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Although the Covid-19 pandemic will have a long-term impact on the real estate market, industry professionals are sharing positive predictions for the coming months. Real estate investment continues to be one of the preferred asset investment opportunities, and the industry itself is likely to enjoy increased business trust.
The Emerging Trends in Real Estate Europe 2022 report is the nineteenth edition of the annual study by the Urban Land Institute (ULI) and PwC. This year’s report is an analysis of the opinions of 844 real estate professionals, and the results show that a doubling of positive forecasts can be observed among professionals compared to 2020.
Experts acknowledged that the real estate industry has coped with the negative impacts of the pandemic, also due to the attractiveness of investing capital in real estate. As many as 52% of those surveyed believe that 2022 will see an increase in business trust. 49% believe that the profitability of the industry will increase, and 53% of professionals forecast an increase in the number of people employed. It is worth noting that business trust in the property sector reached its highest level this year since 2014.
Many respondents assume that the good performance of the real estate sector will continue in 2022 as well. According to experts, profits may also improve, with many predicting an increase compared to last year. Such opinions are influenced by the belief that there is a high availability of debt and equity financing, which will see little change depending on how individual sectors performed during the pandemic. Experts also point to strong demand from investors, which should continue into 2022.
According to Lisette van Doorn, head of ULI Europe, some mood swings can currently be observed. On the one hand, there is short-term relief from the return to a standard business environment and the industry can still enjoy the benefits of accumulated demand. On the other hand, the property market is worried about what the ‘restart of the economy’ will entail and wonders how long the problems of supply chain disruptions, rising energy costs and labour shortages will last. Investors’ doubts also stem from the perception that recovery from the pandemic will not be a straight line and the property industry will face new challenges.
Concerns in the short term
As many as 67% of those surveyed expressed their concerns about cyber security. In the short term, there was also uncertainty about inflation, cited by 59% of respondents, and concerns about interest rates, which came up among 55% of those surveyed. Construction costs and availability of resources is another factor of concern for experts, and this was indicated by 88% of experts. Other issues of concern include the availability of suitable land and assets (66%) and sustainability and decarbonisation requirements (61%). These factors will translate into construction costs and timelines, which can prove particularly challenging when projects are renewed or modernisation plans are developed.
Uncertainty in the long term
According to Lisette van Doorn, structural changes, which have been greatly accelerated by the pandemic, and persistently high social and political risks are influencing the concerns of real estate professionals. In addition, experts are taking into account the need for restructuring in order to be able to adapt the industry in the future to the implementation of the ESG programme, digitalisation and changes in both business and financial models. As Angus Johnston, the UK and EMEA Real Estate Leader at PwC points out, the performance of the real estate industry will be largely influenced by the response to the zero-carbon programme and ESG strategy. In his view, trying to find a sustainable way of living and working, as well as adapting to post-pandemic realities, are challenges that the real estate industry will face for quite some time.
Despite the many uncertainties surrounding the long-term outlook, as many as 59% of those surveyed say they will be net buyers of real estate assets. This year’s result is an increase compared to 2020 when 55% of experts predicted a net purchase of real estate assets.
Trends during the pandemic
In 2021, London topped the list from the perspective of capital that invests in Europe. In doing so, it overtook Berlin, which was the leader in 2020 and came second in the current ranking. In third place, as was the case last year, was Paris. The top five of the list is rounded off by Frankfurt, which came in fourth place, and Munich.
During the pandemic, investors have turned their attention to sectors that are based on megatrends, operate counter-cyclically and continue to generate stable revenues. The logistics and housing sectors have therefore benefited, but remain politically sensitive, according to experts. Despite investor interest in logistics and forms of housing, niche sectors have been very popular. These include new energy infrastructure, the life science sector and data centres.
However, experts’ opinions are divided regarding the office market. Some respondents believe that offices will remain flexible and the best form of asset, but other respondents forecast a decline in overall demand. As many as 85% of experts believe that there will be a sustained increase in remote working hours, while 82% of respondents indicate that having a company based in an office building is still an important factor needed to maintain company culture and attract new talent. In addition, as many as 74% of those surveyed see a growing valuation gap between offices in central locations compared to those in less attractive areas.
As the analysis of the respondents’ answers revealed, as many as 68% of them believe that the key priority for the next five years is transformation. According to 89% of respondents, two factors will also influence the development of the market: real estate as a service and the changing demands of clients. According to 81% of respondents, the ESG agenda is equally important.
According to the report, although experts recognise the need for change in the industry, there are some doubts about adaptability in a relatively short time and with increased intensity. As many as 83% of those surveyed say that the existing culture may be the greatest barrier to change in their organisations. One can therefore get the impression that the industry needs to change and is willing to do so, but it lacks clear ideas on how the necessary transformation could be achieved.
It is also worth noting that while 73% of respondents say that expanding the knowledge base is fundamental to organisational change, only 49% of experts put the ‘war for talents’ as a driving factor for modernisation. However, respondents point out that the industry needs talents from other sectors so that technology, the ESG agenda and service management culture can be integrated. Technology is cited by 92% of respondents as an important part of the transformation, and greater diversity, highlighted by as many as 70% of experts, will be associated with the new competencies needed to transform the industry.
More information in the PMR reports:
“Construction sector in Poland. Market analysis and development forecasts for 2021-2026, updated each quarter″.
“Construction sector in Poland – Regional analysis. Market analysis and development forecasts for 2021-2026“.