"Real estate is a long-term investment - the framework conditions are not always. Interest rate and economic environments, inflation or regulation can change quickly and unexpectedly, with consequences for construction and operating costs, rents, financing conditions, valuations and exit windows. These variables in the equation can develop differently. Over a holding period of several years, these variables can develop very differently from what was assumed at the time of purchase. Even changed models can do little in a world full of “black swans”. For investors, it is therefore more important how well an investment can handle such unexpected deviations.
Resilience starts with planning. This includes six points:
Firstly, the downside scenario should be more than a computational mandatory exercise. An investment must function operationally even if key assumptions of the business plan do not occur as expected. Secondly, it should not depend on a specific exit time and selling price. Stable current cash flows create the opportunity to postpone a sale when market conditions are unfavourable.
Thirdly, this ability to act requires sufficient liquidity. Buffers make it possible to bridge financing gaps, implement necessary measures on the property or take advantage of opportunities without having to act under time pressure. Fourthly, flexibility of use is gaining in importance. Although a building remains tied to its location, its use, management, positioning and target groups can be adapted within certain limits. The greater these margins are, the better it is possible to react to changes.
Fifthly, asset management is becoming more of a lifecycle management. Value creation does not only take place at the time of purchase or sale, but through asset management activities throughout the holding period. Risks must be identified at an early stage, usage concepts must be adapted if necessary, and different options for action must be kept open. Sixthly, speed counts. Real estate is considered a sluggish asset class. That’s why it can make a significant difference to recognise changes early and implement measures quickly.
In addition to “location, location, location”, "resilience, resilience, resilience" is increasingly taking place. Multifunctionality, modularity, retrofittability and flexible usage options become important quality features. This also applies to sustainability if it helps to keep a building competitive and economically viable in the long term.
Long-term structural trends remain an important anchor. Demographic and societal change, urbanisation, digitisation and the energy transition will have an impact over decades. They do not protect against a too high purchase price or an unsuitable location. But they can provide a more resilient foundation than the expectation that the short-term market environment will develop as desired."