Real estate shake-up: Big tests ahead offer opportunities as well as threats
26 March 2019
Our newly launched Emerging Trends in Real Estate: The global outlook for 2019 report highlights risks of standing still in an industry that’s facing its biggest shake-up in a generation.
There’s so much uncertainty and anxiety in the UK right now, it was good to get back from MIPIM feeling a lot more positive than when I set off. What was especially heartening was hearing so many investors from Asia and North America saying that the UK is still at the centre of their radar.
Does this welcome vote of confidence mean that 2019 is going to be less of a rough ride than expected? Slightly less bumpy maybe, but still tough. The international investors I spoke with at MIPIM see significant return potential in UK real estate over the long-term. But a combination of Brexit and late-cycle uncertainty has slowed up deal-making in the short-term; and we still don’t know how this will pan out. The Emerging Trends in Real Estate: The global outlook for 2019 report we launched in Cannes shows that while there’s a huge amount of dry powder looking for targets, the bar for investment sign-off has never been higher.
In the melting pot
Looking ahead, the shift to more intensive ‘space-as-a-service’ is putting pressure on all parts of the industry – investors as well as developers and service managers – to provide a much more flexible, customised and sharper offering.
So this is real estate as a melting pot: dip-in/dip-out offices with bars, beds and high design breakout areas that reflect the blurring of the lines between life and work; the shopping centre as an experience and a showcase for brands that are bought later online rather than on-site. And further into the future, developments like driverless cars could lead to even bigger shifts in the contours of urban life and how space and place are utilised.
These new market dynamics are a big cultural as well as operational challenge for an industry that’s already got plenty in its in-tray thanks to Brexit and the prospect of a turn in the cycle. But dealing with this gathering transformation can’t be put off. As consumer demands shift and the risk of obsolescence ratchets up, property could end up lying empty for months at a time or even becoming unlettable altogether. Yet, creating the kind of customer-attuned experience the market wants opens up a whole new stream of value and return.
Out in front
I believe that the businesses out in front will be those that are really engaged with their customers – those who forge close relationships with them, have the data to know them well and the operational adaptability to meet their expectations.
Getting on the front foot demands a clear sense of all the colliding and coalescing trends reshaping the market, where it is you want to be strategically and how you’re going to get there operationally. When so much is still up in the air, it’s inevitable that the answers are likely to include quite a lot of educated guesses.
The other big step is ensuring you have the talent and technology to engage with customers and ensure the guesses you’re making are as informed as they can be. Boosting diversity within your workforce is a crucial part of this by making sure your organisation reflects and understands the businesses and communities it serves. We at PwC have joined with Real Estate Balance in the UK to launch a new report exploring the current state of gender diversity in the industry. While the survey of more than 800 employees and 50 employers reveals progress since a comparable survey in 2017, it highlights the need to build diversity into strategic management to help move the dial quicker and realise the full benefits.
Technology can provide valuable insights in areas ranging from wellbeing and sustainability to the efficient use of space. But just as technology is only one of many drivers of disruption within the real estate market, you can’t rely on it to deal with disruption on its own. Keeping pace requires decisive leadership and the right talent as well as technology.
So, investor confidence means that there is light at the end of the tunnel for UK real estate. But businesses have their work cut out if they want to stay relevant in, and reap the rewards of, a market in transformation. And international investors will be looking closely at who’s on the front foot and who’s standing still as they decide where to target their funds.