#26 Landsec CEO: Big Shopping Centres are the Future

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1:20Welcome to Big Boss Interview. I'm Sean Farrington and we have got a cracker of an interview lined up for you today. I've got Will Bain alongside me now. Will, who have you got for us? One of the biggest companies I think we've done so far, Sean, a property portfolio in excess of£11 billion, Landsec. One of the biggest landlords right around the country. And if you don't know the name of the company necessarily, well, you will definitely know some of the buildings that they rent out, including some of our major shopping centres. So think the St David Centre right in the middle of Cardiff, Liverpool One, Blue Water in Kent.

1:57But also they were behind iconic buildings like the Walkie Talkie in central London. And, well, if we can say that they're iconic, our own buildings in Salford and New Broadcasting House in central London as well. So got really interesting insights into everything from hybrid working and how much office space our big companies want in our big cities to their diversification into a greater focus on residential properties and how easy it is to develop those as well. and then those trends they're seeing in our shopping centres. What we want, how we're shopping, what our retailers want from us as well.

2:32So, yeah, a giant company spanning, I think, some really interesting areas that perhaps are a little bit different to some of our other bosses we've heard from so far. Mark Allen, Chief Executive of Landsec. Thanks so much for being with us on the Big Boss interview. Good morning. When you walked into our building this morning, I'm interested about this, someone with your experience in this line of work. And you built this building, right? We did. So what do you make of it now and what makes a good building? I know you're always kind of just looking at every building you go into. Oh, that's done well or that's not done so well.

3:04How does it work? Every building is different. And it's all about does the building and the environment work for the people that are in there? Does it help them with what they're trying to achieve, what their business is about? So I think you still feel as you come into here that this kind of building does what it needs to for the BBC. It's also pretty iconic, isn't it? in terms of where it sits, just at the top of Regent Street there. So I think as you approach that, you see the kind of the spire and the old broadcasting house and then, you know, the newer wing behind. You know, it's a really iconic building.

3:35So always great to come here. Is every work trip a bit like a busman's holiday? Do you walk into any kind of sort of building anywhere in the world and go, oh, I like what they've done or I'm not quite sure about that? Yeah, you probably need to ask my wife. She's probably been to a few more shopping centres around the UK and elsewhere than she probably would want to, if I'm honest. But yeah, inevitably you end up kind of looking at buildings. I was in Seoul last week for a couple of days, for example, and I was looking at the Seoul version of Media City. We own Media City here in Salford. And so inevitably you're looking around and just trying to get a sense of why things are slightly different, why things are the same, what could be transferable into assets that we own or are thinking about building.

4:16I think it's worth explaining to people a little bit in your own words as well what you guys do, because you're one of our biggest companies, on the FTSE 100, one of the 100 biggest listed companies here in the UK, and yet perhaps general public may have seen your name on the side of buildings or developments but not know exactly what you do. So worth explaining, I think. Yeah, as you say, we're a member of the FTSE 100. We're one of a very small number of businesses. It's probably 10 to 15 that have been members of the FTSE 100 ever since it was established back in the 80s. So it's a very long-standing business, over 80 years old in total.

4:46But what we are is a developer and investor in essentially commercial property. And we own some of the most iconic real estate or develop some of the most iconic real estate around the UK. So the screens at Piccadilly Circus and all of that island site there, that's been a land set property since the 60s. The walkie talkie. We don't own any more, but we built that. We own the home of the BBC in the north, Salford. Blue Water shopping centre in Kent, Gunwolf, Keys in Portsmouth, St David's shopping centre in Cardiff. So what I think links all of that together is we're passionate about owning and developing places for the long term, not just buying and selling individual buildings and bits of real estate.

5:29So we think really carefully, I think, are pretty good at establishing places that over the long term can generate economic growth. They're going to be adapt and change and evolve to the changing needs of the people that are based there, whether they're shopping there, working there, over time living there. And because I think you get that right, you can evolve and adapt and be successful for the long term. And as an 80-year-old business, I think we've done that, I guess, reasonably well. Well, that's a really good setup for all the stuff we're going to get to. We're going to try and work through all those areas as we go this morning as well.

