Predicting the path of the real estate market when the art of prediction itself is impossible makes for uncomfortable discussions about what market stakeholders include (or exclude) as revenue generation possibilities for their 2021/2022 strategies. Here are some of the levers cited in the press since the pandemic was declared which are worth noting:
- That the market for commercial/office space has plummeted as companies and their workers permanently shift to a working from home model
- That urban living is obsolete as more and more people seek out the safety of a suburban life with reduced commuting
- That the pandemic has brought climate change sharply into focus and as such demand for renewable energy projects will only continue to increase in decades to come
- That already stressed high street businesses will fall off the precipice due to an already entrenched mental adjustment by consumers to online shopping from the safety of their computers
- That telecoms, IT infrastructure and logistics will be huge growth areas as we accept a new digitally enhanced reality and supply chain disruption migrates us away from just in time processes.
Admittedly the above predictions can be substantiated by current figures extracted from estate agent, economic data and by the pre-supposition that we will remain tethered to a post pandemic digital existence, they overlook some salient factors which may derail contingent investment strategies. Already there is a seismic shift in attitudes towards draconian lockdowns as national and regional governments attempt to strike a balance between our health and the economy. Here are some points to consider:
- Companies eventually may be compelled to confront the reality that the benefits of reduced lease rents are outweighed by the decline in productivity and dilution of corporate identity which result from lack of a communal corporate environment. The debate is not over whether employees need to be corralled and monitored but rather whether the productivity upsides of collegiate ingenuity (and rivalry) are lost to the business. When confronted with legislative lockdowns and social distancing measures for health and safety reasons, companies cannot be seen to deviate from the mainstream. Remove these restrictions and introduce the reality of the survival of the company itself and the concept of returning to a structured work environment shifts to one of necessity rather than choice.
- Balance is often cited as the key to human happiness. After a year of social engagement with a limited group of personal contacts and Zoom meetings, it would not be an unrealistic assumption that in time all but the most reclusive minded will seek out the progressive substance that varied human interaction offers. Cities are the nucleus of such varied human interaction and the young in physique (and in spirit) are likely to resist receding to the suburbs.
- Governments have been using the pandemic as a pivotal moment for the introduction of green policies. This ideology is competing with the opposing forces of lower oil prices and oversupply and harsh short-term economic realities which will make the case for the availability of the cheapest form of energy. Whilst pro-active renewable energy policies are a certainty, there will be a time lag for entrenchment of such policies as economic recovery takes priority.
- Pre-pandemic, the high street was already facing the threat of extinction, but this is now presumed to be accelerated. Such a premise ignores the impact of State intervention and isolation fatigue. At the precise moment at which our need for economic survival surpasses the adverse medical impact of the pandemic, not presently very far off, the fear of an apocalyptic existence may likely to prompt a return to supporting our community trading establishments. As humans we produce because we must have purpose and it is the need for purpose which will halt the decline of our commercial environment. There will be defaults and there will be failures but there will hopefully be more consolidation and more of an impetus to preserve our way of life. Our 21st century world is too integrated to turn back the tide to hermitage.
- The pandemic has highlighted the dangers of over-engagement with technology. Personal liberties and freedoms have become buzz words taken for granted pre-pandemic. Whilst IT and telecoms were essential to get us through periods of restrictions on movements, the pandemic has highlighted the shortcomings of these mechanisms. We are not yet the era when IT can replace human solutions and what is likely to occur in the coming decade is a more measured approach to our blind faith in the ability of IT systems to automate us out of a purpose. As a result, we might expect a stabilisation of activity in the IT, telecoms and logistics sectors as opposed to immediate exponential growth.
- An increase in commercial lettings activity as companies reconfigure rather than curb their appetite for office space. Easy and quick ways to complete lease negotiations may result in new demand for landlord procured title insurance to protect tenants against title related dispossession or losses.
- An increase in buy to let activity to meet demands of younger residential tenants seeking to take advantage of lower urban rents in areas with shorter workplace commutes. Investors in letting portfolios can use title insurance to supplement short form title diligence to reduce acquisition overheads.
- As renewable energy, telecoms, IT and logistics project flows stabilise, the risk appetite associated with these asset classes will not have peaked. Title insurance will be required for protection of the capital inflows into these projects so that investors can adequately manage portfolio risk.
- Hopefully for the majority of traders, there will be an uptick in mergers and acquisitions or re-financing where title insurance can assist in reducing diligence times and costs and attract investment. Where a distressed asset situation is inevitable title insurance can bridge warranty gaps and reduce due diligence time and costs.