Aviva Investors has published its latest research findings, in an insights piece, authored by Chris Urwin, Director of Research, Real Assets, and Jonathan Bayfield, Head of UK Real Estate Research, Real Assets, which looks beyond the near-term disruption to real estate to assess the longer-term prospects for the retail, office and logistics sectors.
· European retail will need fewer and smaller stores
· For low-engagement retailing – the type that competes directly with online shopping – retail sales in physical stores are likely to decline much faster than previously anticipated
· The most resilient high streets will tend to be those that combine shopping and leisure
· Longer term, real estate’s central role as a location for socialising will not be diminished
· By and large, technology has not been a substitute for face-to-face interaction, but a compliment
· History suggests commentators may be overestimating the impact of new technology, but space for employees carries a major cost
· Working from home could exacerbate social inequality
· In higher-value locations, office space that facilitates collaboration will continue to be sought after
· This crisis is likely to accelerate the structural trend of moving manufacturing to near-adjacent locations, alongside near-shoring
· There may also be an increase in shared facilities; for example, on-demand warehousing where different companies occupy shared spaces
· The pandemic is likely to accelerate the establishment of essential technical infrastructure to form a more robust and digitalised supply chain
Conclusion: the song remains the same
Every crisis tends to generate expectations of significant and lasting change. In time, such expectations typically prove overstated. In our view, COVID-19 will not radically transform how real estate will be used in the long term; the best assets should continue to see strong demand. Nonetheless, we are likely to see an acceleration of structural changes; from falling demand for weaker retail and poorly located office assets to logistics’ operators’ prioritising supply-chain resilience.
The future is coming fast. Real estate investors need to adapt quickly to these trends to ensure their portfolios are resilient against any lasting economic fallout from COVID-19.
Source : Company