{"id":2226,"date":"2021-05-05T09:54:07","date_gmt":"2021-05-05T09:54:07","guid":{"rendered":"https:\/\/preprod.realtrends.com\/blog\/2021\/05\/05\/covid-19-pandemic-accelerator-existing-trends\/"},"modified":"2025-03-13T02:37:36","modified_gmt":"2025-03-13T02:37:36","slug":"covid-19-pandemic-accelerator-existing-trends","status":"publish","type":"post","link":"https:\/\/preprod.realtrends.com\/blog\/2021\/05\/05\/covid-19-pandemic-accelerator-existing-trends\/","title":{"rendered":"The COVID-19 pandemic: an “accelerator of existing trends”"},"content":{"rendered":"\n

The real estate industry is tackling the challenge of a cyclical downturn juxtaposed with the long-term consequences from the disruption caused by COVID-19, and how the environmental, social and governance (ESG) agenda is becoming increasingly important.<\/h4>\n\n\n\n

A report by PricewaterhouseCoopers (PwC) and the Urban Land Institute (ULI) highlights a clear global narrative of COVID-19 as an \u201caccelerator of existing trends\u201d\u2014such as digitalization and online shopping<\/a>\u2014while at the same time hugely reinforcing the real estate industry\u2019s environmental, social, and governance (ESG) agenda. More companies than ever before are putting climate change and decarbonization strategies at the heart of the way they do business as they respond to the pressures of the pandemic.<\/p>\n\n\n\n

The industry leaders canvassed for the annual Emerging Trends in Real Estate: Global Outlook report are hopeful of a consumer-spending-led economic recovery feeding through into an uptick in activity in the second half of 2021. But much will depend on the rollout of the vaccine and an easing of lockdown restrictions.<\/p>\n\n\n\n

Unprecedented levels of fiscal and monetary stimulus threaten market volatility, and the emergence of stock market bubbles and renewed inflationary pressure in the U.S. and Europe are concerns for real estate leaders. Despite the risk of greater volatility, the loose monetary environment is keeping interest rates low for the time being and making the yield spread for real estate hugely compelling to investors compared to other asset classes.<\/p>\n\n\n\n

Since the start of the second lockdowns in autumn, lenders have adopted a far more cautious approach to real estate compared with equity investors. While banks were generally supportive of business at the outset\u2014invariably at the behest of governments and central banks\u2014lending criteria have become tougher. There is a wide expectation that distressed debt will increase once the government support packages end, although it is considered unlikely to match the levels of distress seen after the global financial crisis.<\/p>\n\n\n\n

Given the pressure on occupier markets, the report speaks about \u201ca bifurcation in pricing\u201d between in-favor sectors
like logistics that have provided stable income during the pandemic and those sectors that have been hardest hit, such as hospitality and parts of retail. Residential is also in favor, with investors seeing favorable supply-demand dynamics<\/a>, which make housing a prudent defensive play for the foreseeable future, but the outlook for the office sector is altogether more difficult to predict. The report suggests that the impact of the pandemic on offices might be lower than widely assumed, and employees are expected to eventually want to return to the office albeit in more of a \u201chybrid\u201d working model than in pre-COVID times. Also, in Asia, not much long-lasting impact is expected given corporate culture and relatively small living spaces in Asia\u2019s major cities, which are expected to lead to a more consistent return to office working.<\/p>\n\n\n\n

The overriding theme from interviews conducted for the study is that the industry is looking beyond occupancies and returns, and it is starting to address its wider responsibilities. A growing focus on decarbonization in the real estate industry in the last 12 to 18 months has been driven primarily by providers of finance and the biggest tenants, but also by climate change becoming more tangible in the form of more frequent extreme weather events.<\/p>\n\n\n\n

The main takeaways from the interviews point to a daunting amount of complexity in the development, ownership and management of real estate, which makes coming up with an effective strategy difficult even for the largest companies, let alone the execution. Currently there are no common definitions on what \u201cnet-zero\u201d means, and whether it only relates to the carbon emissions related to the operation of the building, or also the \u201cembodied carbon\u201d that\u2019s emitted during production and transport of materials and building construction.<\/p>\n\n\n\n

The profusion of certifications, standards, targets and terminology creates the potential for \u201cgreen-washing,\u201d which
is defined as giving the appearance of decarbonizing for reasons of brand and to attract capital, while actually focusing on only part of the story. To avoid greenwashing, the alignment of goals and unprecedented collaboration between all stakeholders, including developers, construction companies, investors, tenants and the public sector, is key: \u201cAny certification or net-zero standard that does not put embodied carbon front and center of its thinking risks sending the real estate industry down the wrong path, stifling innovation in the areas where it is truly required, and diverting funding to initiatives that will not be that impactful in reducing carbon emissions,\u201d the report states.<\/p>\n\n\n\n

ULI global CEO Ed Walter comments: \u201cHowever acute the economic impact of the pandemic, the real estate industry recognizes that the long-term impact of climate change will be greater. Few have fully got to grips with the challenge, but skills and innovations are spreading through the industry, and the Urban Land Institute is playing a key role in sharing of knowledge and best practices.\u201d<\/p>\n\n\n\n

The interviews reveal an industry that is alive to the fact that stimulus will need to be repaid, the increasing importance of health and wellbeing and ESG regulations will be tightened. But this comes at considerable cost, and lead-times are significant for innovation to occur and changes to be implemented into supply lines. The vaccine alone will not take
away the pain of impending reforms.<\/p>\n\n\n\n

Craig Hughes, global real estate leader, PwC, said: \u201cWhile many eyes are focused on the economic recovery, we should not underestimate the structural impact of this crisis, following the dislocation across many industries and society. It is about more than recession and rebound, as we won\u2019t go back to how it was before. ESG factors are in laser focus including an increased sense of urgency to decarbonise.<\/p>\n\n\n\n

\u201cThere remains a daunting amount of complexity in the development, ownership and operation of real estate,
which makes coming up with an effective strategy vital. Owners, occupiers and all other stakeholders in the real estate value chain will need to work together, if the industry is to play its part in reversing climate change and adapting to a post-pandemic world.\u201d<\/p>\n\n\n\n

In a chapter focusing on decarbonization, the report advises a range of responses:<\/p>\n\n\n\n