Building immunity through real estate: trends to shape real estate into 2021

26 Nov 2020

By Zoltan Moricz

Our just released Building Immunity Through Real Estate Post-2020 report highlights key trends of human behaviour which we believe will shape and impact New Zealand’s commercial property sector over the next year and beyond. The four broad themes are time savings, more local less global, a shift to thrift and a focus on a healthier future, all of which are catalysts for change where commercial property has a role to play.

Time savings have been a notable feature of the working landscape with people cutting down on commuting through working from home. Although the amount of time employees spend in offices on average will decline from pre-pandemic levels, and some occupations and roles will increasingly occur at home, we’ve continually said this trend won’t sound the death knell for office demand. Instead it will present an exciting period as workplace practices evolve in conjunction with office lease expiries. Technology will be pivotal to this evolution, coinciding with the rollout of 5G networks and the growing trend towards cloud computing.

There are limitations to working from home. Lockdowns have taught us that effectively all meetings can take place on digital platforms if necessary. However, these platforms may allow for communication but lack the connectivity that occurs face-to-face in meeting rooms. Where businesses need to connect with clients, meeting rooms will still be important. Workplace culture, learning & development and watercooler moments are hard to replicate on digital platforms. The office environment runs little risk of becoming obsolete and will remain the primary location for most white-collar businesses.

Vulnerabilities in New Zealand’s supply chain were exposed when the product flow from China effectively stopped during lockdown. As a result, governments and businesses are reviewing supply chains, and over the coming years we expect a gradual increase in supply chain diversification. The shift to ecommerce, greater demand and interest in data centres and cold storage will result in New Zealand becoming more local and less global for the foreseeable future.

The third key trend is the shift to thrift. Driven by the H1 2020 recession and prospect of prolonged weak economic growth, many businesses and households are cutting back on spending, which will continue into 2021. From an office occupier’s perspective, the search for thrift could see an acceleration in the evolution from traditional office workforces to hybrid workforces to reduce occupancy costs and increase flexible working practices. With the majority of the workforce setting up an office at home throughout the lockdowns requiring organisations to pivot quickly, flexibility is here to stay. What will be interesting over the coming years is how companies evolve to optimise workplace strategies to get the right balance of productivity, employee satisfaction and occupancy costs.

Lastly, we have identified a healthier future where the likes of sustainability and values aligned with environmental, social, and governance (ESG) goals will become more central to an organisation’s DNA. We expect that occupiers of commercial real estate will increasingly focus on this as a key consideration when choosing which buildings to locate to and landlords will need to meet this demand.  Environmental, Social and Governance investing is becoming more important; BlackRock this year indicated that it would put climate change at the centre of its investment process. Assets will increasingly become more attractive to investors and occupiers if their ESG credentials are high.

This is a long-term trend to be mindful of exemplified by the NZ Government’s recent commitment to making government office buildings more energy efficient.

For a more detailed look at the above four trends, I invite you to read the report.