphazard basis. Now it is possible to look at the forces that create and drive growth clusters - good universities, magnet companies, sources of venture capital, etc - and judge the property needs and opportunities more precisely.

None of this means that property will escape unscathed if there is a really serious global downturn. There is still, in some parts of the world, a property hangover from previous cycles. You have only to travel to places like Bangkok to see the unfinished office blocks, beached by the Asian financial crash of three years ago, where work has only recently restarted. But the great speculative excesses of the last couple of years were not particularly in the property market, and that is unusual. So the place to look for trouble is probably in the cyber world - all those over-borrowed telecom companies? - rather than in the physical world.

So for the property market maybe things are different this time, but they are not different for some other large sectors of the economy.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Voices
The Sumatran tiger, endemic to the Indonesian island of Sumatra, is an endangered species
voicesJonathon Porritt: The wild tiger population is thought to have dropped by 97 per cent since 1900
News
The Swiss Re tower or 'Gherkin' was at one time the UK’s most expensive office when German bank IVG and private equity firm Evans Randall bought it
news
News
Gardai wait for the naked man, who had gone for a skinny dip in Belfast Lough
newsTwo skinny dippers threatened with inclusion on sex offenders’ register as naturists criminalised
Sport
Van Gaal said that his challenge in taking over Bobby Robson's Barcelona team in 1993 has been easier than the task of resurrecting the current United side
football
PROMOTED VIDEO
Arts and Entertainment
The Great British Bake Off 2014 contestants
tv
Arts and Entertainment
filmThe Battle of the Five Armies trailer released
News
news
Arts and Entertainment
Beast would strip to his underpants and take to the stage with a slogan scrawled on his bare chest whilst fans shouted “you fat bastard” at him
musicIndie music promoter was was a feature at Carter gigs
Arts and Entertainment
Story line: Susanoo slays the Yamata no Orochi serpent in the Japanese version of a myth dating back 40,000 years
arts + entsApplying the theory of evolution to the world's many mythologies
Extras
indybest
News
Performers dressed as Tunnocks chocolate teacakes, a renowned Scottish confectionary, perform during the opening ceremony of the 2014 Commonwealth Games at Celtic Park in Glasgow on July 23, 2014.
news
Life and Style
Popular plonk: Lambrusco is selling strong
Food + drinkNaff Seventies corner-shop staple is this year's Aperol Spritz
Life and Style
Shake down: Michelle and Barack Obama bump knuckles before an election night rally in Minnesota in 2008, the 'Washington Post' called it 'the fist bump heard round the world'
newsThe pound, a.k.a. the dap, greatly improves hygiene
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Senior Fund Administrator - Edinburgh - £22 p/hr

    £20 - £22 per hour + competitive: Orgtel: Senior Fund Administrator, Top Four ...

    Entry Level Fund Accountant (Edinburgh)

    £17 - £20 per hour: Cameron Kennedy Recruitment: My client, one of the worlds ...

    SQL DBA/Developer

    £600 per day: Harrington Starr: SQL DBA/Developer
 SQL, C#, VBA, SQL Server, ...

    Risk Analyst - VBA/EXCEL

    £300 - £600 per day: Harrington Starr: Risk Analyst Access, EXCEL, VBA, RISK, ...

    Day In a Page

    The children were playing in the street with toy guns. The air strikes were tragically real

    The air strikes were tragically real

    The children were playing in the street with toy guns
    Boozy, ignorant, intolerant, but very polite – The British, as others see us

    Britain as others see us

    Boozy, ignorant, intolerant, but very polite
    Countries that don’t survey their tigers risk losing them altogether

    Countries that don’t survey their tigers risk losing them

    Jonathon Porritt sounds the alarm
    How did our legends really begin?

    How did our legends really begin?

    Applying the theory of evolution to the world's many mythologies
    Watch out: Lambrusco is back on the menu

    Lambrusco is back on the menu

    Naff Seventies corner-shop staple is this year's Aperol Spritz
    A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

    A new Russian revolution

    Cracks start to appear in Putin’s Kremlin power bloc
    Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

    Apartheid’s sadistic killer that his country cannot forgive

    The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
    Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

    Standing my ground

    If sitting is bad for your health, what happens when you stay on your feet for a whole month?
    Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

    Greene prays for chance to rebuild after injury agony

    Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
    Israel-Gaza conflict: Secret report helps Israelis to hide facts

    Patrick Cockburn: Secret report helps Israel to hide facts

    The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
    The man who dared to go on holiday

    The man who dared to go on holiday

    New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
    Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

    Best comedians: How the professionals go about their funny business

    For all those wanting to know how stand-ups keep standing, here are some of the best moments
    The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

    The Guest List 2014

    Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
    Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

    Jokes on Hollywood

    With comedy film audiences shrinking, it’s time to move on