However, investment and growth potential remain strong. Fundraising dropped off in the first quarter of 2020 but bounced back in the second quarter, with a 7% year-on-year increase. Appetite is holding up especially well for both prime office space and growth assets such as warehousing. And there’s growing demand for flexible offices (e.g., space on demand) with high ESG, health and well-being credentials. These sustainability trends are largely tenant-driven but could eventually be reinforced by regulation. Deal activity should begin to pick up with the economic recovery, when we’ll see greater certainty over tenant sentiment and market prices.
We could also see a focus on brand development as companies strive to connect more closely with customers and increase their influence over planners and policymakers.
Potential innovations in real estate include leases tied to the quality of services in a building rather than to a specific length of time. The growth in remote working could also provide openings for technology companies to develop hybrid physical and virtual workplace models. Social responsibility and sustainability will extend beyond the energy and environmental design of a development to the relative inclusiveness of its tenant profile and its contribution to community life and cohesion.
To keep pace with these developments, managers will have to determine what tenants want and how to adapt accordingly, which will require a closer and more collaborative partnership with tenants. And managers will need to learn about more than just the space that tenants want to rent, including the services they expect, such as deep cleaning, environmental monitoring, tech connectivity and amenities that help them enjoy their experience in the space.
Craig Hughes, PwC's Global Real Estate Leader, talks us through the outlook for real estate and what trends investors should look out for, including ESG.