6:04Let's start because this has been one of your sort of more recent announcements. And I say recent sort of back end of, sorry, early part of last year, wasn't it as well? Pivot kind of away from where you'd really focused on, well, not pivot away, perhaps is the wrong phrase, but an interest in residential that you hadn't kind of had before. It had been really offices and retail, right? Yeah. A bigger push into that in this announcement that you were going to invest about£2 billion and that coming from the kind of offices bit of the business. Why? Why the thought and why the wants to get into that area?

6:36Yeah, we have about an£11 billion portfolio around the UK. Properties are a very long term business. The decisions we make now about what we choose to develop, for example, are going to lead to buildings appearing and being leased up and being part of the built environment in at least five years time. And you're making decisions that are probably well over a decade in terms of being confident about the demand and supply picture in particular. and when we look forward over the next 10 to 20 years at what the UK is going to need in terms of its built environment, one of the areas that is really clearly lacking is a sufficient amount of housing in the right areas that is appropriately affordable and so we're not trying to be a house builder within this but what we feel is we want to move a portion of our portfolio over time to provide professionally developed and managed rental property, built to rent as it's sort of been known.

7:37And it's a sector that's been around in the UK for probably in any scale, probably the last 10 to 15 years. And we own a couple of sites, so probably four now, in particular large-scale urban sites that we felt had the potential to deliver significant amounts of apartments effectively for rent in brilliantly connected areas, two in London, two in Greater Manchester. And in total now, we've got about 9 ,000 units that have a planning consent ready to be taken forward if we can make the other various bits of the equation stack up. But fundamentally, it comes down to the UK has a real shortage of housing.

8:16We all know that. I think the idea of just building houses and people buying their houses as being the only form of residential that can meet a housing shortage is is too narrow a view and the build to rent market can probably we think cater for 15 maybe even 20 percent of the housing need in the UK going forward so it's a critical part of the solution to tackling the housing shortage that we currently have in front of us. It opens up a right Pandora's box of all the kind of things I think kind of work right across your business don't they from planning to sort of various other pushbacks so let's let's use some of them as an example you've got this development in Lewisham in south east London haven't you that you're pushing ahead with at the moment got the first stage of kind of council approval for for most of it almost all of it that's right for for yeah so so Lewisham is a it's a it's a shopping centre it's it is the centre of Lewisham it forms an incredibly important part of Lewisham as a community but it's a shopping centre that was designed with a slightly a previous age in mind if you like it's a little bit too big it's very inward facing um it doesn't drive quite the level of growth and economic activity that we all frankly the community and london needs to see but there is an opportunity to use some of the surplus land there to deliver apartments to deliver housing and we now have a resolution to grant for well over 2 000 units across that site in multiple phases but really importantly it's also about retaining and adapting and evolving the the shop the kind of heart solution that's there it's not flattening something and replacing it with um kind of faceless apartments that's a really interesting kind of move isn't lots of people over a long time have talked about uh all these government reviews about regenerating high streets and city centers or whatever however you want to term them about mixing residential and and and retail and that's exactly what you're doing now i can think of your site in in cardiff thest david center if people know that in the middle flats on top of where the shops are as well how important is that in terms of that mix?

10:17I mean, I think it's incredibly important. The idea that, and maybe we thought like this 20, 30 years ago, that there are certain places you go and work, there are certain places you go and shop, there are certain places you go and live. I think those ideas are boundaries between those. I think those have long since moved away. Lines are very blurred. So having somewhere you can live in a city centre or a very urban area anyway, close to where you're working, close to where you want to sort of go out and enjoy and spend your leisure time I think those mixed communities have a huge part to play they're not going to be for everyone but I think there's certainly a real attraction and appeal to those that you can't really deliver if you're just suggesting you know you've got to commute 45 minutes every morning to there and then you've got to travel somewhere else if you want to go out in the evening you mentioned communities that's one of the challenges and again just using Lewisham because it's a recent one and it's going on at the moment the kind of pushback that people have people feel very passionate don't they about where they live and fear that they're going to be priced out in some way or another do you feel I mean gentrification is the catch-all term for that as well as developers are you responsible for that do you feel a responsibility for that do you factor that in when you make decisions I mean Lewisham I think is a really great great example I think the level of community engagement and two-way engagement with the community through all of the process of looking at ultimately designing a project taking that forward with the council the liaison with the officers with the with with the um you know the officials in the council as well as the local community it was a brilliant piece of engagement one we're really proud of um if you know often you look at uh planning applications and objections and letters of support i can't remember the ratio now but it was it was well in excess of 10 to 1 of letters of support versus letters of objection when we took that forward and one of the things we will look at is how is this serving the community that is already here rather than well we're just going to flatten this and build something that right that can make business sense right as well can it so it's not just about attracting i don't know higher earning people into an area where perhaps there were lower earners there before it can make sense to i think i think it can make business i think it's it would be it's very dangerous to just completely ignore that and just say well the spreadsheet says we've got to do x y and z and rent it this much you've got to think about how these things can last and and be successful for the long term because we're not a we're not a business that develops and then sells and moves on we tend to develop and then own for the long term so you've got to you've got to be delivering something that is going to be successful for the long term um it probably frankly adds another challenge into making all of these things stack up but i think it's one that'd be very dangerous to ignore.

