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Dealing with Certain Uncertainties

2020 has been a wild year for investing in general

While the economy overall has experienced wild and unpredictable ups and downs, real estate as a whole has remained relatively stable.

There are many factors who contributed to real estate remaining relatively stable. Read our expert's insights below.

Supply and demand were well balanced prior to the pandemic

Supply and demand were well balanced prior to the pandemic

Many investors had a significant supply of dry powder

Many investors had a significant supply of dry powder

And interest rates have remained low

And interest rates have remained low

Each of which has contributed to support investor confidence in this asset type

But obviously, there are many things that will change at the margin. While the pandemic has undoubtedly had many immediate effects, its most significant impact has been to accelerate numerous structural shifts that were well underway before any of us had heard of COVID-19. 

But there is a dichotomy in operating fundamentals among property types - industrial real estate, health care, data centres, and residential have been positively disrupted, while offices, hotels, and retail have felt the negative effects. 

The challenge is to start the process of discerning the trends that COVID-19 has instigated and their long-term potential, while still in the second / third wave of the pandemic, such as: 

  • Based on our recent 2021 Emerging Trends in Real Estate survey, while the pandemic was an eye-opener, we see it as an accelerant of existing trends. It is telling that most investors said that the pandemic exposed shortcomings in their organisations’ digital capabilities. 
  • Retail will continue to adapt, and some sections of retail are actually performing well. Neighbourhood retail seems to be holding strong, despite shutdowns and online shopping, because it offers everyday convenience to nearby residents.
  • Office space is not dead - office space is still a status symbol; will that change? Quite possibly but, at the end of the day, offices won’t be places we “must” be. They will be places we “want” to be, offering basecamp collaboration, coaching, communication, creativity and community. Most organisations recognise there is always going to be a need for office space. Maybe it will be less dense, maybe it will be more flexible, with people to work a couple days a week from home. 
  • Investment continues to be buoyant on the rent-yielding asset segment. Even during the lockdown, there has been good demand from investors for quality assets.
  • Logistic distribution is strong and will remain strong. Increased consumer demand for same-day and next-day shipping will force online retailers to not only occupy distribution hubs within close proximity to their customers, but they also need to hold more stock on-hand, potentially increasing their spatial needs. Eager investors will have a hard time finding deals in industrial real estate opportunities, but for investors fortunate enough to already own warehouses, high rent prices and low vacancy rates will be a lucrative opportunity.
  • Housing is a fundamental need, so there’s always demand – therefore residential will continue and has caught the eye of many investors as more and more of the population chooses renting over homeownership. 

How we can help? 

At PwC, we will continue to work closely with our key clients to lay the groundwork to deal with what may be permanent changes for the industry, such as: 

Supporting our clients in taking the digital leap

As they will feel an even greater sense of urgency than before to digitise and provide a better - and more distinctive - tenant and customer experience. 

Making the case for change to start real action on climate change

Such as adhering to the rising tide of climate-related regulations, reviewing operations, processes and supply chains, and taking bold actions by preparing employees, products, and clients for deep changes.

Acquiring operating companies, large portfolios, not just single assets

Market players that are not facing near-term financial distress intend to hold assets through the downturn - some view the current environment as a valuation issue, not a value issue. Still, record-high dry powder levels are influencing investor attitudes and supply may remain constrained.

Searching for sources of long-term income and protection

Sourcing real assets as large investment companies are searching for sources of long-term income and protection from market volatility and future inflation, such as by combining property, infrastructure and natural resources. Real assets may also provide the ability to pass on tangible and valuable changes for future generations. 

Advising our clients in the current real estate debt cycle

Margins across all property types rose by 20–50 basis points, loan to values (LTVs) increased and even borrowers who are current on their payments may face challenges when their debt matures, and may need to refinance or pay off their principal.

There is no doubt about it - the Coronavirus has changed the way many people view the real estate market. That said, change isn’t necessarily bad. Many of today’s successful investors are the direct result of drastic fluctuations in the marketplace. However, that change will only work in favour of those who are willing to adapt to the shifting landscape.

Contact us

Alain Van Houtte

Alain Van Houtte

Director (external consultant), PwC Belgium

Tel: +32 495 18 19 19

Geoffroy Jonckheere

Geoffroy Jonckheere

Partner, PwC Belgium

Tel: +32 475 91 08 29

Grégory Jurion

Grégory Jurion

Partner, PwC Belgium

Tel: +32 476 42 39 16

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