On Interdependencies

December 9, 2020

EXPO REAL Hybrid Summit did not take place – neither physically nor digitally. The conference programme would have offered a lot of topics worth thinking about. So here we pick up some of the conference themes – admittedly subjectively.

© shutterstock, metamorworks
In an increasingly complex and cross-linked world there are many interdependencies also with real estate topics.

The title of the opening discussion “Corona turns the world on its head: What does this mean for real estate and investments?” seemed to be a leitmotif, not only for the conference programme. It is worthwhile to think about interdependencies. Here, two presentations by renowned experts from an economic and sociological point of view would have dealt with both, the economic and social perspectives. Despite current optimism, it is still open when a vaccine will be available to the public, as well as how it will ultimately work, little planning security is offered for all sectors. However, when many market participants currently act “on a short-term basis”, this is precisely what is difficult to do when investing in real estate, because these investments are not short-term investments. Every building should at least last for decades, rental contracts are more secure with long-term agreements. Last but not least, the returns generated from real estate often serve long-term purposes like securing retirement benefits – ranging from private investors to insurance companies and pension funds.

At the end of the first year of the pandemic, different asset classes are proving to be in different demand. The trend is known: While retail and hotels are tending to become less attractive, office space is still holding steady, residential and logistics are growing.

The planned panel discussion on office properties “Is small beautiful? The future of office space demand and design” would have been the appropriate setting for the ongoing discussion about digitalisation, to which now have been added the expected economic changes and increasing work from home – all of it putting a question mark over the age of open-plan offices and future demand in total.

In addition, more and more investments are being made in infrastructure and in healthcare properties. After all, the outbreak of the pandemic has shown one thing: The healthcare system is essential, but in many places, it is unable to cope with a disaster of this magnitude. Therefore, the discussion “Healthcare real estate: From an insider tip to mainstream?” would certainly have found many listeners.

For housing, densification was often the mantra before Corona. But now all is about distance. Remote working is likely to increase the demand for additional rooms to be used as home office, and a balcony, or even better, a green neighbourhood, is gaining in value. Hence, answers to the question of the discussion “Greener and greater: How and where will people live in the future?” would certainly have been exciting. The same applies to the topic “Affordable housing: More important than ever! But how?” Another aspect is to add: With individual residential properties thoughts about their larger context of district and city are necessary. Project development therefore becomes neighbourhood development in many places – with private and public participants and thus sometimes quite different expectations.

© shutterstock, LStockStudio
Working at home and distance requirements cause a change in living requirements.

The relationship between public and private sector is an issue that has undergone fundamental changes since the outbreak of the pandemic. Until the beginning of the year, the state was often considered to be the one that unnecessarily restricts private enterprise through far too many regulations. But demand suddenly changed. Funding here, support there meant a call for a strong state. This raises fundamental questions: does market liberalisation only work in good weather? Does a low state share in some infrastructural areas endanger their tasks and thus ultimately the community? The discussion “Politics: How much and what kind of regulation do we need?” might not have covered these fundamental questions, but at any rate it would have covered far more topics than just the content of planning and building law.

In these times, the exchange on “Partnerships for the future: Cities and regions with developers and investors” alone would have been more topical than ever, just like the issue of the cities’ ability to deal with crises as in the topic of ”Crisis-proof cities: Resilience as criterion”. When it comes to the resilience of our planet, the decisive keyword is resource-efficient construction and its corresponding use. In the first year of the Corona pandemic, the discussion round “Climate protection requirements: Responsibility for real estate and investments” would certainly have addressed the major interdependencies between humankind and nature using even small examples.

The still quite new short formula ESG, for “Environment, Social, Governance”, encompasses broad areas that interpenetrate each other and thus form a wider context. The podium “Three letters that mean a lot: ESG” would have been correspondingly complex. Not only the public sees a newly increased awareness of the interconnected nature of these three principles on the way to more sustainability – not least by the “Fridays for Future” movement. Also pension funds in particular are placing more and more emphasis on ESG in their investment criteria. Accordingly, the decisions for or against investments, including exits from existing investments, are being made with regard to ESG. In the near future nothing will work without ESG for the many investment managers who acquire real estate on behalf of these institutional investors, and in consequence of the real estate value chain for developers as well.

Andreas Schiller

Journalist: Real Estate, City and Regional Development