SPR/IPF Global Real Estate Outlook
14th September 2021

Paul Tostevin of Savills surveyed the global outlook from a city perspective, suggesting that despite the ravages of the pandemic and the rise of home working, cities are definitely here to stay.  However, he did propose that smaller cities could gain in importance in the future, with their potential for a better work-life balance and greater adherence to the ‘knowledge economy’, a particular characteristic of university cities.

Investors would be looking to cities with strong qualities of resilience in the future, something that has prompted Savills to create a ‘resilient cities index’ for locations across the globe, which features some of the world’s largest cities – New York, Los Angeles, London and Tokyo at the top.  But he conceded that such cities would need to evolve, particularly relative to the climate agenda, to maintain their dominant position.

If the city certainly isn’t dead, neither is the office, proposed Carol Hodgson of JLL. However, she noted that offices’ share in investment portfolios had already been declining well before Covid, to now stand around 27% of real estate assets on average.  Highlighting many of the conflicting arguments in the ongoing WFH vs ‘all back to the office’ debate, she admitted that this is a complex question.  For instance, there is a range of attitudes among different types of employer, with tech companies tending to favour a more flexible approach and financial organisations more inclined to revert to more traditional working arrangements.  She suggested the upshot would be that office occupancy would probably not reach previous levels, while there could be a ‘flight to quality’ as firms seek the kind of space that will entice back their staff.

In the subsequent panel discussion, moderator Robin Goodchild asked Andrew Phipps of Cushman & Wakefield how retail and logistics were likely to fare in different parts of the world.  For all the bashing that the sector has taken through the pandemic, he suggested that the grocery-anchored centres more common on the European continent had done pretty well.  In future ‘experience’ and local access were likely to be the hallmarks of successful centres.  Meanwhile logistics are now seeing a ‘huge lack of availability’ in many locations and there is a ‘wall of capital’ looking to buy.  But it should be remembered that not all sheds are good sheds - to be worth buying they need a strong purpose and sustainability credentials.

Asked a similar question about the ‘living’ sectors, Vanessa Hale of BNP Paribas Real Estate proposed that the pandemic has made higher density apartments in CBDs look increasingly unattractive.  This has led to a lot of interest in building larger single-family flats to let, but affordability is becoming a big challenge.

In the audience Q&A that followed, Phipps acknowledged that there is likely to be significant distress in the retail sector, particularly once furlough schemes end.  This could provide opportunities for value-add investors to ‘reconfigure, reposition or repurpose.’

It was agreed that greater flexibility will be seen across the sectors, for instance with repurposing to co-living in the residential sector and a revival of flex offices with tenants demanding greater optionality to reconfigure space at short notice.
Towards the end of the webinar, the panellists were asked in which specific type or location of real estate they would now choose to invest. Tostevin suggested life sciences in Boston, Barcelona and Stevenage.  Hale plumped for innovation and tech-led cities, while Phipps advocated the US in the short-term and healthcare further ahead.  Meanwhile Hodgson’s favourite would be mixed use developments, preferably those with an influence on the quality of place.

Tim Horsey