13:03Because that's what I wonder about it a little bit when we're looking at examples around the country as well. Can it, there must be very limited places where it does stack up, I suppose, if you know what I mean, financially. Yeah, I mean, frankly, at the moment, doing development of this nature anywhere in the UK is not quite impossible, but very, very challenging. Why so? Very challenging. I think we're being squeezed. And we're not alone as a sector, as a business in the sense of door, but we're kind of being squeezed from both sides. So the cost of development, whether that's through inflation driven by materials or labor or regulation, all of which pushing cost up at the same time as interest rates, having gone through this sustained period of essentially free money from the early sort of 2010s through to the early 2020s.

13:58We're now back into a more normalized rate environment. So capital is a lot more expensive. That pushes downwards on value. So margins get squeezed from both sides. Does that practically mean they're kind of a no-go zones in bits of the country? I don't know if it's about no-go zones as such. things need to change in order for those projects to become that was maybe a bit tabloid but you know what i mean because when we're talking about growth and everything growing together the big anxiety i suppose in this country full stop wasn't it when we were talking to antonio simwas of uh of legal and general about this too is that too much of the development happens where we're talking in london and the southeast and not enough of it in other places and how we kind of shift that paradigm a bit yeah i mean i think that is that is without sort of data data challenge I mentioned we've got four projects in terms of those mixed projects that have big residential components to them.

14:49I see two are in London, two are in Greater Manchester. So for us, we need to be investing in areas where we can invest at scale and we can be confident that the long term prospects for economic growth are strong. And to a large extent, making sure that those regions, so Manchester is a sort of heart of Greater Manchester and that northwest region. and Birmingham and the West Midlands. I mean, these are big regional hubs that I think have the potential and indeed are delivering in many cases already economic growth for the long term. So that's there. There are then some other challenges and pressures that we need to work with and work with our local authority partners on to unlock.

15:31So let's flip it a tiny bit because we've gone from the kind of negative side of it. Pick anywhere you like, but where does it well and what does it do well that makes it a good place for you to go and develop and work? Well, I think rather than necessarily picking a place, the characteristics of the projects that I think are most successful and the ones that I would say we are most proud of is where there is a genuine approach of partnership. Because we can't just turn up and do what we want by ourselves. So if I take, for example, we're in the midst at the moment of early stages, but a major regeneration project in the centre of Manchester immediately adjacent to Piccadilly Station called Mayfield.

16:11Now, we're in partnership there with, amongst others, the council, but also Transport for Greater Manchester, Network Rail, all sort of parts of that. It's a 25-acre site. It will be a fabulous site in the fullness of time. But we're all having to take 10-year-plus views of these things. And I think without the partnership approach that we have all taken over the last three or four years to deal with the challenges of rising rates, rising costs and the rest of it, we wouldn't have got anywhere where we are today is that we are building two major offices into a market that is incredibly tightly supplied and we think we'll do incredibly well but we also have consent and are moving forward on residential around the first park I think that Manchester has seen for a hundred years so it's a it's but but we could never have done that by ourselves the council could never have done that by themselves it's only through working a partnership And there's tension that comes with that.

