April 9, 2021
Melissa Dittmann Tracey
The COVID-19 pandemic has caused a mass disruption to the way people live and work and prompted sweeping economic fallout felt throughout the world. Global leaders are still coming to grips with the long-term impact to the real estate industry.
COVID-19 has accelerated many existing trends, including digitalization, dispersed working, and online shopping, panelists said at a webinar on Wednesday highlighting the Urban Land Institute’s newly released “Emerging Trends in Real Estate Global Outlook 2021” report.
“The industry leaders canvassed for Global Emerging Trends are hopeful of a consumer-spending-led economic recovery feeding through an uptick in real estate business in the second half of 2021,” the report notes. “But much will depend on the rollout of the vaccine and an easing of lockdown restrictions.”
The Asia Pacific region appears to be leading the recovery globally compared with many Western economies, researchers note. That has prompted more global investors to increase their allocations of capital to the region. But the U.S. is also posting growth to many of its real estate sectors and seeing some evolve to better compete in the post-pandemic world.
Here are a few of the trends highlighted in ULI’s report that are on the radar for global real estate markets:
Real estate continues to attract capital. Low interest rates are fueling interest in real estate across the globe. “Most industry leaders interviewed for this report believe the inherent attraction of real estate income is even stronger this year than in pre-COVID times,” according to the ULI report. Favorable supply-demand dynamics have led investors to increase their allocation to residential markets, a trend that has only been accelerated by the COVID-19 outbreak, the report notes.
Unknowns loom for the office sector. The office sector, however, is more difficult for real estate leaders to predict. The rise of remote working, the increasing concern for the health and wellbeing of employees, and the lessening appeal of long commutes in big cities could negatively impact leasing activity this year and next year. Many large firms could delay corporate decisions on office space, or commit to a greater reliance on remote working. Many real estate leaders do predict employees will eventually return to the office, even if in more of a “hybrid” working model. One area of growth for the office sector: flexible space. (Read more: Co-Working Spaces May Soon See a Surge in Activity) “Industry leaders predict a polarization between perceived high-quality buildings—modern and adaptable—and outdated and inflexible secondary stock that is likely to suffer from a marked decline in demand,” the report notes.
ESG tops more agendas. The impact of carbon emissions from the built environment remains a pressing issue for more companies, and they’re placing a greater emphasis on environmental, social, and governance agendas. “Though decarbonization and climate change have been rising up the agenda for years, it is only in the past 18 months that these issues have moved to the foreground of the industry’s thinking,” the ULI report notes. “So far, the pressure is coming from the providers of finance and the biggest tenants. There is, though, the expectation that governments will ramp up regulation in the coming years.” More companies are showing a greater focus on putting into place strategies with decarbonization and realizing the consequences of carbon emissions from their buildings.
Re-imagined retail. The physical brick-and-mortar retail sector has faced the increasing threat of online competition—even more so since the pandemic. But investors are not shying away from seeking out new opportunities in retail, particularly as they view some falling prices in the sector. As such, retail could be acquired and repositioned either as more usable retail formats or re-envisioned as something completely different, such as residential or urban logistics.
The following is a chart of the top issues for real estate in 2021 for the United States, according to real estate leaders surveyed by ULI.