There are convincing arguments to either maintain the more flexible work practices of the lockdown period; or return to the office for the sake of productivity. The new reality will likely be somewhere in between and investors in real estate, especially offices, will need to adapt to this new reality.
From its nascent stage, the COVID-19 pandemic has defied almost every economic prediction and in March 2020, offices, stores and restaurants emptied out faster than expected. The stock market tanked and unemployment increased. But what many feared would be a long and devastating economic downturn didn’t happen as predicted. The economy, along with the real estate sector seems to be recovering.
To many, the property sector may look remarkably the same as it was before the pandemic. Here’s a shocker, It isn’t! according to an Emerging Trends in Real Estate 2022 report by PWC. Here’s why?
- Climate change conversation
Late 2021 may be remembered as the time much of the world finally began to take climate change seriously and the outcome of the conversation concluded that nations must act now to save the planet from even worse weather disasters.
What does that mean to the property sector? According to a UN Climate report, the sector is the largest contributor to greenhouse gasses and global warming. Buildings account for upwards of 40 per cent of global energy use and carbon emissions.
Climate change can seem to be an intractable problem, too big to solve. But the property sector is ideally positioned to help reduce impacts and increase resilience to environmental risks. The question investors will have to answer is how to begin the use of alternative sources of energy instead of diesel-powered generators, materials used in the production of construction and how they are sourced among other issues.
- The pandemic
Though the pandemic has spared no state or city, its impact on the property market now diverges in ways significantly different than in the last recovery. That divergence means that some sectors, like industrial properties, have barely paused because a surge in online spending spurred tenant demand. The same is true for multifamily properties, with tenant demand still increasing and rents back to record levels throughout much of the country.
Despite this surge, the pandemic accelerated the retail property sector’s long slide, with store closings and vacancies rising. The only exceptions are grocery-anchored centres, dollar stores and home improvement retailers, all of which are thriving. The office sector is, unsurprisingly, in the midst of a major reset—with vastly different outcomes based on location and whether a building has flexible layouts and better ventilation systems. Even so, vacancies are likely to keep rising. There are also records of companies closing down some locations.
Vacation travel is recovering, with hotels within an easy driving range of population centres appearing set to reap some of the greatest benefits. But business and international travel may not return to pre-COVID-19 levels for years. That would take a toll on hotels, luxury retailing and upscale dining that’s often fueled by company expense accounts.
The pandemic magnified an ongoing shift away from expensive downtown markets and toward smaller, more affordable ones. As a result, businesses need to stay nimble. In this case, uncertainty can be a curse or an opportunity.
- Technology:
The recent global health challenge has made the virtual world even more attractive not just to individuals, but to organisations. Now, everyone wants a parcel of land in the metaverse, turning a fraction of the attention away from the physical. The current crisis in Ukraine and natural disasters also did not help matters. Owners of businesses are beginning to flow with the tide of virtual reality and all the hassles that come with it.
Proptech:
Using data to measure and optimise the use of space is where the property market is headed. From 3D printed homes, smart houses, warehousing malls and office spaces, property managers want to provide and apply the data and insights to help tenants optimise the use of space.
Adaptation is imperative for office real estate managers. This new reality calls for managers to provide workspaces that meet tenants’ needs. How? By putting themselves in the shoes of people who need what they have.
These and more are what you have to put into consideration before investing in real estate post lockdown. Do you have any question or comment? Do share with us in the comment section.