17:11We're not, whilst we all want to achieve the same thing, inevitably we've also got other external factors that we're all trying to balance. Absolutely. And there's sort of politics that comes into that, obviously, as well for the councils themselves, isn't it? And that's one of the things with the retail one, perhaps before we move into offices and the landscape there as well, is what counts as affordable housing? The rules sort of change a lot, don't they? Different people's perceptions of what counts. is it helpful is it clear at the moment from your perspective as someone trying to develop that and meet some of these targets um i mean you're i guess we're at risk of delving into an area that is kind of incredibly uh complex and i read somewhere is this right like a hundred different forms or something you've got to do for a kind of residential development of different kind i'm sure that there can be and i'm definitely not an expert in residential development to go through the different parts of it i i would say the thing that i feel is is is most important for us to understand is that for the last 40 50 years plus in the uk the way we've been delivering affordable housing is by effectively attaching it to private residential development and saying a certain proportion of a development needs to be affordable and then it's a variety of different um sort of types of affordable within that percentage um so as soon as private residential development becomes challenging you get an automatic sort of downward pressure on affordable housing delivery but to get that if we're going to stick with that mechanism to deliver affordable and you have to remember 50 plus years ago half of the housing delivered in the UK was being delivered by local authorities who now don't deliver any housing but if we want we're going to stick with that model we need to first and foremost say how are we going to build more homes and then ergo we should see more affordable housing at the time if if we always try and fix the affordable housing first we're just going to be dealing with a larger percentage of a very small number because the other side of the argument the other side of the concerns is isn't it that if it's all just driven by the primate side of it that that drives up the rents all around that area too yeah but but we will always look i mean so for example the projects we've already talked about we've got to think really carefully and deeply about the affordability of our of our rents we've got to understand it what proportion of someone's disposal of income is going to be you know they're going to be comfortable paying on rent there's no point us saying oh we can rent this out at a really high level yeah we've ultimately got to be comfortable that the demand is going to be deep and strong at the price points that we deliver and that can grow i just wonder if we're trying to have too many things at the same time that we can't have both right that we can't have lots of new housing but also loads of it kind of protected and ring fenced i think you fundamentally want to prioritize is do we want to deliver more housing and economic growth or do we want to deliver more affordable housing i don't think you can deliver both of those at the same time you've got to decide which one are we going to prioritize and which one will ultimately be a beneficiary of that huge part of that and it's going to lead us to the bigger bits of your business in terms of retail and offices as well it's obviously planning too and you've talked about local authorities and things as well yeah how easy is that relationship with planning departments around the uk you obviously deal with tons of them i mean planning uh i mean planning has has always been probably always will be and probably to an extent always needs to be challenging i think we've got to think carefully about what what we build because what we build is going to be there for generations and so we can't just go around uh building whatever we want to in the near term without thinking about how these things fit together longer term and what that means for you know the the cities the communities the environments that we're going to be spending many decades from here living in and around.

20:52So it should be challenging. Is it too challenging though? I mean, the government has promised to roll back a lot of this stuff. Are you seeing? I think it has proven in recent years to be far more challenging than perhaps it needs to be. I think the instincts of the government with planning reform and a number of the measures that have been announced recently and the things that are being consulted on at the moment. I think the instincts of government are right and I think are to be commended in terms of what they're trying to do. I think whether it's in terms of trying to de-layer and reduce the complexity of the process, whether it's trying to give more focus on national policy so things can't be so easily delayed, deferred and sort of scuppered more at local levels for things that have more of a national significance.

21:43looking for a presumption in form of greater density of development in urban areas. I think these are all big positives. The challenge is taking it from policy and intent through to actual delivery on the ground. And whether it's planning, whether it's any, that is where the challenge I think is. And what do you sense that is? Is that money that moves that? Is that will? Is that sort of stripping out of processes? What is it? I mean I ultimately I think it's just a laser like focus on delivery is this really really important if it is really really important let's get our best people and our best resources on it and make things happen and really clearly measure what it is that we're trying to trying to deliver and if we don't have that then I think the things sort of start to dissipate and you don't get the output that quite matches the intent and to that point is it slightly incongruous that a company of your size 11 billion pound portfolio and FTSE 100 company is sort of dealing with very small local authorities for enormous projects should projects of the kind of size that you work on should they be national should they be in the house should there be a sort of separate planning system I guess that's centralized I think it's I think it's a it has to be a balance on one hand you can't have a a local community a local government ultimately being the the arbiter of decisions on investment that are of national significance and you know there are plenty of things we do that aren't of national significance but you know some of the things arguably are and certainly other you know infrastructure type projects are probably a better example of that but then equally you don't want to be at the other end of the spectrum of uh just imposing national will on particular areas and so i you know there is a complexity i understand the complexity and the balance to it the balance has been in the past far too much towards the local control.

