• Pandemic accelerates change

With markets reeling from the impact of the coronavirus, there are some clear threads emerging – and plenty of changes accelerating. Delegates at the Real Estate Tomorrow heard how practical changes are taking place, while blue sky thinking is increasingly being viewed more pragmatically.
One issue is that the old rules are being torn up, as management teams look for opportunity out of the lockdown that has hit their businesses so hard. While there is plenty of focus on operational efficiencies, improved profits can also come from thinned service delivery, directly in response to coronavirus concerns. If guests want less interaction, that means a reduction in room servicing costs.
Another is that investors are focusing ever more on a broader landscape, throwing off old rules about office, industrial, retail – and alternatives. “The real estate market is really starting to evolve,” said David Batchelor, managing director operational real estate at CBRE. He sees a move away from thinking of mainstream and alternative asset classes, towards a more rounded approach based around the delivery of value. “The step changes occur when we reach stages like this,” he added.
Investors have had a rough few months, few sectors immune to the upsets of the coronavirus pandemic. Delegates heard that the experience is forcing traditional views to be questioned, with property lease structures under fire for their inflexibility. Among trends accelerating here is the move towards investors involving themselves more closely in operational real estate, extracting value from active management. Frank Croston, partner at Hamilton Hotel Partners, noted that “the valuation methodology is one of the big flaws” in traditional asset management models.
A further trend is that companies are looking ever harder at what their consumers really want. “The value of brand is not the only way to reach the consumer,” said Batchelor.
James Wallman, author of Stuffocation, delivered a presentation to conference delegates, arguing that the market is evolving into one where consumers seek experiences, above all else. He sees “the rise of experience as a way for firms to compete”.
And then there’s how to work really smart. A session at Real Estate Tomorrow saw two blue sky thinkers deliver valuable thoughts on how to make more of data – without having to gather anything new, simply by using what already exists in wiser ways.
James Whittaker, chief technology officer at Biscuit Labs, wondered why buildings are not smarter. His consultancy is developing software that will use artificial intelligence to deliver buildings that can know more about their occupiers, and react accordingly.
Moving closer to hospitality, Frank Reeves of Avvio noted that hotel companies often discard valuable data, during the research and booking process. The coronavirus has lengthened booking journeys online, providing more instances where websites can garner valuable information from consumers, even if they don’t ultimately complete a booking.

HA Perspective [by Andrew Sangster]: One of the most annoying assumptions made about the pandemic is something along the lines of “everything will change”. No it won’t. As we heard during Real Estate Tomorrow, the virtual replacement for the in-person Operational Real Estate Festival that was to be held on the same day (16th June), the biggest impact is the acceleration of changes already underway.
In commercial real estate, this is most visible in retail which has seen the switch to online including in the critical grocery sector where online progress had not been as fast as some had expected. That has now changed with online grocers unable to keep up with demand. According to researcher Kantar online grocery sales have almost doubled year-on-year with, interestingly, discounter Aldi losing market share.
The counter to retail’s decline is the rise of logistics, a sector which has had a rocket placed underneath it by the pandemic. Warehouse REIT, the logistics specialist, said that post-lockdown ecommerce sales were 33% higher in April. The share of total retail sales had “surged” to 30%. But the listed trust said that the main driver was secular trends.
For sectors like hotels it is perhaps trickier to work out what the outcome is going to be. In the short-term, experience businesses have been heavily impacted and even as they reopen, the prospects are grim. The post-lockdown, pre-vaccine phase is going to be difficult and of an uncertain duration.
Again, however, the pace of change is going to be accelerated. Online check-in and check-out are obvious examples. Less clear cut is how quickly the promise of digitisation can be delivered across other areas of operations but the pace of, and appetite for, change has increased.

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