Shifting gear: accelerating structural change
For the past 12 months, the world economy has been traumatised by a health emergency and the measures that governments have put in place to tackle it. Extensive lockdowns in 2020 resulted in overall falls in activity of a kind never seen before in Europe. GDP growth in European countries ranged between -6.9% to -12.4%. While these recessions were self-imposed and no reflection of a weakening economy, the numbers are sobering nonetheless.
For real estate the pandemic and the resultant economic fallout is accelerating fundamental shifts in almost all sectors: some new and some old. There is a sense of re ordering of priorities among investors, with more allocation towards alternative assets, such as residential, and away from retail. While energy efficiency and ESG in general increasing in importance for all sectors, it is in the office sector that this is likely to have the most impact, driving a wedge between demand and values of new, with high green credentials, and secondary buildings. These issues are now firmly in the sight of investors as they position their portfolio for the post COVID world.
In this report, and the accompanying forecast numbers, we provide our view on how these structural changes in real estate are likely to shape the performance of the different sectors over the medium term. The pace of structural change in the retail sector has quickened and we can see a floor in the ongoing repricing within the forecast period. Similarly changes in the logistics market mirrors that of retail, however the positive momentum has much further to go. In the office sector, we have reached a point of inflexion. And the medium term performance of the sector will depend on the attitude, of both employers and employees, to remote working in the post COVID world. In all cases, we do not see the pandemic having any meaningful impact on the relative attractiveness of the real estate asset class to investors.