23:27I think the balance is moving back and the intention is the balance moves back a little bit more towards more national direction and strategy. I think that's the right direction of travel. Making it happen is of course challenging but is vital. But needs to keep moving and move at pace I presume. Yeah I mean anything that's going on at the moment needs to be going faster than it currently is. Office is still the biggest part of your business by some distance. Yes it is yeah. Such an interesting area isn't it post-pandemic. Talked about all the time i bet anybody listening listen to their radio watching the tv clicking open a news website will see some story about one company or another uh changing their hybrid working bringing people back to their offices saying you could not work there what's the picture what's the landscape broadly before we get into it at the moment uh i think that the landscape ultimately is the different businesses and different parts of different businesses are figuring out what works best for them still but fundamentally i think still working that out but it's not a one size fits all approach we've definitely seen examples of of employers being more strict about things on work from home others that i think continue to be uh more flexible within that but i suppose what's most important to us is how is it translating into the utilization and demand for our office space so as you say it's still the biggest part of our business it's about 60 of our business by value It's about 50 % of the rent that we collect is coming from offices in the main in central London.

24:53We are over 99 % occupied across a 5 million square foot portfolio. So we're essentially full. Now, people are using that space quite differently to how they might have used it a decade ago. But we are essentially completely full. And if I look at we've got a couple of new developments that we'll be completing over the course of the next six months. and so we're leasing up brand new space again in the centre of London and the indications of demand are similarly strong for that. But I think it is focused on a certain type of office. I don't think you could just assume this is the case across the rest of London or indeed across the country.

25:32If you're really well connected in terms of transport, if you've got lots of amenity stuff to do in and around the building, if you've got a flexible, adaptable office space and if you've got the right sustainability credentials energy performance energy efficiency that's where all of the demand is concentrated and there just isn't enough of that space but it's the reason for your diversification i'll move away from that word pivot because it's wrong is in diversification into getting into some more of the residential stuff that we've been chatting about because you worry about that demand going forward and if so what are the things that kind of keep you worried about where that demand might be and 10 as you say those long-term decisions Yeah, I mean, we have a finite amount of capital as a business.

26:13We've got our£11 billion portfolio. Hopefully that's growing in value, but we've got to decide where do we want to have that capital invested. I certainly look at the outlook for office demand and office rents on a, say, five-year view, and we can be very, very confident in that. but I can look at the demand for residential and take a 20-year view and be really confident so it's not a case of being nervous about one it's just looking at the relative confidence of those just to use those two examples that I think there's a stronger case if we can make the the math stack up for having a proportion of the portfolio focused on build to rent.

26:51Are we still in the mix of the volatility around hybrid working do you think you know you were saying people working it out are we still really in the kind of the foothills of that we don't actually know how much office space people want to use how much of the time how they want to use it all that kind of stuff are we still confused i think it's more about how so we certainly saw a lot in the pandemic and just after people not sure how much space they were going to need and so you saw examples of people who might have lease events coming up where they need to make a decision on what they wanted to be doing for the next 10 plus years, looking to actually extend those events by a couple of years with their landlords so they could figure things out.

