Five trends transforming the commercial real estate sector amidst Covid-19
In the short term commercial real estate investors are likely to be interested in solutions that make tenants feel safe when they return to the office, including for example applications that monitor the occupancy of each floor to enable social distancing. However, general trends will remain in place and are even likely to accelerate as the sector is pressed to make buildings more attractive for tenants and reduce cost in a challenging economic environment.
Trend 1: Production moves closer to consumers
As a result of increased supply chain risks during and in the wake of the pandemic, businesses are likely to move production closer to consumers. To be able to deliver, a business may, for example, decide to source a higher share of key components or ingredients locally and keep higher inventories near consumers.
The trend to move closer to consumers may also result in another boost for creative use of industrial real estate, for example through urban farming. Under light and climate-controlled conditions, farming produce can be harvested all year round with a low carbon footprint.
Growing Underground, for example, is a business producing micro greens and salad leaves in a tunnel system in Clapham, London, in hydroponic systems with LED technology and without the need for pesticides. Similarly, Madar Farms in Dubai plans to grow tomatoes in the Abu Dhabi desert using a high-tech indoor facility and LED lighting as the United Arab Emirates aims to become self-sustaining.
Trend 2: Space as a Service
After the disruption caused by Covid-19, commercial real estate tenants are even more likely to appreciate the flexibility offered by so-called Space as a Service providers. For many employers it is not yet clear when, if or how many employees will be allowed to return to work in an office as lockdown rules are eased. While Space as a Service was a high growth area in real estate prior to the pandemic, the benefits of reducing or increasing office space as needed while not having to deal with furniture supplies are likely to be appreciated by commercial tenants even more in the wake of Covid-19. While lease intermediation plays like WeWork struggle, the overall flex office trend seems set to benefit from an increase in appetite for flexibility.
As e-commerce plays an ever increasing role in the economy, brick and mortar retailers may want to adapt their offering to create experiences to attract their specific clientele. While some retail businesses may want to move from the high street to the internet, some are going the opposite direction as digitally native brands promoted by influencers on YouTube or Instagram create sale points in malls. Demand from traditional and digitally native brands for the flexibility offered through portals like Appear Here is likely to increase.
E-commerce has seen a spike in demand due to the pandemic and this type of operations requires up to three times more space than traditional warehouse users. Food delivery is another area which has faced higher demand during the pandemic and is likely to make the so-called “dark kitchen” concept even more popular.
Trend 3: Micromobility changes real estate value
A growing variety of means of transportation in cities such as rented e-scooters, bicycles, e-bikes and car sharing are changing the attractiveness of locations as proximity to a tube or train station becomes less important. After Covid-19 many commuters will anyway try to avoid using public transport as they fear contracting the virus. The importance of the location of buildings will become even less relevant with the implementation of autonomous vehicles.
Trend 4: Smart buildings
There is a lot of useful information in buildings that can help make them more attractive for users, reduce cost and create new income for property owners. Owners also see significant operational benefits to their team operations by having everything from the latest photos, Matterport scans, lease terms, or rent rolls available at the touch of a button. Buildings are hubs of information about how people use them for work, for shopping, entertainment and living. Data on the energy or light consumption, footfall or occupancy can give insight on usage patterns and perhaps allow for adaptations to the inner structure of buildings that better suit tenants. Such an undertaking can lead to higher revenues for property owners if combined with user engagement. Sensors can detect leaks at a very early stage and allow for repairs before any damage can occur. A higher satisfaction rate of tenants will likely correlate with investment returns.
Trend 5: Construction Efficiency
Technology is enabling new construction methods which offer more efficient building processes and therefore lower cost.
One opportunity in this area that is currently being explored is 3D printing, which could potentially reduce material costs by more than 50% and labour costs by up to 80%.
In China, a company called WinSun has been raising 3D-printed buildings using recyclable materials. The 3D-printing technology can reduce the number of workers for a job that would traditionally take a 200-people team to nine people. Since a 3D printer does not require scaffolds the technique also saves significant amounts of wood panels.
Another opportunity to increase efficiency in construction are pre-fabricated components which can meaningfully reduce building time, through offsite manufacturing. The technique has allowed a 57-storey skyscraper to be ‘assembled’ in 19 working days in China. Similarly, a 26-storey modular hotel is set to be built in New York City in 90 days.
Lockton has partnered with proptech investor Concrete VC to explore how technology is changing the real estate and construction sectors and how these new developments can benefit our clients.
For further information, please contact:
Taylor Wescoatt, Managing Director Concrete VC
Tel.: +44 (0)7795.608.922
Mark Rose, Partner Global Real Estate & Construction Lockton
Tel: +44 (0)20 7933 2621
Further to a deal announced by the Government on Saturday, as of today, Monday 23 March, the entire capacity of the private hospital sector in England is dedicated to treat coronavirus patients, and take on work the NHS is too overwhelmed to carry out.
Working from home was widely introduced as a rapid response to contain the Covid-19 outbreak. It was intended to be a temporary measure, but since it seems to have become the new normal for many in the foreseeable future, employers may need to step up their efforts to comply with their duty of care towards staff.
As the Covid-19 vaccine rollout progresses worldwide, businesses are debating how this will affect the return to the office as well as the health and safety measures that will be required.
Construction projects rely deeply on the quality of the work delivered by contractors and subcontractors, whose insolvencies can severely impact a development and the insurance policies in place. Insurers are scrutinising construction projects more carefully also because the risk of insolvencies is on the rise.