We will look back at 2020 as the year in which COVID-19 accelerated forces of change that have been evident in our sector for a number of years. These forces will shape the industry for many years to come and for those that are able to interpret and take advantage of them, the opportunities are enormous.
So, what have we seen in 2020 that will influence our sector in the years to come? For me it is the following:
- The growth of on-line, impacting retail and benefiting logistics
- Acceleration of flexible working calling into question the purpose of the office
- A combination of CVAs and moratoria on forfeiture calling into question the solidity of traditional leases
- Increasing focus on residential and related uses and the importance of wellness and social and environmental purpose
So how should landlords respond?
Whilst the challenges are clear, so is the opportunity for outperformance. Those real estate owners that stand to benefit will:
- Have a razor focus on 'productivity' - specifically recognition that real estate providers are in the productivity game. Put simply, irrespective of sector, the provision of space must be an enabler to making the customers more productive. This requires a deep understanding of customer needs and heightened engagement between owner and customer. Landlords should challenge their current processes for customer engagement. Where a landlord is a provider of multiple sites to the same occupier, engagement will increasingly be at the portfolio rather than individual unit level.
- Develop a closer understanding of the underlying strength of real estate assets. The pandemic has shown up the weaknesses of the covenants of some occupiers. Furthermore, pressure in the retail and serviced office sector for turnover based leasing approaches continues. Landlords have had the luxury of being able to rest on the covenant of their occupiers. Whilst the underlying characteristics of real estate have always been important, landlords will increasingly require a higher level of data and analytics that informs and benchmarks the underlying real estate.
- Diversification of uses and the replacement of income streams will becoming increasingly important. This will come in the form of permanent replacement through repositioning; notably but not exclusively within the retail sector. Temporary replacement of income will come in the form of trialling new uses. Whether permanent or temporary, there is little doubt landlords will require to take a more hands-on operational role in managing, maintaining or replacing income streams.
The opportunity for advisers?
There has been no better time for advisers, especially those with a global scale, to show value add. Those that succeed will do so by:
- Providing deep customer insight - specifically helping owners of real estate understand changing needs, influences on decision making and translating how owners of real estate can most effectively position their offer. This requires advisers to have extensive and deep relationships with occupiers and especially key decision makers.
- Placing a spotlight of what is meant by “global best in class” - being in a position to inform and to link to case examples of what “global best” means whether that be in building design, place making, technology, sustainability, customer experience.
- Utilising data - drawing together sources of data that are collected every day in our interactions with clients. The opportunity being to provide analytics that provide more informed decision making.
Where will we be by the end of 2021?
The trends I have outlined will be clear for all to see by the end of 2021 and will manifest themselves as:
- Landlords and occupiers will increasingly partner together to deliver office, retail and logistics space that is very tailored to the needs of occupiers. In the office sector, expect a rapid transition from delivery of just “the physical box” to a step change in the services the landlord provides. Landlords will utilise technology and the best in class customer service to raise substantially the offer to occupiers.
- Engagement with occupiers especially in retail will change with portfolio deals becoming the norm. Space surrendered in one shopping centre for a poor performing store being offset through lease extension in another centre.
- We will see increasing examples of both temporary and permanent new uses replacing income streams. Residential and logistics uses in their varied forms being the predominant permanent alternative uses.
- Expectations on advisers will shift in 2021. Whilst intuition will always be a source of value, the ability to back up intuition with high quality analytics drawn from valuable proprietary data will be a prerequisite for an increasing number of clients.
For me there has never been a more exciting time to be involved in the real estate sector. Change presents opportunity whether as an owner, a user or an adviser in real estate. Our first class knowledge and understanding of changing needs, supported by the data we hold and the ability to draw on global comparisons provides the opportunity for us to lead our clients and help them take advantage of undoubted opportunities that change presents!