Fit for the future: Keeping pace with the shifts in social trends and tenant expectations

05 November 2018

Talking to people working across real estate, the focus of conversation is no longer whether the sector is on the cusp of a dramatic shift – that’s pretty much taken as read – but rather why and how to respond.

Some say we’re closing in on a turn in the cycle. Others go further by pointing to a game-changing ‘Amazon moment’ ahead. In fact, the survey carried out by PwC and the Urban Land Institute for the newly launched European Trends in Real Estate 2019 shows signs that both scenarios could be imminent, with the former adding impetus and urgency to the latter.

Outside the comfort zone

From warnings about historically high values to concerns over the scarcity of available core assets, late-cycle caution is a recurring theme within the survey responses and interviews. “We’re outside the comfort zone,” said a German institutional investor.  

Our annual barometer of industry developments and sentiment also highlights more fundamental transformation. In particular, alternative real estate and residential – in all its forms – dominate the sector preferences of respondents, marking a remarkable sea-change in industry priorities over the past few years. In 2015, just 28% said they would even consider investing in alternatives. This year, almost 60% are already investing in alternatives in some way, and 66% wish to build up their holdings. Exposure is currently highest in hotels, student housing and flexible offices, while student housing tops the wish list for future investment.

Social licence to operate

Far from simply being a search for fresh investment targets at a time when core assets are in short supply, the move to residential and alternatives reflects changes in how we live, work, learn, play and - perhaps most of all - how these various aspects of modern life interact.

Megatrends ranging from an ageing population to the influx into cities are putting pressure on current supply and how we use space. Notably, co-living ranks number one for both investment and development prospects. However, real estate’s response to these gathering trends isn’t just a matter of channelling funds, but a key aspect of its social licence to operate – living up to its role as a “backbone of society” as one of our survey participants described it.

Intensive asset management

In turn, a more digitally-enabled workforce is blurring the lines between professional and personal lives, residential and commercial real estate. The survey results reinforce what I see every day - rising demand for collaborative spaces. Employers must also meet the expectations of workforces that want greater wellbeing, flexibility, sustainability and a sense of community within the working environment.

These demands are spurring a move towards more flexible and customer-orientated ‘property as a service’. Shorter and more flexible real estate will be the number one factor influencing investment strategies for our respondents over the next three to five years, with wellbeing and sustainability also in the top five. Some respondents point to the need to go further, by being more proactive in anticipating the changes in occupier expectations and investing more as part of an “intensive asset management” approach.

Others are perhaps more sceptical. In relation to co-working, a respondent advised caution over a “buy long, sell short market”. Nonetheless, few, if any, see carrying on just as they’ve always done as a viable strategy. As other markets facing disruptive change have shown, slower movers can quickly succumb to obsolescence. As a respondent put it, “the days of buying real estate, holding it for 20 years and doing nothing, are long gone."

Sandra Dowling

Sandra Dowling | UK Real Estate Leader
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