They always say real estate people look on the bright side…

The challenges seem to have come thick and furious over the last two years. COVID-19 has caused a major change in the way we work, shop, eat, share and communicate. Climate change served a poignant reminder this summer and the clock for change is ticking. If that is not enough, we are faced with an energy crisis, renewed geopolitical confrontation, and rampant inflation. All of this sets new challenges for how we use and build real estate/ Where to start?

Getting used to empty streets, queues at grocery stores and re-arranging our home set ups is something we adjusted to amazingly quickly. This is one of the most remarkable things I observed- just how rapidly we can adapt in adversity and on a global scale-the lesson should be applied elsewhere. However, for the high street it was a hammer blow to an already ailing asset class.

Andy Martin AJWM Consulting

A good thing is, I believe, we came to recognise more appreciatively those workers that continued to deal with our refuse, deliver our post, keep the power, water and phones working, and meeting our increasing home orders, as well as the heroes in the NHS. Teachers and most of us learnt to do the job remotely- something few trained for. It did us good to recognise how much we took some things for granted.

I remember in the early days of the covid lockdown wandering in Hyde Park and remarking how quiet it was- no aircraft, little tra c, the skies noticeably clearer with less smog… you could hear the birds. No pubs, no restaurants, no bustle, no music. It was also noticeable how others out for their one hour’s permitted exercise respected each other’s space but would nod in engagement as we passed.

Of course, it was not to last, but was a reminder of the pollution we live with. Climate change became a matter we could reflect on more as we watched documentaries and commentary in our enforced incarceration.

Free Hugs- a thing of the past?

COP26 was a major post Covid event yet seems so long ago. As we fight an energy crisis caused by the sad and unwanted war in Ukraine, the short-term expediency of reverting to tried and tested methods of energy production seemingly blanking out all we resolved to do. Bearing in mind the mammoth task we set ourselves to control climate change to 1.5°C, this job has just become even harder, if not, impossible. We even see some major investors doubling back on ESG policies of their holdings as they are “not in the shareholders interest”!

Given the remarkable two years we have been forced to endure, I still find it remarkable how quickly we adapted. I remember at the start of Covid lockdown phoning my brother who worked with a major US computer business and has been hybrid working for years. “How do you do it?”, I asked. It was the easiest way to learn.

At the time, as chair of a group of major advisory employers, we quickly demonstrated the power of networking and adjusting our businesses by sharing our experiences and ideas openly. I believe that spirit has endured, even as things normalise, a good outcome that this cooperation has brought.

Thinking about the future also caused me to consider what wider society would look like as we recover. Many, including two of my sons, started their working careers remotely. The ease with which we moved to homeworking is now manifesting in a reluctance to go back to the o ce full time. The debate of what is best will continue for years, but as some switch to more permanent flexible arrangements that genie may be out of the bottle. The question is now what sort of workplace do we need to create to make it attractive to rejoin? We are now adapting homes to have home o ces. Clearing out has increased demand for self storage. Other trends will emerge.

I spent some time looking at research focused on human connectivity. Papers like Mark Granovetter’s theorising on the “weak ties” the chance encounters which become an important part of our daily lives. These “collisions” give us new information possibilities and are relevant to the way we evolve our thinking and actions. Whilst we may have adapted short term, our native instincts are still to connect as humans. I sense this is the important ingredient we could be in danger of ignoring as we plan for the future. We just need to foster that connectivity in places designed to make it happen.

I read with interest the paper produced, in part by a team I met at MIT, last year. “The e ect of co-location on human communication networks” appeared in Nature computational science in August 2022. The summary statement said it all, “the ability to rewire ties in communication networks is vital for large-scale human cooperation and the spread of new ideas”. The research indicated “employees who are not colocated are less likely to form ties weakening the spread of information in the workplace”. As we move forward is it possible to have hybrid working but maintain that sense of belonging to an o ce community? That means more than just the place of work but where it sits, what is o ered around it, how accessible it is, what else can we do there? As we move also to rebuild our streets from retail failures, it is more likely the building of new cultural o erings, meeting points, and communal activities will define success. As we plan to become a more inventive economy, evidence shows we need to plan places to improve collaboration to succeed. This from the IBM Foundation.

value of openness, transparency and collaboration when pursuing innovation.

Fundamentally, this is an area we cannot ignore, already markets are adjusting. The whole o er of places is beginning to resonate more with investors and again placemaking is becoming a dominant theme. Old less e cient o ces are finding fewer takers, more modern low emission structures are almost the sole attraction to the sector. The impact on pricing, the subject of research at the Stern school at Columbia University who predict New York o ce stock will fall in value by 28% by 2029! We are seeing listed markets increasing discounts to asset value for the specialist London o ce stocks.

In all, Covid has set problems of rebuilding society in a way we were not prepared for. We had challenges of levelling up already, we knew we had to address climate change and sensed retail markets were moving in a direction for which there might be no return. On top of this, add an energy crisis which was not on anybody’s agenda and has reversed and extended the e orts on meeting our carbon reduction targets. This in turn has added greater geopolitical strife.

I sense (and hope) all these things will pull us closer together as a society than apart. The issues are plainer for all to see, and it makes it easier to demand action for change. I hope that will be the legacy of these last two years. We must think and act in the long term which means changing investment horizons which have become increasingly short term. Easing planning, building our tech economy, rebuilding communities and restoring urban centres are all opportunities for real estate.

Of course, many have chosen to leave urban centres for a more bucolic existence so creating another change in social patterns yet despite all of these changes, I believe time will show we gravitate to more central places where we can meet, eat, collaborate, and enjoy. Places where we recognise establishing these weak ties is part of the strength of community building. Covid forced us to come together to resolve a global problem. Let’s hope that experience will endure as we face a more catastrophic one of handling climate change.

They always say real estate people look on the bright side- I guess I am.