It is true that in times of national emergency the greatest leaps in innovation are made. Usually this is in times of war, but COVID-19 has provided a further example for when this may happen. But what does that mean for the real estate industry?
I believe that the outbreak will accelerate the longer term trendline – but it will not fundamentally change the course we were already on.
For retail, the internet shopping trend was already eroding the need for the existing floor areas, shrinking retail centres and accelerating the depreciation of existing buildings. Retailers who were already no longer competitive will fail quicker than they otherwise would have resulting in a greater oversupply of retail space.
For others, COVID-19 has accelerated their internet retailing capability which will result in a repositioning of some of their portfolios. For some, who provide more of a consumer / showroom experience, the browsing nature of their outlets will cause some short-term pain but these occupational costs were more part of the overall marketing budget (i.e. Apple Stores).
For industrial, the increase in last mile logistics and storage for the internet retailers was already a material factor in the strong demand for better quality small to medium sizes units. That trend will continues with a renewed vigour with new players in the market and an expansion of others.
BREXIT had already highlighted the need for additional storage for manufactures within the UK to protect their supply chain and the supply challenges resulting from COVID-19 has only highlighted this further that the “just in time” model needs more resilience.
Initially, the death of the office sector was feared as technology has proven that effective remote working is possible, providing a boost to those seeking a better work / life balance. However, there is now signs of working from home fatigue and that employees miss the office interaction environment. Also some work aspects cannot easily be done from working.
The need for offices will continue but in a revised form.
The office of the future needs to be a productive and collaborative space that provides an environment that team members want to commute to engage and share ideas amongst their colleagues. The office environment needs to provide benefits that outweigh the expended resources it takes to commute in.
This means that an office needs to provide efficient, flexible and enriching space that is tech enabled and provide employees quality space – a trajectory we are already on with a greater investment by companies in their real estate and how they use their offices – such as providing breakout areas, studio space, cafes etc.
In the COVID-19 world the higher density areas of desk space will need to be reassessed but as homeworking for part of the week becomes the norm for most workers the need for hotdesking, with easily cleanable workstations, will prevail. New office buildings will adapt with greater use of contactless features, such as security barriers, lift controls, automatic doors etc.
COVID-19 will impact the real estate sector but only so far as accelerating the depreciation of outdated (whether physical or occupational) stock. As weaker companies fail, productivity will improve with a great focus by businesses of investing in quality real estate.