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There is little doubt that COVID-19 has brought much uncertainty to the real estate industry, but it has also solidified several ongoing trends: the digitisation of work, the transformation of physical retail, and the shift towards ESG considerations. These trends will have a significant influence on how real estate markets will fare over the coming years, and understanding their longer-term impacts will be key to future success.

Recognising the urgent need for strategic transformation, our real estate practice leaders from around the world came together to share their thoughts on global developments and local perspectives. Our report also includes the highlights of a virtual panel, poll data collected from the panel participants, as well as key takeaways for real estate owners, investors and operators based on the themes discussed.

  

A world re-oriented

Even in places where office and retail doors have reopened, all signs suggest a world re-oriented.

What is clear, is that this experience has forced many to reconsider the link between environment, society, good governance and profit, and that has sharpened minds on the need for greater focus on ESG criteria and investments. Many now see the disruption as an opportunity to rebuild greener economies.

Two realities must be also recognised: the first is that the recovery will likely be slow, uneven and erratic. Most respondents of our poll expect it will take a few years before the global economy will recover to pre-pandemic levels.

The second reality is that there is still significant capital sitting on the sidelines waiting to be deployed. Real estate continues to prove itself a strong defensive move; margins may be down and risk may be up, but returns still often outstrip those offered by government bonds or treasury bills.

Ask the industry: Few industry executives expect the global economy to recover within the next year, chart

  

Explore the trends

The digitisation of work

The immediate effects of COVID-19 on office, commercial space and central business districts are by now fairly clear. Even in places where offices have reopened, signs suggests that few ‘white collar’ workers will fully return to the traditional 9-to-5 day at a commercial office. Many employers are also using the opportunity to embrace virtual work and rethink their real estate footprint.

Recovery for the sector will likely be slow, uneven and erratic. However, there is still significant capital sitting on the sidelines waiting to be deployed, and real estate continues to prove itself a strong, defensive and long-term move.

Transformation of retail

COVID-19 continues to pose significant impacts on retail real estate. Even in places where retail doors have reopened, many customers are not returning to retail halls in the same way – partly due to ongoing fears about the risks in social interaction, but also due to increasing preferences for online shopping.

Recovery for the sector will likely be slow, uneven and erratic. However, there is still significant capital sitting on the sidelines waiting to be deployed, and real estate continues to prove itself a strong, defensive and long-term move.

The shift towards ESG

The COVID-19 pandemic has forced many to reconsider the link between environment, society, good governance and profit. That has sharpened minds on the need for greater focus on ESG criteria and investments. Many also now see the disruption as an opportunity to rebuild greener economies.

Recovery for the real estate sector will likely be slow, uneven and erratic. However, there is still significant capital sitting on the sidelines waiting to be deployed, and real estate continues to prove itself a strong, defensive and long-term move.

Five key takeaways

The high level takeaways below suggest a new reality for the real estate sector — one where digital transformation, enhanced flexibility, trusting relationships and a holistic approach to ESG considerations are required to deliver true competitive advantage to real estate owners, investors and stakeholders.

Digital transformation is key

One of the biggest legacies of this pandemic will be the acceleration of digital transformation. The impact of digitisation on asset classes such as office, retail and leisure space cannot be underestimated.

 

ESG is here to stay

Across all real estate sectors, people are looking for truly sustainable assets and products. Real estate owners will need to consider what that means for tenants, investors and other stakeholders.

 

Invest in trust

Every action speaks volumes about your organisation. The need for trust between tenants and landlords has never been stronger. Focus on building relationships and improving communications to ensure you are working together with key stakeholders.

 

Enhance flexibility and resilience

While markets remain in flux, everyone is looking for agility and flexibility. In this environment, data and analytics, combined with keen scenario planning, will lead to more strategic decision-making.

 

Assess the M&A environment

With significant investment capital still waiting on the sidelines, asset managers, private equity and sovereign wealth funds are looking for new acquisitions. Expect significant competition in ‘safe’ sectors and geographies.

 

  

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