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Building Building

How to keep real estate relevant by repurposing buildings in a rapidly changing environment

David Tonks • 22/10/2021
The pandemic has been widely recognised as an accelerant to many changes which were already materialising across the real estate industry.  

Most obvious is the move away from traditional bricks and mortar retail to online shopping.  

Parallel to this, there have been many recent changes in occupier behaviour, such as: 

  • Rapid growth in healthcare and life sciences sectors 
  • Shift to flexible working  
  • Evolution of technology and sustained investor interest in a wider range of property types 

All of these factors have contributed to shortening economic lifecycles of commercial buildings.  

Asset owners are therefore faced with the challenge of keeping buildings relevant to their markets to avoid a cliff edge drop in value.  

That’s why every property needs a repurposing strategy, to understand the alternative use value of owned real estate assets, whether for immediate implementation or for longer-term risk planning.  

Without a strategy like this, a property’s location or function could become obsolete or its lifecycle shorter than anticipated. 

The key to an effective repurposing strategy is to be proactive, rather than adopting a ‘fix it when it breaks’ approach.  

Repurposing real estate involves an assessment of the impact that trends are having upon specific assets and identifying the ways in which value might be captured by moving the focus away from the current use to an alternative use, or uses, that offer greater potential returns in the short to medium term.  
 

The growth of mixed-use buildings 

Interestingly, creating property that is sustainable economically and able to mitigate the owner’s risk profile is leading to the creation of more mixed-use buildings.   

Mixed-use buildings provide genuine multi-functional spaces that increase flexibility, create experiences, and provide maximum connectivity.  

Given this growth in mixed-use the location, financial or sustainability of a building or scheme determines how and when the challenge of maintaining performance is presented to the owner, but maximising investment performance needs more frequent action than ever before.  

Active asset management is at the heart of repurposing, it requires detailed market understanding and a flexible approach to asset allocation, namely the type of asset/building acquired and the occupational sector that forms its source of income. 

The successful outcome of any repurposing strategy needs careful consideration of the issues that reach far beyond the property itself and should include analysis of local and regional demographics, the macro-economic environment and public sector strategy, which can include aspects such as the attitude towards encouraging residential development in a specific location or containing retail development in a particular area.  

This is why the approach to any repurposing proposal should use market expertise and strong data analytics to deliver the desired outcome for owners and occupiers.  

Why sustainability is at the heart of repurposing real estate  

Sustainability considerations of any redevelopment or refurbishment should now extend well beyond a simple comparison of an EPC accreditation.  

We advise that detailed studies be undertaken to consider the environmental consequences of repurposing proposals as part of the final viability analysis.  

A comprehensive assessment of total carbon emissions associated with any scheme, encompassing operational and embedded carbon, has the potential to influence an owner’s desired outcome.  

Equally, changes in occupier behaviour look certain to raise the importance attached to sustainability criteria as a building’s specification increasingly aligns with financial performance. 

Overall, sustainability links so strongly to the financial performance of real estate assets and the overarching appeal of a building in all sectors, that owners can no longer assess them in isolation.    

 

How a repurposing strategy can help you achieve your real estate goals

The obvious contradiction between the economic and physical life cycle of a building is already influencing the approach taken by many investors.  

The challenge of ensuring financial viability is contributing to the development of new building methods and accelerating the emergence of new materials as viable alternatives to traditional, costly, construction techniques.  

Capital market considerations such as lot size, occupational flexibility, and environmental, social and governance (ESG) factors also mean decisions often boil down to ‘repurpose or sell’, but that’s the nature of our investment market.  

Allowing enough time before reaching this point ensures that comprehensive due diligence can be undertaken thereby minimizing the unknown factors. 

Ultimately, the need to keep up with the pace of change in the real estate market and beyond has never been greater.  

The onus is on asset owners to keep up and ensure that occupier and owner interests are aligned and building performance is maximised.  

A repurposing strategy is essential to this, and should draw from a deep market understanding, detailed analytics and well-researched market trends to help asset managers achieve their goals.

 

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