27:30I think where we are now is not how much do I need, it's how am I best going to use the space. So 80%, if you look at the last 12 months in the London office market, 80 % of the people who've signed leases have signed it for the same amount or more space than they had previously. so we you know i think there was a bit of of shrinking um back to post covid particularly from really large employers a lot of that we've seen reversing now and i can i can think of a number i would go through specific names but i can think of major employers who had decided they wanted to shrink their footprint have now gone oh hang on a second we we actually do need what we had before right where can we find space and there's not a lot of it is is the is the honest truth what about ai is the challenge to that lots of those companies the type of companies you're talking about and the type of parts of the city of london for example are the ones that are right on the forefront of this what looks like a kind of revolution in in who does what work between ai and human being how much have you had to factor that in uh certainly something we think about a lot um right now we've just a bit about three or four months ago uh finished a new quite small office development of our flexible office um offers up near king's cross that's leasing up pretty rapidly at the moment a significant proportion of the people that are taking space there so these are smaller office suites in sort of flexible um high-end type office space a lot of those businesses taking space are ai businesses and drawn to the fact of a sort of tech type ecosystem in and around that part of king's cross so there's a new part of demand coming through so I think that's very interesting.

29:06We then spend a lot of time talking to our major customers. We have a lot of law firms, a lot of professional services firms. And, of course, they're grappling with, well, what's going to happen to my workforce? What do we need? And the sense we get from that, and no one's got the correct answer, of course, on this. The sense we get from that is the nature of roles and the nature of jobs going forward is going to change. There'll be in 10 years time, there'll be a huge number of jobs that probably don't even exist today that are created as a result of this. What I don't see any evidence of is people saying, oh, this is suddenly transforming.

29:43We need a lot less space. If I look to all of the law firms at the moment who are currently looking for office space, either to replace or extend what they currently have over the next five years, there's probably one and a half to two million square feet. That's a bit of an abstract number that means lots to people in the property world and a lot less to other people. That's a lot of office space. And they'll be signing leases that will be probably 15-year leases. So they're confident in their requirement for that space on at least a 15 to 20-year view from where we sit. But that must be such a complication for you as kind of leader of your type of business because it's just changing so fast, isn't it, this AI world?

30:22I mean, what was it? Two weeks ago, Anthropic comes out with another product and seems to completely shift the game as well. How do you and you guys kind of keep up and compete with that, I suppose, to make sure that your offer is going to match the pace of that charge? I mean, ultimately, I go back to what's the driver of demand. You need to have office space that is brilliantly connected, highly amenitized and highly sustainable and flexible. And so it's more about making sure you've got those basics right. And then who actually occupies the space, how they use the space they occupy. That'll change and evolve over time.

30:56And we've got a very different occupier base today than we had 20 years ago. I think Victoria is our largest part of our portfolio in central London. If you go back 20 years in Victoria, it was much more about government departments. It's now very significant financial services, professional services. It's an incredibly successful employment hub for those types of businesses and very little in the way of government occupation. Is it about city centres again then a bit? Do you think? I mean, I was thinking I can think of a few really big companies that we cover deciding to come from sort of out of town sites right into the middle of big cities again.

31:35There are definitely still people looking that may have been out your business parks or slightly out of town, which might work well for a certain proportion of the employee base in terms of commuting, perhaps. But there's not necessarily a huge amount going on around there. and you can appeal to a much wider range of potential employees by being in a central location that's really well connected in terms of transport. And people don't need to be in typically now for five days a week. I think there's a lot of benefits from hybrid working undoubtedly. But for us, it means people need to be in those right locations, right you know flexible um space that they can adapt and change as their needs uh adapt and change i'm guessing that's true for retail too which we'll come to in one moment just one final one and kind of ai and things like that did you think about you guys i remember before your time your predecessor talking about potentially missing the kind of boom in warehouses at the time when online shopping exploded did you think about you haven't as far as i'm aware got a very big exposure to kind of data centers and building data centers going to be the sort of backbone of this ai revolution was it something you thought about getting into i mean we will always look at sectors that we're not invested in um but i think for me the really important principles of a business is you need to understand where your competitive advantages where can you be successful where do we think we can win for for the long term and we don't really know anything about building data centers um it's a rapidly evolving and changing environment you know we saw the stuff from deep seek last year suddenly having a a big bearing on what level of compute is going to be needed going forward i think there's a huge amount that we don't really understand um that but if i compare that to residential as a as a sector we're not currently particularly invested in but want to grow into i think we feel our development capability our experience in complex urban development our relationships with um our local authority partners our ability to build places that can adapt involve and change over time all of those skills feel transferable to that sector building vast data centers um with epic power requirements is not something we have uh experience of and it would feel like a bit of a stretch for us to to move into that just because that's the kind of the the current fad if you like well let's come back to your bread and butter again And then retail, I'm going to rattle a few off here for people around the country.

