Thursday, July 9, 2020
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The Future of the Real Estate Sector Moves to the Outskirts

The post-pandemic real estate market has one common denominator: the outskirts. For both homes and offices, as people search for greener, cheaper and larger spaces that circumvent the constraints of the 'new normal'.

Experts in the real estate market are searching for the keys to the real estate sector in a world with new constraints following the coronavirus pandemic. As Humphrey White, Managing Partner of Knight Frank, explains, “we need to reflect on the future in order to continue working, buying and living”, after this global ‘seizure’.

This week, three directors from the consultancy participated in a webcast entitled Lessons Learned: Towards a Better Future, organised by Knight Frank, in collaboration with the newspaper brainsre.news. During the debate, the directors reviewed the keys to the new normal in the residential, office and retail markets.

Homes with coworking spaces and build to rent

The two big winners in the case of the residential market are versatile homes, specifically, those with the capacity to incorporate workspaces and more green or outdoor spaces; and the rental segment, especially the development of homes to let or build to rent.

In this way, according to a survey carried out by Knight Frank of the more than 250 professionals who signed up to the webcast, 40.6% expect the residential rental market to grow slightly and 37.5% to do so substantially, compared with 21.9 % who think that it will be the purchase market that will increase in the new environment.

“There is the sociocultural generational change that was already happening before this crisis and which is going to become a reality in Spain, in the form of the rental market,” says Carlos Zamora, Partner and Director of the Residential Area at Knight Frank in Spain.

The importance of this crisis will also favour the option of home rentals due to the likely toughening of conditions to access home purchases. “Developers and investors are clearly betting on the build to rent market (also called the ‘private rented sector’ or PRS), especially in Madrid and Barcelona.” The director shared several figures to provide some context for this business niche: with a growth rate of around 2.5%, developers could put between 80,000 and 90,000 new homes up for rent in Spain, “that would be a perfectly acceptable figure.”

Jorge Sena, Commercial Director at Knight Frank (whose area encompasses logistics, offices and retail) points out that we are starting from relatively low figures: “last year, operations involving 3,300 homes of this type were signed, and the experts say that we need 2 million more houses over the next decade to satisfy the market”, he added.

In terms of the demands of buyers when it comes to purchasing a home, the consultancy has found through its surveys that 83% of respondents want more comfort, in the form of more versatile spaces to be able to set up coworking facilities at home now that remote working is a feasible option, and outdoor space, be it terraces or gardens. “Moving to the outskirts is becoming a necessary reality to access larger and less expensive homes, now that remote working is being facilitated by companies”, explains Sena.

In this regard, 44.4% of those surveyed predict that the number of people working from home will grow by between 10% and 25%, whilst 25% believe that this increase will be between 25% and 50%. Interestingly, almost 17% believe that the increase in remote working will be exponential, up by more than 50%.

Will prices fall?

In any case, house prices continue to worry Spaniards, and some degree of decline seems certain as the market adjusts to reflect the uncertainty. House price decreases will be “clear in the short term for second-hand properties, but less severe the more prime the home,” says Carlos Zamora.

For new build houses, the price decreases will be felt more over the medium term and on a one-off basis in specific developments and for projects that are less well located; and “we know that developments are being redesigned to meet new (Covid-19) demands”.

Offices on the outskirts

The outskirts are also becoming important in the search for offices in the new normal. “We firmly believe in the physical office as a concept, but the ways of working are changing and so, to get more space per employee and to facilitate transportation, we will have to consider moving back to the outskirts“, argues Humphrey White.

The director shared some of the consultancy’s experience in the United Kingdom where “the hybrid between headquarters, hub and remote working was already being implemented there (with people working a few days a week from each space) and we are going to move towards that sort of set-up here”.

And what about retail?

The mention of a retail crisis has become a classic in the sector, but the transformation of commercial business models was already brewing, in line with the emergence of e-commerce, and the pandemic has clearly accelerated that. Here, the outskirts are of great interest with new locations for warehouses and logistics hubs, and with the “conversion of flagship stores into boutiques with a smaller exposure and an increase in online commerce”, says the General Director of Knight Frank.

According to the consultancy’s Centre for Retail Research, the logistics sector saw a 77% increase in online shopping during the lockdown. However, 63% of shoppers say that even today they prefer to buy in stores.

And a warning to browsers: “an increase in the cost of returning products will lead to an increase in the click & collect formula”, to discourage buyers from irrational consumption. This is already being tested in Japan and the United Kingdom. It will be the new way of ensuring store visits and the shopping experience, and it is a coexistence in which 79% of those surveyed during the webcast by the consultancy believe in.

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