Lendlease chief Tony Lombardo sets off on a seven-week journey in search of a new normal

For him, it was nice to reach London and “get back to a level of normalcy… it gives you confidence that the world will get back to normal”.

“I think the psyche is that London is learning to live with it. And that’s where we’ll all have to go, ”he says.

“People have taken on a certain level of responsibility – everyone I have spoken to has been vaccinated. You have to get used to it, it will be the new normal. “

He believes it’s easier for Britain, where deaths have been so high – it makes the new normal, which still involves high numbers of cases and high death rates, seem acceptable.

“Other markets are going to have a hard time, as Australia and Singapore are actually going to see the number of cases increase – so it will take a little getting used to. And we have to live with that.

The trip also allowed Lombardo to personally assess the state of the markets in which Lendlease operates and assess the potentially transformational impact COVID-19 could have on offices, housing, retail and real estate. commercial.

The good news, he says, is that things are improving. “For 18 months, COVID kind of blocked everything a bit, especially around people making investment decisions. The positive thing I take away from my trip so far here [in the UK] is… a feeling that people are now starting to make and think about in real investment decisions. I think we’ll start to see activity pick up.

The other good news he has: the office is not dead. But it may never be quite the same again.

“One comfort I find is that all of the clients I have encountered all see the need for an office.

“It’s not as if they don’t see the desk as a key part of their workplace strategy – it’s how they’re going to use that desk,” he says.

The office redesigned

Lendlease scrambles to figure out how to tweak, rewire, and revamp its idea of ​​what an office is and how it works, even for areas of its development pipeline that are already in production.

The words that punctuate Lombardo’s speech, sitting in the boardroom of Lendlease’s compact office near Euston Station in London, are “collaborative”, “sustainable” and “hybrid”.

The company is considering what kind of technology will be needed to make teamwork in the office possible when some staff are in the office and others are working from home – that is, the hybrid model of office life that everyone expects will become the norm.

We start by talking about screens and connectivity, and we quickly get into sci-fi booms such as hologram avatars.

“We’ll have to work with our clients on how to put this in place for the future,” says Lombardo.

With fewer people entering an office each day, a company’s office is unlikely to get smaller but it will increasingly become like a WeWork space, with larger collaboration spaces, perhaps shared among multiple tenants. . Lombardo expects 15 to 20 percent of any office to be like this.

Businesses could also invade part of the shared or flexible space and then leave again, rather than entering into fixed leases on fixed amounts of space. This gives tenants more flexibility; but is it being done at the expense of Lendlease, turning fixed income into variable income?

Lombardo says the experience in Singapore has been that shared or flexible space is largely occupied, and commands a premium as well.

Lendlease is also evaluating other ways COVID-19 has either changed our lives or accelerated change. In London, online shopping has become a way of life during the long lockdowns.

Lombardo says that an enclosure development may now need to integrate facilities for last mile delivery and to deal with increased packaging waste. Lendlease is also considering whether and how parking requirements will change.

The company must also get governments and boards to appreciate the pace and potential degree of transformation.

Strict planning rules can often seek to fix every aspect of a development to the nth degree; and Lombardo says authorities – and the public – will need to trust real estate developers with a little more flexibility to adapt to rapid changes as a project progresses.

Elephant “business card”

In Britain, trust between developers and communities can be difficult to establish – clashes over proposed developments are often bitter.

Lendlease is no stranger to this, having had its fair share of bad publicity during the decade of development at the £ 2.5bn ($ 4.6bn) Elephant Park site and being kicked out. a £ 2 billion development partnership with the borough of Haringey, north London. .

But Lombardo believes the company is now breaking through. Last month, its £ 1billion development on High Road West got a big boost when a residents’ poll approved the scheme.

He says that Elephant himself, while still capable of attracting controversy, can now be the “calling card” for the company – a tangible demonstration of Lendlease’s ability to deliver the results promised.

The company is actively using Elephant to educate residents and retailers affected by the High Road West proposals, even having some of them cross by bus through town to review the more established program.

This is a sign of the presence that Lendlease has now established in Britain. But the company is at a kind of fork. During the 2018-19 period, it strengthened its urban development pipeline, with projects in Europe (Great Britain and Italy) reaching $ 33 billion.

The office tower proposed by Lendlease at Elephant Park.

COVID-19 has ended that surge, but Lombardo doesn’t want post-pandemic normal to look like the good old days.

Instead of trying to win more new contracts, he asked the boss of Europe, Neil Martin, to focus on concreting the projects already in the bag.

“It is now a question of putting these projects in motion, of becoming active. So a lot of attention has really turned to the phase I am calling regarding conversion and planning, ”he says. “I said, ‘Neil, you can have the biggest pipeline, now I want to see the product.'”

The idea is to get around $ 8 billion in production per year by FY2024 and maintain that production rate in subsequent years. “It’s about 12 years of product if we hit a constant production rate of $ 8 billion,” he says.

Numbering High Road West, the development of IQL and a project above Euston Station, he says, “Once Neil gets enough in production, I’ll tell him to start earning more work.

He also wants to see the fund management platform develop in Europe. “We have a portion of the build-for-lease product that we created with our key partner, the Canadian Pension Plan. But it’s really getting more office stuff than we can do, and we’re looking to really do more in the BTR space as well.

At Elephant, a BTR project leased around 200 units of the 663 developed in that first phase, which Lombardo called a disappointment in the company’s annual result in August.

“The lockdown probably meant we finished it at the wrong time, because London was locked right when we finished. But we’ve had very good momentum in the last two months since London reopened. You can certainly see that people are returning to the city, ”he says.

The coronavirus is not the only problem plaguing Britain: it is in the grip of the global supply chain crisis, exacerbated by a massive shortage of truck drivers and skilled labor more generally . So far, however, that hasn’t caused Lombardo to lose too much sleep.

“It’s like everything we’re trying to solve: is something a permanent change, or is it something that’s caused because COVID is impacting the supply chain, because the manufacturing was at a standstill and therefore supply levels were lower, so you have a temporary hit in inflationary pressures? ” he thinks.

“We just have to keep a watchful eye. So far, we haven’t seen a significant impact on the business as part of the supply chain has absorbed some of these costs. “

Lombardo has one more week in London and will join Macquarie Group chief executive Shemara Wikramanayake at a UK government investment summit next week. Nick Molnar from Afterpay also visited town recently, and Andrew Forrest from Fortescue will be flying to the COP26 climate summit in Glasgow early next month.

When it comes to reopening international borders, Australian business leaders are clearly voting with their feet.

Lombardo is not staying for COP26, but his plans are still slightly fluid. “If I come back in October, I will have to quarantine [in a hotel]. I’ve heard that if you come back on November 1, it could be a home quarantine, ”he says, which might prompt him to stay a few more days in London or Singapore.

We come back to the subject of his travels. I tell him a story told to me by the former boss of Lendlease for Europe, Dan Labbad: having returned once from London to Australia for an investor presentation and having spent less than 24 hours on the ground before taking over the 24 hour return flight.

“I don’t think you will be doing this type of business trip. That’s what I think will be gone, ”says Lombardo.

“Because you will only do that on a Teams call. It is not necessary to make these short and precise routes. But the longer and more determined trips, I think, will be a little more meaningful. “

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