34:02St. David's in Cardiff, Blue Water, Kent, Trinity, Leeds, Gunworth, Portsmouth, Liverpool, One, even sort of smaller developments, right, in Gloucester and places like that as well. Are we seeing a resurgence of the kind of shopping centre? I think what we're seeing in the retail space is we had a huge amount of change that I think everyone will be very aware of in terms of the emergence of online. And that's had a deep and profound longstanding impact on the amount of retail space that we need in the UK. And consumers have responded to that. Retailers have responded to that. And what we see now is both consumers and retailers focusing their investment and their spend on fewer, bigger, better locations.

34:53So if you have a truly dominant destination shopping center, that's where people will gravitate towards to spend their money. That's where retailers look to invest in their stores. So we've got so many examples in our portfolio of retailers doubling or trebling the size of their stores. You look at some of the most successful retailers in the UK. They're reducing the number of stores, but they're not reducing the retail footprint they have. What they're focusing on is fewer, bigger, better stores in these great locations. So we have this extraordinary statistic, really. But there's a consumer data business called CACI, and they track where people in the UK, consumers spend their money.

35:35And they use payment provider data to get that. And there are 6 ,000 individual locations they track. the top 60 of those one percent of those locations a third of the uk population spends money in during the year in that top one percent it's it that the it's extraordinary just how focused that is now that's not going to be where they're going all the time but at some point in the year a third of the uk population spends money in these top 60 locations that's where our portfolio exists and you know we've talked about development and these sorts of no one is building any more shopping centers you know if we bought liverpool one uh as a as a which is a fabulous center it is the heart of liverpool in many ways uh we bought that for around numbers 500 million pounds uh just over a year ago if you wanted to build it today it would cost you probably three times that so no one's building any new ones so in terms of us having to think about where's competition we don't need to worry about someone building a new shopping center next door that's going to take retailers away so i think there's a really long-term trend now of those best destination centers if you can invest in them and and keep them appealing and evolving and changing over time you want to see shoppers continue to go there retailers continue to invest so i it's it's the yeah business speaking really but it's our it's our highest conviction sector by by quite a long way at the moment interesting and so do you think then as rocks we've heard lots haven't we about the falling kind of rents in those places and conventional high streets as well because obviously of what's going on is that improving is that recovering yeah it has been for the last uh it's probably two and a half years now so from the peak uh which is probably 2016 2017 to the trough which is probably 21 22 over that five or so year period the rents in in our shopping centers dropped by 35%.

37:30So it's pretty significant. Since then, we've seen probably an aggregate 15 % growth, and that growth is accelerating. Now, of course, if you're a retailer, that means your rent bill is lower, service charges are also lower, rates are also low. So the cost of occupying that best space is materially lower than it was a decade ago. plus you've shut a number of other stores that were less profitable and so your sales densities get increasingly focused into those fewer stores uh so i think we're well past that that um point and just to put it in context whilst the rents fell 35 percent the values fell 65 percent so it still feels to us a sector that is massively mispriced because of i think the the nervousness of what's gone on in the past.

38:21I was going to say, and how much the challenges then that they themselves, you know, had lots of them on this podcast and on the program as well, the challenges that they're facing around their business rates, consumer confidence, all that kind of stuff, how much does that, I don't know if it's the right word, keep you up at night? Bizarrely, actually, I mean, as I say bizarrely, I think sort of intuitively you'd expect that to be quite a concern. If I look at across our retail portfolio, again, all in that 1 % that I mentioned, those top 60 locations. You look at the last quarter of last year, sales in our centres were plus 5%.

38:55Now, the benchmark for all shopping centres in the UK was, I think, minus 0.2, so essentially flat. And that's just that concentration of spend into those locations. And I think that happens for a few reasons. And if you're a retailer, and you've had to absorb increases in minimum wage, NI, that is across all of your workforce. So if you've got a big store portfolio, there's a long tail of marginally profitable or perhaps loss-making stores that are now either become loss-making or even more loss-making. The business decision you make is to trim that unprofitable tail and to invest further in.