The industry is now charged with understanding how the long-term megatrends that have been shaping its evolution may be accelerated or even put into reverse by the pandemic. Equally, real estate’s own cutting-edge problem solvers in the burgeoning proptech sector are eager to find out if this is their time to grow. “The global pandemic is driving the prioritisation of health and safety across commercial and residential real estate. As we navigate how we work, play and live in this new reality, technology will be key to building the proper infrastructure and safeguards,” suggests Kitty Sullivan, Director of Investment at proptech venture capital firm JLL Spark. Before the property world had even heard of coronavirus, the real estate industry was on an evolutionary path defined by some big-picture trends. Themes such as urbanisation had switched investors on to assets including flexible offices, last-mile warehouses, residential and student housing. In parallel, the experience imperative and technological change were altering the way that people shop and spend their free time.
Countrywide lockdowns, requiring citizens to shelter in place and limit their movements, have served to both reinforce and defy some of these long-term trends. Experts are now asking if they could derail or even halt the urbanisation shift, although JLL research suggests it is more likely to provoke a rethink in urban design, increasing the need to develop truly scalable smart city solutions. More specifically, while quarantine measures have underlined the value of residential and logistic assets, they have arguably altered perceptions of the role of workplaces and deeply impacted bricks-andmortar retail.
Analysing the different impact on asset classes
Although there have been some winners in the latter category – namely amongst grocery and essential goods retailers – the overall picture has been bleak. Retail in particular had been taking the fight to e-commerce by offering highly social, in-person experiences, from increased F&B provision to a greater leisure offer. Social distancing and hygiene protocols have deeply compromised that socialising trend.
Yet the outlook isn’t all negative for commercial real estate. “Claims that Covid-19 will be the beginning of the end for the office as we know it are largely overdone,” suggests Zachary Gauge, European real estate analyst at UBS Asset Management. “We expect occupiers to pay an increasing premium for flexibility, quality of office space and core central locations. But offices are not expected to suffer the same level of negative capital growth that retail is, due to structural shift, as the sector is much more adaptable and underpinned by alternative use options.”
Equally, human desires to socialise and the experience trend aren’t likely to go away, creating a blueprint for the revival of retail. A study of consumers in China by Kantar during the height of the Covid-19 lockdown asked what people most looked forward to doing once restrictions lifted, with “dining out” the most popular choice at 65 percent. “Shopping” (58 percent) and “entertainment”
(55 percent) were also high on respondents’ wish-lists. Jonathan Doughty, Global Head of Foodservice, Leisure and Placemaking at ECE, thinks that such experiences will remain central to retail success. “We have all had to spend time away from friends and family and the natural meeting point is around food and drink,” he notes. “We expect the growing importance of options such as local and healthy food, serviced restaurants, casual dining and entertaining concepts to continue.”
Meanwhile, shopping centre landlords who work with their occupiers to support their digital dimension, as Sonae Sierra did during the lockdown by creating e-stores for its mall tenants in Portugal, will help the industry bridge difficult times.
Proptech companies have a host of possibilities
Looking at the upsides of the crisis, funds that have shifted allocations to residential and industrial in recent times have largely seen their faith repaid this year. European transaction data from CBRE for the first half of 2020 found that logistics and multifamily assets outperformed other sectors, with the latter closing the gap with offices, traditionally the largest asset class. H1 investment volumes into multifamily reached €33 billion, up 37 percent on the same period last year, compared to a transaction volume of €41 billion for offices. Investment into logistics reached €15 billion, a 5 percent increase on the same period last year.
Meanwhile technology, a key player in our lockdown lives, now has a golden opportunity to prove its place in the property world. “Pre-pandemic, there was a lot of hype around proptech,” notes Chakra Banerjee, co-founder of data aggregation specialists Tower360. “It was frequently seen by the industry as a nice-to-have, rather than a must-have. There’s going to be a much sharper focus now on asking: Is your solution going to help me save costs or generate more rent? We have been creating solutions for rent relief requests and tenant relationship management, as the costs of losing occupiers and prolonged vacancy are higher than ever, particularly in a stagnant, post-pandemic market.”
“Covid-19 will have lasting effects on how people live, work, and play,” suggests Erik Guertler, founder and CEO of artificial intelligence experts Edge AI. “Investment managers may realise that the transition back to normality will require greater use of AI technology to early identify real-time market developments and what may be permanent changes for the industry before making any new decisions.” Says Sullivan: “Digitalisation of commercial buildings through tools that support social distancing, increase sanitation, and improve health and safety needs will be critical for recovery. Technology and digitalisation enable data-driven decisions, simplify collaboration and improve automation for more seamless experiences. “The world has changed so much in the past six months, but it has also uncovered how proptech can expand beyond physical offices and buildings. Our new challenge is connecting the dots in a disrupted and distributed real estate industry.”
