In my last blog, I discussed how the covid-19 crisis would accelerate trends already underway in the property industry, namely digitisation, remote working and sustainability. As we begin to see what life after lockdown may look like, one thing for certain is that developers, landlords and occupiers together will be faced with unique opportunities to help make these changes lead to a fairer, greener and more resilient world.
The 'S' in ESG
Antony Slumbers, the renowned real estate consultant who coined the term ‘Space as a Service’ as far back as 2014, described the magnitude of the covid-19 effect in one of his recent podcasts: “There are going to be history books with titles, such as The Calamitous Third Week of March 2020, when (in the UK) covid-19 launched a tsunami of change across society.”
The implications for real estate are intensely profound everywhere in the world: covid-19 has emphasised how important placemaking is not only to office space and other commercial property, but to all of society. Creating places that reflect the needs and aspirations of all the people who use them has always been the point of placemaking strategies, and several success stories incorporating multi-use, wellbeing and climate change have been built in cities around the world over recent years.
However, many industry figures are now distinguishing real estate before covid-19 (B.C.) and after (A.C.). From the pandemic’s onset, we saw people immediately learning to work and live online, and we continue to see communities coming together unlike ever before to help protect lives and livelihoods. Local businesses have had to re-invent themselves overnight. It has become ‘Survival of the Fittest’, and those companies that had already adopted digital communications and could swiftly implement business models to provide for all their stakeholders’ changing needs were, indeed, the ones left less scathed.
The speed of consciousness is an interesting part of how this crisis is different than any before in peacetime. Within a matter of weeks or even days, people started appreciating smaller, less significant things and shifting their focus back to local communities. From local food distribution to nearby elderly people and front-line workers to re-allocating resources to essential goods only: households, businesses and governments alike are waking up and rethinking how they consume, look after themselves and the environment. Social inequality has been increasing at a higher pace due to the widening gap between rich and poor, but we still have seen many examples of communities across the UK quickly coming together to support the vulnerable and those in need in ways we could not have imagined before the crisis.
As lockdown restrictions begin to ease, property owners and landlords will be forced to re-evaluate their relationships with their communities and create property spaces that at their core provide a purpose rather than just make a profit. The opportunities for repurposing real estate into more flexible, socially inclusive, mixed-use assets are immense. Developers, landlords and occupiers need to stretch their imagination about how property can contribute to social equality and sustainable economies, and do so without sacrificing returns to shareholders. This might mean converting spaces into educational facilities where people can upskill to help find new jobs or it could be through various opportunities to facilitate local food production and distribution. It could also be through financial support. SEGRO, an owner and developer of warehousing and industrial space, is a good example. Its new SEGRO Centenary Fund, a 10-year charitable fund launched recently as part of the firm’s 100th anniversary to help local communities where SEGRO owns assets, has allocated most of its initial funding to projects providing emergency relief from the impacts of covid-19. Over the longer term, it will focus on community projects helping young and disabled people into employment and supporting people’s health, training and livelihoods. It is important to remember that investors also have a huge stake in a more sustainable and resilient society.
In this respect, tenants’ health and safety will be landlords’ top priority moving forward, as social distancing and other post covid-19 measures are enforced in the workplace. Short-term and flexible leases, as well as how to account for them on the balance sheet, are already evolving fast given the deepening economic impact of the lockdown. Landlords will need to work with occupiers on building in greater flexibility to existing lease obligations and service charge arrangements to new working practices created because of covid-19. For real estate, the human aspect of occupying space will move landlords and investors away from being passive rent-takers to long-term value creators, as explained in a recent book The Value of Everything: Making and Taking in the Global Economy written by Mariana Mazzucato, a professor at University College London (UCL). This should become the motivational force behind the growing ‘Build Back Better’ movement, an approach used by disaster recovery experts to increase the resilience of nations and communities to future disasters and shocks. Whether that is creating new, flexible lease terms, installing automatic sensors to replace door handles, or monitoring and improving air quality in occupiers’ buildings, as an industry, we need to realise that investing in tenants’ health and safety is a necessity, not a luxury.
The new back-to-work norm
Getting the economy going again means getting people back to work, but this is unlikely to be either fast or familiar given the unprecedented work and lifestyle changes inflicted by covid-19 and its devastating effect on public health. Dror Poleg, the real estate author and Co-Chair of the Urban Land Institute's Technology and Innovation Council in New York, explains in one of his recent newsletters why those middle managers and landlords who are saying that working from home is unproductive are “missing the point” since, as he says, companies in gateway cities around the world have been spending at least $15k a year to keep an employee at a desk. “[Company] bosses should not ask themselves, ‘Can my employee work remotely?’ Instead they should ask: ‘If I reallocate $15k a year to support an employee’s productivity, could they produce better work without spending every day at the office?’ For millions of employees, the answer is a resounding ‘yes’.”
Companies still need a central home base to attract talent, new business and to catalyse critical thinking and creativity, but they also need the tools necessary to prepare them for future disruptions. We know that making flexible working possible for staff has been one of the most important lessons of the coronavirus crisis, not least given the obvious positive impacts it has had on the environment and many people’s health and wellbeing.
However, those working in a flat on an outdated laptop or others home schooling with no private space might disagree. There now is a record number of people furloughed or unemployed with severely reduced incomes. Also, many people who live alone or not are suffering from depression or loneliness because of the lockdown. Domestic abuse has risen sharply as well. Yet, on the other hand, not everyone will want to go back to commuting to an office one to three hours a day, and it doesn’t make sense for everyone to return to that way of life.
In any case, companies will be put to the test to look after their staff and make sure they are well-equipped for potential future crises. Covid-19 has proved that companies need to protect their employees first if they are to thrive in this new norm, and landlords just as well need to help accommodate occupiers’ new needs. Those who hit the snooze button this time will struggle to compete.
As we know, the workplace is always evolving, but covid-19 is telling us that offices must adapt in a time when innovative thinking and empathy are most imperative. As Slumbers says: “The office and remote work are friends, not foes. Each needs the other. Our customers still want and need great real estate to work in. We need to rethink what that means, and now is our chance.”
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