REAL ESTATE SECTOR INSIGHTS 2020 28th September 2020
Even before the global pandemic hit, our world was already undergoing various disruptions. Our lifestyles, along with working practices were evolving, with the retail sector experiencing a significant structural transformation, offices breaking conventional barriers towards more collaborative working and mass-digitisation altering methods of customer engagement and purchase.
The spaces in which we live, work and play were developing into an interconnected, sophisticated infrastructure, which now is challenged and complexified by the pandemic.
Real estate was evolving by increasingly combining multiple sectors and services within one space. From a retailer with café areas, to a co-working office space with a gym and restaurant to a mall with a theme park…. Real estate was being re-imagined, as consumers expectation raised the bar for brick and mortar experiences, blurring the boundaries of different sectors and subsequently, creating the catalyst for urban disruption.
The pandemic has affected the various real estate sectors in different ways. Here we explore what those are.
Offices & Co-working Spaces
Corona disrupted workplaces heavily from a cultural, structural and design perspective. It is affecting corporate hub location strategies, office design and organisation as well as new employee practices.
A report by MIT in April 2020 confirmed that 34% of Americans who previously commuted to work were staying home. Before COVID-19, the number of remote employees remained at 4%.
Moreover, according to the Savills Global Sentiment Survey of research heads in 31 countries around the world, 84% of respondents expected home working to somewhat increase, the remaining 16% expect it to greatly increase. Supporting this, is Cushman & Wakefield research that has captured more than 2.5 million data points from workers all over the globe in the pre-COVID-19 era and a further 1.7 million data points from more than 50,000 respondents in the current work from home environment – based on this, 73% of the workforce believes companies should embrace some level of working from home.
It is fair to say that office working will come back but not completely; the rise of digital adoption has played a significant role in transforming the way people work, given the flexibility it allows. Moreover, numerous employees have been liberated from time-consuming and expensive commutes, finding more productive ways to use that time. As for organisations, working from home and digitisation has made them realise that they can access new pools of talent without location constraints, embrace innovative workflows and significantly reduce real-estate costs.
Whilst it seems, many have enjoyed ‘working from home’, it is not the case for all. Every company and culture is different, and the ‘WFH’ set up has been propelled by an unprecedented pandemic, thus it is hard to say whether – corporate cultures and communities will dissolve over time without physical communication, and whether the current success of ‘WFH’ has been because people have considered it as temporary. However, the key aspect to note is the role of the office, which caters to human connection, culture and community; these aspects have gained greater importance after the emotional and mental impact of the pandemic.
Brick and Mortar & Retail Spaces
Before the pandemic, retail and high streets in the UK were suffering due to e-commerce flourishing, lessening the demand for physical retailers. Technology and elevated expectations of digitisation was also permeating across the shopping experience. Due to the lockdown restrictions, online shopping significantly accelerated and forced the on-boarding of more traditional consumers. As Keith Weed, Unilever’s RMCO expresses in Campaign Magazine: “In the first 2 weeks of UK lockdown the number of people shopping online rose to levels not anticipated for 15 years.”
UK retail e-commerce sales will account for 27.5% of total retail sales this year, and that proportion will approach one-third by 2024. The post-pandemic hit to physical retail will be felt far into the future. E-Marketer, 2020
However, following the emotional impact of the pandemic, consumers will continue to seek out convenience and community-led retail concepts and offerings. Consumers had already shown interest in more engaging retail experiences. Therefore, the surge in online shopping will result in reimagining retail spaces and the value of brick-and-mortar stores. According to the Retail Expo Report, 73% of customers will spend more money and time in-store offering experiences.
The hotel market and hospitality sector were quickly the hardest hit by corona. The main issue remains the demand amid the constraints of international lockdown rules. Whilst the interest in travel for leisure persists, global government restrictions are likely to drive consumer demand towards local holidays and domestic travel over international.
According to global hotel consultancy HVS, 60% of UK hotel demand comes from domestic sources and, as many UK residents are likely unwilling to holiday abroad, domestic hoteliers are benefiting and this may even help some stay in business until international tourism picks up again.
However, in the long term, travel for business has inevitably decreased with the shift to video conferencing, a trend we believe is likely to continue even post-corona, with the business travel sector predicted to lose $810.7 billion in revenue this year. Hotel Tech Report, 2020
Although hotel sector performance currently depends on travel restrictions and rulings, we believe that the psychological impact of the virus has only intensified the interest in wellness – an area for hotels to tap into through the likes of outdoor-led activities, and nature-focused wellbeing retreats that also adhere to corona restrictions.
While “billions will be lost in the wellness industry in 2020 because of months of shuttered brick-and-mortar businesses,” said Beth McGroarty, vice president of research for the Global Wellness Institute, “at the big-picture, long-term level, the case for the wellness concept and wellness markets post-pandemic looks very bullish.”
Healthcare Centres & Clinics
Health and healthcare have never been more front of mind, preceding the pandemic, the worlds overall demographics made the likes of senior housing a critical market. The increasing ageing population has propelled the growth of health clinics, independent hospitals, elderly care homes and primary care centres. Real estate portfolios are becoming progressively complex, diversifying to cater more and more to outpatient care; for instance, in the US, outpatient visitation increased by 25% throughout the past decade and will continue to do so. Med City News, 2020
With wellness intrinsically linked to health, a new emerging trend is the new types of health spaces that are taking inspiration from the retail industry. Especially with regard of viewing patients as consumers and making sure the centres are positioned in key locations whilst providing a mix range of services that suits the customers’ lifestyle. According to Savills, 43% of countries expect to see a positive impact on investor appetite for the healthcare sector.
Residential (Co-living spaces, Single-family housing…)
The residential sector is currently resilient, yet sub-sectors can differ, i.e. family housing vs co-living spaces. On one side, the pandemic has caused a mini-exodus out of dense cities and city-centres – with the forced lockdown measures; people aimed to stay with their families and move to locations with more outdoor space. Subsequently, benefiting the single-family housing market and casting a fresh light on areas outside of key cities.
The digital adoption during the pandemic has led to a more fluid work-from-home experience, which has the potential of exacerbating the level of urban flight on the long-term due to the quality of life outside of cities. Although it does not mean that people who had fled denser cities aren’t to return, yet peoples’ mindset has evolved.
A core feature for residential real estate is their investment in digital-sales and leverage of digitisation – using VR, AR and various omnichannel strategies to help potential buyers and renters find their desired spaces. Virtual viewings and such has taken a front seat during the pandemic and is likely mature and play a key role in commercial real estate sales on the longer term.
The global impact of coronavirus has affected somewhat differently each sector within the real estate market. Nevertheless, the meteoric shift to online, the rise of technology along with the significant emotional impact of this health crisis, are key features that have affected every sector.
The pandemic has accelerated digital adoption, which subsequently:
- Created new ways of working (virtual meetings, sourcing talent etc.)
- Increased expectations regarding convenience, especially across retail. (online shopping, delivery etc)
- Amplified the use of innovative technology for digital sales (VR, AR etc.)
The emotional impact of the pandemic has:
- Further intensified the interest in wellbeing
- Boosted the need for social interactions and positive corporate culture
- Accelerated the focus on community-led experiences and benefits