How To Create A Post-Pandemic Real Estate Strategy That Stands The Test Of Time
In the past two years, societal trends and opinions have arguably been through their fastest ever shift and continue to evolve. The pandemic has profoundly accelerated changes in the way we use certain types of real estate, and climate change and technological advances are creating further reasons for a need to change. For a real estate owner, developer or investor, where property is a long-term asset, this could make creating a strategy for the next five, 10 or 20 years a daunting task.
“As macro trends constantly change, and customer demands evolve, how can real estate keep up?” Aldermore Bank Commercial Director for Commercial Real Estate John Carter said. “How can investors and property owners attempt to future-proof their businesses?”
The answer is to create a flexible plan, allowing for emerging trends, Carter said, with thought paid to several distinct subjects: picking the right asset class in the right location, focusing on sustainability and the wider ESG agenda, and having a supportive funder who understands and backs your strategy.
Picking A Future-Proofed Asset Class
Today, those looking to invest need to focus on asset classes that are not only performing well now, but can be future-proofed, Carter said. A real estate investor or owner should be sure that their assets are likely to stay in demand or can be repurposed to an alternative use class, which is a trend that has occurred with regional offices within the last decade.
This isn’t always easy. The real estate sector is still coming to terms with how the pandemic is affecting the future of several asset classes, such as offices, nonessential retail and hospitality. A greater reliance on flexibility is essential, and perhaps an opportunity to plan for other foreseeable requirements, particularly sustainability and ESG.
In terms of people’s homes, there has been a shift in buyers’ criteria and some changes are likely to be here to stay.
“We’ve seen a bounce back of detached houses sooner than other elements of the residential market, certainly as a result of Covid,” Carter said. “People are working from home more and want bigger houses, ideally with a garden. There’s still demand for apartments, but these need to be well-appointed and priced.”
Covid aside, wider societal changes have been affecting certain asset classes for years. When creating a real estate strategy, these changes are easier to factor in. Carter cited retail as an example.
“Nonessential retailers in certain locations continue to struggle, and we have seen out-of-town retail being repurposed for ‘last-mile’ logistics,” he said. “There has been a higher percentage of online sales due to Covid and there’s a significant shortage in last-mile delivery centres. Out-of-town retail units are often ideally appointed and located for this repurposing. Looking even further into the future, such locations are likely to use electric vehicles and possibly drones, and therefore planning for potential future connectivity and flexibility can be an important element.”
Transforming an asset or entering a new asset class can be complicated, of course. It helps to work with a lender that will back your strategy and can be flexible.
“Real estate loans tend to be long-term, which contrasts with how quickly society’s needs and tastes can change,” Carter said. “Only assets that are in demand can guarantee a return on investment. This is something Aldermore appreciates, and recently we have provided several loans which we term a ‘one-stop solution’. We can work with a client from development through to holding the completed property as an investment asset, or as it goes through a transformation. With the current pace of change, flexibility is as important as selecting a truly recovering asset class.”
Focus On Sustainability
The practice of repurposing real estate that is obsolete in its current state leads into the second area that Carter believes investors and building owners should focus on: sustainability. November’s UN Climate Change Conference of the Parties, or COP26, shone an even greater spotlight on this subject, which has already been gaining significant momentum.
“We’re all speculating about what environmental legislation relating to real estate is going to emerge in the next few years,” Carter said. “Many of the targets announced by the government are not yet enshrined in law, albeit the direction of travel is clear. However, the focus on making buildings more sustainable is already here.”
To avoid their assets being stranded in the future, investors and owners need to consider creating plans and taking action to improve them now. Existing buildings need to be upgraded — knocking down a lot of buildings to rebuild them is not a sustainable solution, Carter said, because the carbon footprint for constructing something new isn’t necessarily less. Similarly, new developments need to be designed with the environment in mind, which can be more costly. To make a focus on sustainability work, a plan is essential.
Carter highlighted the growth in popularity of modern methods of construction as an example of how sustainability is altering the construction and real estate sectors. MMC is generally considered to have lower embodied carbon and to generate less waste than traditional construction techniques and he believed that despite a slow start, it can only continue to grow as the sector becomes more familiar with it.
Of course, creating sustainable real estate is a long-term endeavour and involves engagement on many different levels.
“These are not things that can change overnight,” Carter said. “The sector needs to be aware of what’s coming and plan for that. Everyone needs to be alive to the asset they are dealing with and ensure its long-term viability or have an asset management strategy in place. Once there is a plan, it needs to be communicated to make sure everyone is on the same path, and of course a supportive funder who backs your strategy. Aldermore understands this and will work with its clients to support what’s required.”
This article was produced in collaboration between Aldermore and Studio B. Bisnow news staff was not involved in the production of this content.
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