A person walks by a sign that reads, “restaurant for lease” outside a restaurant in Hell’s Kitchen … [+] (Photo by Noam Galai/Getty Images)
Over the past few weeks, we took a look at how the current Covid-19 pandemic is affecting the residential and CRE markets, and the tech that is being deployed within them to contrast the ongoing emergency. I spoke to sector experts to get their insider views and outlook. In this final installment, we will close out the three-part miniseries by giving an overarching view of different markets and geographies. To this end, I enlisted the help of JLL EMEA CEO Guy Grainger who shared his firm’s global outlook for real estate and proptech.
The main changes across sectors since the start of the pandemic
As we’ve previously discussed, real estate related trends that already existed have accelerated at the speed of light since the pandemic started. When it comes to the workplace, it is clear that flexible space is here to stay. A lot of organizations and managers had not accepted flexible working prior to the pandemic but they now acknowledge that giving employees flexibility increases business performance. As a result, the workplace will be reimagined and Grainger believes we will see a greater focus on collaboration and innovation, but also on health and well-being – two of business leaders’ main areas of focus. Training plays a key part too: some industries such as the legal sector can’t carry out their training programs remotely in a compliant and diligent manner, therefore the workplace will continue to play a key (if reimagined) role.
Consumption trends have gathered pace, fueling demand for logistics. This is driven, as we all know, by the boom in online spending which has gone from midway through the cycle to full cycle. The balance in the online to offline mix has firmly shifted online, and the million-dollar question now is how to repurpose retail stores.
With regards to hospitality, Grainger shared: “I don’t think many anticipated the vulnerability of the hospitality industry in the short term. It is a challenging space and only the most versatile and resilient businesses will make it through.”
The pandemic has also had an obvious effect on the environment and business leaders’ long-term sustainability agendas, but there’s a lot of work to be done from a regulatory standpoint. The dynamics of cities are changing and, as Grainger put it, “the model for public transportation in big cities needs to change in order to attract people back. Business travel will also change for good – it’ll become a smaller market.”
Geographical and asset classes differences
There are significant differences across geographies and asset classes with regards to the effects of and response to COVID-19, but they are very much timescale dependent. In the short term, some countries have been more resilient and versatile than others when it comes to staying “open for business”. According to Grainger, Germany has done very well in that respect, as their tracing system gave their people the confidence required to re-start their lives after the first lockdown. This has resulted in a slightly softer economic impact on Germany to date versus countries such as the UK and Spain, where the confidence of people to get back to work wasn’t quite as strong and that has had a deeper short-term impact.
However, a large part of the European continent is now battling the second wave and that will be another true test in the long term, as it remains to be seen how nations (and Europe as a whole) respond and come out of this crisis. Grainger shared that “it’s too early to tell. Nobody knows for certain what strategy will prove the most sustainable. We know that we are in economic difficulty and some nations have a more resilient economy than others and thus will respond and create jobs quicker. The current situation plays to the strength of some of the bigger economies, but it’s a marathon, not a race!”
As we already touched upon, the logistics sector has been a beneficiary of the ongoing pandemic due to the swift shift to e-commerce. Industrial real estate also benefited: according to Granger, investment volumes in the space increased to €23.4bn (+18%) in EMEA in Q3 2020, a sure sign of confidence in the sector. The residential and multifamily sector has also been resilient with €41bn invested in it across EMEA at the end of Q3 – a 17% increase compared to the same time frame in 2019. This is most likely indicative of the importance that investors give to rental income, as people may no longer all require offices, but they still all need a place to live.
The conversation on what the workplace will be like in the future is ongoing, as mentioned earlier. Grainger believes that “it will definitely be re-imagined. Although we are seeing decreased demand in the short term, we are seeing an increase in de-densification, continuing technological innovation to improve utilization and safety, and changes to commuting patterns. This is all leading to new approaches to office design and location planning. Employers will have to focus on making their workplaces purpose-driven. They’ll have to create spaces that employees feel the need to go to and use. In order to reimagine the workplace, companies will have to reinvest.”
JLL’s long-term views for real estate
Key trends have stayed consistent throughout 2020. JLL has seen increased demand by capital for investments into real assets over the past 5 years and that’s not changed in the current year. Real assets – especially those bringing in rental income – are seen as a safe haven investment and, given this year’s financial market volatility, investors have shown a strong appetite to reallocate an increasing amount of their equity to real assets.
The trend around urbanization has however changed. Cities have generally been growing all around the world, but there is now more attention to their attractiveness post-COVID-19. There will be an increased focus on the quality of life and the opportunities that people have access to within the cities they live in. As Grainger put it, “some cities, especially with devolved powers, will come out of the crisis stronger than others – if they have the power and resources to invest in building a better post coronavirus environment, by focusing on aspects such as safety and sustainability.”
The effects of the pandemic on JLL’s strategy
JLL’s strategy is twofold, as the firm focuses both on investor clients who are increasing their capital allocation into real estate and on corporate occupiers who are outsourcing their real estate needs. These two main goals still hold true, as its clients are now working on portfolio optimization which, according to Grainger, is playing into JLL’s strengths as an international platform.
What about proptech? Grainger remains a firm believer that technology and innovation are an essential part of every real estate strategy. He told me that “we are continuing to dial-up our investments into technology real estate solutions and sustainability products. The demand from businesses to have technology-enabled buildings is only increasing. At the same time, there is more focus on having a positive impact on the world so enabling businesses to meet their ESG objectives through their real estate operations is becoming a more valuable service.”
Whilst JLL’s focus at the beginning of the pandemic was on maintaining liquidity and managing costs, Grainger feels the company is now on the right track and is fit for the future. He believes the business is showing strong resilience in the current uncertain climate because over the last ten years it has diversified its services across a broader spectrum of transactions, property and facilities management, and strategic consultancy.
As long as we are in the grips of the COVID-19 pandemic, the future remains uncertain. It will be exciting to see how industry stakeholders such as JLL and its vast array of clients adapt to and evolve with these changing times. Change is also brewing within JLL, as it has recently been announced that, following an internal reshuffle, Granger will become Global Head of Sustainability Services and ESGs while tech-focused US West Region CEO Andy Poppink will become CEO for EMEA. This change was part of the final step in JLL’s two-year transformation program, and will certainly cement sustainability and innovation as central to the firm’s strategy.