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The pandemic and its effects on the real estate sector—the never-ending story

“Muuuummy, are we there yet?” Every parent knows this question from long car rides of which impatient children feel they are endless. So do quite a few of us feel in the pandemic: in two summers we already thought we had got over the worst, but then came Omicron—and that's not even the last letter of the Greek alphabet. At BioNTech’s partner Pfizer, researchers expect the pandemic to last globally until 2024.

© shutterstock / August_0802
What was a pizzeria yesterday is tomorrow the office of a start-up and the day after tomorrow maybe already a fancy loft. - The versatility of premises paradoxically offers stability to the real estate industry.

The new normal

Consequently, the first companies in the U.S. are already sending their employees back to work from home: "I was wrong on this, I thought we would have been out of it past Labor Day and we're not," Morgan Stanley CEO James Gorman confessed to his mistake in ordering employees back into the offices in the summer of 2021. Apple closes its 16 stores in New York and other U.S. metropolitan areas. According to a report in the Immobilienzeitung, BayernLB (Bavarian State Bank) expects the remote work quota to rise above 25 % to 30 % and therefore only calculates seven workstations for every ten employees.

There is thus a growing awareness that "after the pandemic" is not in the very near future and that it is unlikely to mean a return to the "old" normality. But what does that mean for our cities, for inner-city real estate markets?

Flexible hybrid models for workplaces

André Heid, Managing Director of HEID Immobilienbewertung is optimistic: “The era of hybrid working models does not eliminate the need for office real estate: new ways of working involve new forms of organization, making creative workspaces and collaborative space a priority.” He adds: "The typical workstation designed for individual work can now be found in remote workplaces. And rotating systems also allow more people to be employed in the same office space." Accordingly, the future is all about office space that can be used flexibly and adapted to changing requirements. A study by demire/bulwiengesa identifies good return potential for investors, particularly in secondary locations with little speculative construction activity.

Making vacant restaurant space attractive again

What about restaurant space? The hospitality industry has been (and will be!) one of the most severely affected by the pandemic and has probably permanently lost many employees who—like in the event and travel industries—have turned their backs on it and moved to more crisis-resistant industries. Temporarily or permanently closed restaurants, pubs and bars are therefore not uncommon in city centers, which is unlikely to enhance the attractiveness of surrounding retail properties or increase foot traffic in the sites concerned. On the other hand, these spaces provide room for testing and vaccination centers, which we will probably need for several months, if not years, as the pandemic persists. Why not decentralize pop-up vaccination centers to such venues? Health is one of the most promising industries and not only therefore a crowd puller.

Districts—with the right mix through the crisis

According to the second pan-European footfall report by BNP Paribas Real Estate and LOCATUS, mixed-use real estate projects significantly contribute to enhancing and revitalizing city centers. This is because such mixed neighborhoods support the resilience of cities by attracting different groups of people: residents of all ages, customers, office workers, patients, visitors...—thus creating urban life independent of opening hours. Catella Chief Researcher Dr. Thomas Beyerle also considers the future of urbanization after the coronavirus to be the primacy of intelligent district developments. In this respect, although this crisis means a lot of burdens, it also brings opportunities for something positive and new that will last longer than just one season.

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Stephanie von Keudell

Independent journalist

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