Real Estate for a changing world

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How have investment strategies been impacted by the macroeconomic and financial framework?

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As we enter 2021, it is important to look back on the events, happenings and lessons of 2020 in order to prepare for the investment opportunities and challenges that are likely to present themselves in the coming year.

It is for this very reason that BNP Paribas REIM has released its latest The Lighthouse report covering H2 2020. This report aims to help respond to two of the most pressing questions that investors are posing at the moment; “Will tenants change the way they occupy real estate?” and “Will markets change the way they value real estate?”.

Whilst previous predictions have said that most economies would experience a V-shaped recovery, whereby they return to normal within a quarter, for most countries this recovery is looking more W-shaped. Governments across the world are as such trying to bridge the gap between now and this recovery with state aids. Germany, the United States, the United Kingdom and Japan have all offered state support in excess of 20% of their GDPs.

The economic impact of Covid-19 has had a significant and long lasting effect across the whole real estate sector, but clearly for each asset class the effect has been felt differently and the consequences vary. In The Lighthouse study BNP Paribas REIM takes a close and in-depth look at each asset class and how it has and will continue to be affected by the pandemic.

Offices

As countries across Europe face lockdown, many tenants have been struggling and as such net operating income has fallen. What is now becoming increasingly important for the financial and day-to-day management of offices is to create a system of best practises in order for tenant to occupy properties safely.

For cities across the world, key importance is now being accorded to how people safely commute to their places of work. Cities that rely on highly populated public transport may well see slower recovery than those that can afford people the luxury of cycling or walking. Therefore, prime locations with high performing central business districts may not be the ones leading the market recovery.

Logistics

There are a range of favourable events which have led to the solid performance of the logistics asset class and that are going to mean that it is going to be very interesting to track its future performance. E-commerce, last-mile concepts, climate driven regulations for net land-use, newly arising regional hot spots, world-class clusters, improving networks and the new silk route are all factors which have come together to boost logistics.

Residential

A very talked about trend that has come out of the Covid-19 pandemic is the appreciation of homes, where we live and where we want to live. With people spending more time than ever before in their homes it has made them question the space around them and perhaps the lack of outdoor space. As cities evolve, and infrastructure develops, suburban submarkets will become more attractive for both residents and investors. Although many newly built projects, especially in the sought-after markets, are likely to have a proportion of affordable housing, these investments will still generate above-average returns at a reduced risk compared to other asset types.

Retail

Retail has been an asset class particularly affected by the health crisis. Whilst fashion and cosmetic brick-and-mortar structures have suffered, other categories such as homeware and DIY shops have been performing solidly. What we can say for certain is that the pandemic bolstered e-commerce sales and accelerated the online development of many brands as they devised new omnichannel strategies in order to maintain their customer base. Local support for shops has also seen a resurgence in many countries, as consumers turn to their neighbourhood for their groceries and consumer goods.

What remains to be seen is how the physical stores will be seen after the crisis. For we can well imagine that as soon as retail locations start offering space again at rents justified by sales, we will see renewed interest in these space, even if this is not for retail purposes. What’s more, as soon as urban planners, business developers and users have understood how this space can be occupied in the future, investors will be drawn to it, especially if it represents a profitable investment alternative

Lighthouse study

Download the Lighthouse study

Get the study here