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Will Everything Remain Different?! –
The Situation on the Real Estate Market
“There is no COVID-19 ‘off’ switch”, was the headline of a German real estate trade journal recently. The virus is here. It can’t just be turned off. And although we already know a lot about the virus, it is still unpredictable. This will probably not change until a vaccine is made available.
As long as this is the case, all discussions about a possible “new normal” in the real estate investment market will inevitably remain vague. And yet the question arises: “What comes after COVID-19, does the virus change the way we live and do business, and what does this mean for the real estate industry?”
It’s quite easy to imagine a worst case scenario for the real estate markets: empty shopping centres and city centres because people prefer to shop online, the office as a phased-out model in times of home office, abandoned hotels and convention centres due to videoconferencing replacing personal exchanges and the logistics sector under pressure as the economy is shrinking, and with it the volumes of storage and transport. But we do not believe in this worst-case scenario.
Real estate provides space for personal exchange and real encounters and experiences – that’s what they are needed for
The pandemic and its consequences are changing the economy and society – but not fundamentally. Humans are social creatures, oriented towards exchange and encounter. And no virtual variant, however good, can offer an equivalent substitute for personal contacts or ‘real experiences’ in the long term. “I am convinced that the office will continue to be justified as a place for personal exchange and creative collaboration”, says Sascha Klaus, chair of the Board of Management of Berlin Hyp. “Its use will therefore change”.
There are two opposing effects on the future office space requirements of companies: On the one hand, communication and creative work tend to require more space, and social distancing requirements have just that effect. On the other hand, the trend towards desk sharing and more flexibility between office-based and mobile work environments will tend to exercise a downward pressure on the demand for the number of desks in offices.
The catering, hotel, tourism and events industries have been hit particularly hard by the current restrictions on contacts and the ban on major events. These pressures also affect the corresponding real estate segments. But once the pandemic is over, people will want to take back their lives and freedom of movement step by step. After the initial easing of restrictions, city centres quickly filled with people again. This proves that the need for real encounters and experiences remains unchanged.
Real estate investments are becoming even more important as an anchor of stability
Therefore, real estate is still in demand. And from an investor’s perspective, they will retain their role as an anchor of stability. According to the participants in Berlin Hyp’s Trendbarometer, this applies especially to investments in German real estate. According to the majority of the more than 200 industry representatives who took part in the survey, its role as a “safe haven” is likely to be strengthened by the pandemic. A good half of the participants assumes that the real estate industry will be less affected by the pandemic and its consequences than most other sectors. However, this applies primarily to the large regional real estate centres. Smaller towns and secondary locations will continue to feel the economic consequences for a long time to come.
As the phase of low interest rates is likely to continue for the foreseeable future (considering persistently low inflation and the gloomy economic outlook), real estate investments in very good locations remain very attractive compared with their alternatives.
The path towards “green”
will continue
COVID-19 can even accelerate global megatrends. This can certainly be confirmed in terms of digitisation, which has been given a boost in many areas by the COVID-19 pandemic. In other areas, at least the need to catch up has become clear, which will now – hopefully – lead to corresponding investments.
The green transformation has not been slowed down by COVID-19. In fact, quite the opposite has happened; it has been strengthened. This view was also taken by the participants of Berlin Hyp’s Trendbarometer. The evaluation of various statements on the future of the economy showed a high level of support for the argument that the “green” topic will gain in importance. The same can be said for the statement that aid programmes with a green component will accelerate change.
Or, to use the title of Berlin Hyp’s latest web-based customer event in June: “Everything will remain different”.
Will everything remain different?
Will everything remain different? At the end of June 2020, Prof. Dr Tobias Just, head of the IREBS Immobilienakademie and Gero Bergmann, member of the Board of Management of Berlin Hyp responsible for markets, discussed what long-term consequences the COVID-19 pandemic would have on real estate and its markets. The format of the customer event, which was moderated by Hajo Schumacher and kicked off by an impetus from futurologist Matthias Horx, was also an expression of the “new normal”: while the panel speakers sat in the conference area of Berlin Hyp, which had been converted into a “stream studio”, the customers followed the event remotely on screen and were able to ask their questions in a chat.
Trendbarometer
German commercial real estate is attractive also when compared to the rest of Europe. The real estate markets will remain stable in 2020 and are less affected by the crisis than other sectors.
Politics and administration would help the real estate industry most by speeding up the issuing of building permits and relaxing provisions and regulations where possible. The current Trendbarometer of Berlin Hyp also focused on the COVID-19 pandemic and its consequences. Twice a year, the Bank asks market participants from Germany and Europe about their assessments. Please refer to this page for the results of the current issue.
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