In this paper, our international partner JLL assesses what now happens as economies start to move out of lockdown, businesses begin the journey to 're-entry' and the real estate industry adjusts to a 'new normal'. The paper is published 20 April 2020.
The COVID-19 pandemic is now a truly global phenomenon with 2.6 billion people (a third of the world’s population) now living under some sort of lockdown quarantine. The short-term human and economic impact is undeniable as people stay home, offices and shops close, and production stalls. Once the risk to human life has reduced and steps are taken back toward a fully productive economy, it is worth spending some time envisaging what this 'new normal' might look like.
Key highlights for the major property segments are:
- The office sector is influenced by several effects of the crisis. The flex office trend now takes a hit with lower demand, but in the medium to long term, it will be important both to mitigate risk and to avoid long-term economic commitments. The longer-term effects on the whole sector could also include need for less employee density.
- The retail sector will now see that the ongoing omnichannel development is greatly accelerated. The common denominator for retailers is to stay relevant and to be socially responsible as consumers temporarily reign in their spending.
- The logistics and industrial segments are expected to grow in the medium to long term due to new demands for storage, re-sourcing and delivery security. The potential for new construction is strongest in this segment.
- The hotel sector is troubled for the time being, but in the recovery phase, JLL expects low-density resorts and places in driving distance from population centers to be the strongest.
The most positive outlook is for the investment and transaction market. The mega-trends which have caused the popularity of commercial real estate as an asset class are not expected to change. Key quote: “[the] portfolio diversification advantage of real estate investments is only emphasized in periods of increased volatility in the equities and commodities markets.”
A major reason for medium- to long-term optimism is the rising spread between government bond yields and real estate yields, which can cause rising allocation to real estate.
Akershus Eiendom interprets this, along with signals in the Norwegian market, as a reason to believe that transaction volumes of 75-100 bNOK per year are likely to return from 2021 onwards. For 2020, it is too early to tell.