A Fund managed by Swiss Life Asset Managers UK Limited
A Fund managed by Swiss Life Asset Managers UK Limited
The article below was published in Expert Investor Europe on 16th February 2021. Access their on-line version here or read the full article below
16 February 2021
Six ways to capitalise on post-Covid property trends
The unprecedented environment unleashed by covid-19 had a profound impact on the property market in 2020.
In addition to a halt in construction and sales, the occupational landscape was also distorted as a result of the structural shifts accelerated by the pandemic.
From home working to online shopping, it is clear the post-covid property market will be fundamentally altered – as people make lasting changes to living, work and leisure arrangements.
This new environment will create opportunities for investors able to align themselves with these important adjustments, writes Tom Duncan, senior associate, research, strategy and risk at Mayfair Capital.
Below, he identifies six crucial themes investors can capitalise on over the course of 2021.
Environmental solutions needed
Environmental issues have been rising up the real estate agenda for some time, and rightly so.
While the pandemic focused minds on more pressing concerns in 2020, we expect the environment to return with new impetus this year.
This concerns the natural environment and the move to net zero emissions, which will be turbo-charged by the new US administration.
It also encompasses the physical environment, as the importance of health, wellness and social sustainability in the places we live, work and play has been brought into stark focus by recent events.
Real estate will be expected to offer genuine solutions to climate change, user wellness and community cohesion.
Focus on flexibility
Flexibility will be prominent in 2021.
This is not just about flexible leases, although they will certainly become more prevalent in office and retail markets, as a response to weaker occupier demand and continued business uncertainty.
There will be a fresh focus on worker flexibility.
We expect most office-based companies to adopt flexible arrangements, empowering workers to choose where they work and when.
This shift will require offices to be more flexible and capable of accommodating fluctuating numbers of employees undertaking different activities on different days.
Successful offices must deliver real value to companies that can now choose not to take a physical office and will be more demanding of landlords.
We foresee more building use flexibility as the lines between office, retail, leisure and logistics assets blur.
For example, traditional offices may accommodate everything from cafes, shops and last mile logistics through to fitness studios and data centres.
Categorising real estate into distinct sectors will become harder than ever.
Partnership models will prevail
The pandemic has forced landlords to communicate much more with occupiers.
In the hardest-hit sectors like retail and leisure, bespoke arrangements for paying rents or renewing leases have been negotiated after honest discussions about the challenges for each business.
This approach treats each occupier as an individual, rather than a generic rent payer, and creates a tailored solution.
As real estate becomes more operational, the landlord/occupier relationship will become more of a partnership model with occupiers and their staff viewed as customers.
This is likely to lead to what could be perceived as riskier income streams due to shorter leases, turnover-based rents and potentially weaker covenants.
Asset management and capex costs will be higher as buildings become more hospitality based and need to respond in real time to user feedback.
Ultimately though, with the right product and the right partner, landlords should see more resilient and profitable income streams from happier customers.
The rebirth of cities
Cities have had a hard time lately, given they have been at the sharp end of coronavirus restrictions.
When society emerges from restrictions, we expect cities to regain their ‘mojo’. Cities provide a hub for sharing new ideas and experiences, inspiring creativity and bringing people together.
As we move towards a post-pandemic world, we expect cities to nourish the pent-up demand for physical and mental stimulation, human connection and meaning.
Repeated surveys show most employees miss being in the office at least some of the time.
High consumption during periods of looser restrictions show just how much people want to go out and spend on social and shopping activities.
Cities are the epicentre of work, leisure and entertainment, which is why they have thrived for centuries despite wars, famines, fires and pandemics.
Transformation takes hold
We expect 2021 to be a year of transformation.
The pandemic has accelerated many of the structural changes already underway, such as flexible working and the rise of e-commerce, and forced the evolution of business models.
Last year was hard for many businesses, with high street retailers going bust and office lettings taking a hit, but it has brought forward much needed adaptation.
This year, we will see more offices pivot towards providing the type of amenity-rich, multi-functional and engaging space the new world of work demands.
We will see more failing retail parks repurposed for urban logistics or to provide much needed housing.
We will see former department stores reimagined as co-working spaces, food halls or co-living developments.
Last year’s pain will allow us to gain from more purposeful and relevant real estate.
Individualism underpins all
Individualisation, a concept which elevates the importance of every human as an individual, is becoming an increasingly pronounced characteristic of Western society.
Each of the trends outlined above is underpinned by a higher weighting afforded to individual needs, preferences and experiences in the way we live, work and play.
Increased tailoring to the individual is driving a greater focus on personal environmental impact, preferences in how we work, bespoke rental solutions for businesses and choice in how we spend leisure time.
This refocusing of human needs is triggering the transformation of newly obsolete real estate.
If the individual is becoming more powerful, real estate owners and investors must cater to individual human needs by providing responsive, inspiring and empowering space.
A cookie-cutter approach to real estate development, ownership and management will no longer work and a more bespoke human-centric approach will become the order of the day.
Tom Duncan
Senior Associate, Research, Strategy and Risk