PwC and the Urban Land Institute have recently launched the Emerging Trends in Real Estate® Europe joint survey, exploring a cyclical downturn juxtaposed with long-term structural changes to real estate.
The survey presents a sector in flux: the COVID-19 pandemic; government responses; the environmental, social and corporate governance (ESG) agenda; and push towards net zero and the acceleration of blurring of previously distinct asset classes are all driving significant change.

 

‘COVID is a game changer to the property industry, like the global financial crisis was, but even more disruptive. As well as introducing uncertainty, it will continue to impact our prospects by accelerating a lot of things that were going on in our business anyway,’ a global asset manager Director says for the PwC survey.

 

 

Key Trends highlighted in the Report:

 

1. CAPITAL IS PLENTIFUL BUT PAUSED

 

A positive observation from the survey is that capital remains plentiful. Unlike the 2008 global financial crisis, after which capital receded dramatically, this time most investment managers report the existence of pent-up capital, often raised before the pandemic, which still needs to be deployed.

 

2. INVESTORS TURNING TOWARDS DOMESTIC MARKETS

 

Globalisation has been a constant backdrop to the market for the last decade or so, bringing with it an expectation of high and rising levels of cross-border investment, PwC report states. It however reveals that in 2020, this is changing.
Investors are increasingly turning to domestic markets rather than looking overseas. North American capital is finding its domestic market more attractive than Europe, and the survey revealed a strong expectation that European investors will play a greater role in their domestic markets than in previous years.
One reason is the difficulty of doing adequate due diligence on properties overseas. Cross-border investment has traditionally relied on international travel to view assets and manage investment logistics. As one respondent puts it in the survey, “without ‘boots on the ground,’ deploying millions of euros on an uninspected building can feel risky.”

 

3. SHIFTING FUNDAMENTALS

 

One of the more challenging trends to emerge from PwC`s survey is the recognition that fundamental market shifts are still playing out. Fear of the unknown has put the brakes on development for most of the industry and plenty of respondents say it is too early to assess what office or retail rents are likely to look like even a year from now.
As observed in the report, the pandemic is also highlighting the role of real estate in the health and wellbeing of societies, and this is expected to drive further change. A number of key reasons emerge for this. Many more people are working, shopping, and socialising from or nearer to home. If this becomes a permanent shift, it would strike at the heart of how the industry serves its customers and conducts its business, the survey authors note.

 

4. CHANGING PRIORITIES

 

Repurposing assets is high on the agenda: nearly ¾ of respondents say that repurposing assets from one sector to another is on their agenda for the next 5 years. One European respondent explained that “the game going forward will be to make sure that whatever you invest in can be repositioned and repurposed.”
The sector must consider how it can deliver or repurpose assets quickly, and improve their operational resilience and flexibility. The need to embrace new skills and technology and the levels of automation and artificial intelligence seen in other sectors will enhance operations and make them future-fit, the survey authors highlight.
PwC survey reveals a growing perception that as societies rebuild after the pandemic, they must do so in ways that minimize harm to the planet. Many governments have already set targets to reach net zero emissions of carbon, and many respondents reflect a growing awareness that the real estate sector must make a contribution to those goals. Climate change and the environment are named by industry leaders as the factor likely to have the biggest impact on real estate over the next three decades.

 

5. NET ZERO

 

Nearly 80% of respondents think that energy efficiency, carbon emissions and climate adaption will increase in importance in their portfolios in 2021. Over a five-year time horizon, that number increases, with many believing that the pandemic has provided renewed impetus to the push for sustainability. Some within the sector are turning their attention to what can be done to make retail and office assets more sustainable when they are repurposed.
The shift towards net zero is also driving the attractiveness of buildings which are as self-sufficient as possible, for example generating their own power or processing their own wastewater. This is likely to be a growing area of interest in the coming years, the survey highlights.

 

Read more & download PwC Report from here >>

 

(22.01.2021)