The following article, written by Waypoint’s Mark Charlton, first appeared on React News as part of the Expert Reaction section of the magazine https://reactnews.com/article/pandemic-forces-rethink-on-business-parks-and-suburban-properties/ and follows the research produced by Mark in connection with the impact of Covid-19 on the UK’s property markets.
The research highlighted the growth of ‘localism’ being witnessed in many sectors as individuals and organisations adapt the way in which they respond to the challenges faced by the business community, and society as a whole, as a result of the pandemic. In particular, the research highlighted that that property assets in central locations are the most likely to be adversely impacted by the behavioural changes that are becoming evident and predicted that property investors are increasingly likely to turn their attention to non-core assets and properties that can serve the needs of local communities.
The full research document is available by clicking here. https://waypointam.co.uk/covid-19-potential-impact-on-uk-real-estate-markets/
Perhaps the most noticeable change in behaviour during the pandemic has been the way in which many have adapted to the realities of working from home. However, changing behavioural patterns and shifting attitudes are also seeing new trends in other asset classes – presenting challenges, and opportunities, to property investors.
While the growth of remote working has seen much debate around how offices can be adapted to make them usable in the future, an assumption has been made that the ‘Working From Home’ phenomenon is almost a passing fad and that people will eventually return to working in the office, maybe on a more flexible basis. Maybe the question should be not “What will the office be?” but “Where will the office be?” to which the answer may well be “somewhere local.”
It has been reported that, during lockdown, rent collection levels for offices in central locations have been lower than for those on business parks. This suggests that business parks, which are more easily accessed by private car, have become relatively more attractive to occupiers than CBD offices that involve a lengthy journey on public transport for their staff. As we emerge from the pandemic, businesses that are looking to cut overheads while retaining staff who have grown accustomed to working from home, may look to ‘local’ offices on business parks or accessible out-of-town and suburban locations as a solution.
The concept that such properties could be adapted to provide convenient ‘touch down spaces’ for remote workers and teams to come together from time-to-time is already an idea that is gaining interest from investors.
Fundamentally, business parks serve a relatively local clientele, but the impact of localism is not restricted just to business parks. It is also being felt in other asset classes.
While ‘Working From Home’ has caused many offices to be mothballed during lockdown, the consequences have been felt in other sectors of the economy. The subsequent drop in footfall across our city centres and towns has been catastrophic for some retailers and food & beverage businesses that rely on the lunchtime and evening trade brought by the purchasing power of a hungry and thirsty workforce.
Home-based workers still get hungry and thirsty, and they still need to buy things – they’re just doing it more locally and, once again, localism is at play with people rediscovering local shops and smaller shopping destinations that offer convenience. While central locations in our cities are suffering, we are seeing, conversely, convenience retailers, along with cafés, restaurants and pubs in residential areas, small towns and villages benefiting as home-based workers utilise local shops and amenities.
In turn, this ‘rediscovery’ of local shopping, with fewer journeys to larger retail destinations, has serious implications for malls and shopping centres in particular and it is easy to see that there will be winners and losers within the sector.
Shopping centres with a particular focus on value retailing and those with a food store as an anchor tenant will have an advantage in the market. Many secondary, underinvested shopping centres will face repurposing or even demolition and any repurposing is likely to see the focus on community, leisure and convenience retail uses to serve the local populations.
Providing services to local and regional populations is set to be a trend in other ways. Within the industrial sector, the growth in online retail is boosting the already high-demand for regional and ‘last-mile’ logistics assets in order to serve local businesses and residents. In recent years, along with obsolete offices, the market has witnessed a significant volume of urban industrial properties being replaced with residential developments. Ironically, the need for industrial and distribution accommodation to serve the people who now live in these new homes has possibly never been higher.
Other asset classes, such as automotive, healthcare and residential, are less likely to be impacted by ‘localism’ in the post-pandemic market, but these, too, will be affected to some degree, with demographics, affordability and location being key issues.
Our recent research predicts that, with property assets in central locations looking most likely to be adversely impacted by the pandemic, property investors are increasingly likely to turn their attention to non-core assets and properties that can serve local populations.
We expect ‘localism’ to be an important influence in the post-pandemic economy. It will also play a big part in the ‘New Normal’ for the property market going forward.