A contribution from expert Jens Böhnlein Looking ahead: 6 real estate industry trends

Real estate shapes and shapes our entire world, mostly for many years. This is why it is important, especially in the real estate industry, to keep an eye on the market and recognise the trends of tomorrow at an early stage. This allows us to stay ahead of the curve and design real estate today to meet the demands and needs of tomorrow.

This principle guides us at Commerz Real from the very beginning: Identifying new trends as early as possible, developing new standards, tapping into new potential.

At this point, I would like to present you with six important trends that, in my opinion, will significantly shape and help shape the real estate industry - especially the commercial real estate sector - over the next twenty years.

Our society is getting older. This development means that our focus is also shifting: While older people have lived at the edge of society for a long time, the needs of this demographic group are now becoming more central.¹ Because thanks to a higher quality of life and increasing health awareness, many people now also stay fit for significantly longer than they did a few decades ago.

And the medical sector is also changing: Younger doctors today place a much greater focus than before on a good work-life balance and more flexible, often part-time-based working models.

How can these developments - the demographic change and the growing focus on physical and mental health - now be incorporated into our real estate strategy? As soon as we no longer think of real estate in one dimension, but combine several functions in it, we can use it in a much more versatile way and adapt it to a much wider range of needs.

For example, by combining different types of use such as retail and healthcare: This creates new social meeting places that are multifunctional and can be embedded much more effectively in the immediate environment. Or by combining specialist medical services with other health-based services such as sports, wellness or cosmetics in a property.

The healthcare company Eterno shows us what this can look like: At hausInvest Immobilie in the city centre of Frankfurt, the Eterno practice spaces are designed to be flexible and resemble a shared coworking space.

This concept helps streamline workflows, saves time and enables better and more comprehensive treatment for patients. At the same time, the design of the open spaces - as part of the so-called Healing Architecture - also contributes to increasing well-being and ensuring more relaxation.

The coronavirus pandemic in particular has played a major role in the fact that we have completely rethought the way we live and work in recent years. Where a rigid office day used to prevail, flexible working models such as working from home or flexitime are now firmly established - at least in many highly digitalised countries.

This certainly has its benefits, especially the reconciliation of private and professional life has improved noticeably. But I don't think it’s possible without an office. Now it’s up to companies to get people back to the office.

Not according to the principle: Anyone who doesn't come will fly.² No, companies must be able to offer employees something. And to find out this, generating the X, Y and Z generations has long since been insufficient. Our society and our life plans have become far too complex for this.

I am convinced that it is the quality of the workplace that helps companies attract qualified talent. That’s why I also like the basic idea of concepts like WeWork to establish a community within the office. But in my opinion, instead of outsourcing it, it should always be an integral part of the corporate culture in every company.

So it is not enough to set up a bar or table football in the office if the actual work areas do not meet the requirements of a productive working environment. Of course, all of this can help to recruit new employees. But in order to create genuine team spirit and retain talent in the company in the long term, the quality of the working environment has to be right.

The workplace must therefore be able to offer something decent and be at least as appealing as your own home - if not even more appealing. Then people come to the office because they want to, not because they have to.

Digitalization and digital networking will also be indispensable in our industry. And even if we don't know what’s going to happen in this area today, we should already look at these developments and how they can affect our properties.

In my opinion, technical innovations such as the recently introduced VR glasses from Apple make it even clearer: The way people and spaces interact and interact with each other and how virtual spaces are used will change fundamentally in the coming years.

Of course, it’s still a little bit until then. And above all, the question is also to what extent such digital innovations will also drive our productivity forward. For example, the increase in remote working during the coronavirus crisis has shown that while efficiency has increased in many places, productivity or innovative strength have not necessarily increased.³

The big challenge is then to design spaces to meet the future needs of a technologically advanced and connected society. In my opinion, one of the key future trends in the real estate industry is to integrate digital technologies productively into our properties and our working and living structures.

One aspect in particular is decisive for the value of an office property: their position. And that means central, well-connected, with important facilities and functions within easy reach. In order to be able to talk about core properties, these values must continue to exist.

But when more and more people soon choose to work differently⁴, live differently, shop differently, we will eventually face a huge problem: Then the factors that make up the “core” may soon be gone. Then the urban environment of the core property has changed so much that the core concept itself no longer works.

This is why, in my view, it will be necessary in the future to redesign urbanity and to see it as an integral part of urban planning. Then a single property no longer appears as a closed system, but as part of an urban landscape into which it fits and for which it has to add value.

This also includes, for example, designing technical infrastructures such as combined heat and power plants not only for individual properties, but for entire districts, which are thus also addressed as coherent social units.

For urban planning in particular, this is certainly a major, complex challenge and requires a lot of planning and foresight. But in the long run, this is how we get a new understanding of how real estate can work together to design a more sustainable and connected future in urban spaces.

It’s not a nice truth, but crises are now almost part of our everyday lives⁶ - and that political, social, economic uncertainties are resolving from one day to the next is unfortunately more wishful thinking than reality. After all, our world is now so multi-layered and complex that such unrest can no longer be calmed down so quickly.

What does this mean for the real estate industry? Instead of focusing on short-term recovery strategies and concepts and hoping that things will go better afterwards, we should focus on long-term resilience.

This means specifically that: The initial perspective must change. Construction costs, interest rate increases, market fluctuations and rental losses are no longer just contingencies, but should be taken into account from the start. Then we can also take precautions at an early stage to mitigate negative developments.

Especially in more difficult times: Quick, proactive action pays off. The climate crisis, for example, requires the sustainable transformation of existing real estate. Regulatory requirements will also increase in terms of energy efficiency. We should also prepare for this today.

As asset managers, we cannot hide from such developments. After all, no one expects you to have optimised everything from now on. But dealing with current challenges and making appropriate decisions is essential right now.

The so-called "manage-to-core"strategy is a very central element in the design of our real estate portfolio for us in asset management. At the heart of this strategy is the aim of designing properties of the highest quality and attractiveness possible, for example through targeted repositioning or the introduction of innovative usage concepts.

Sustainability can no longer be detached from the strategy. Thus, “Manage-to-Core” becomes "Manage-to-Green" in a way. However, green means more than “just” environmental protection, but also aspects such as social responsibility and good corporate governance.

These and many more sustainability aspects are summarised in the ESG criteria (Environmental, Social, Governance). This means that sustainability can be seen as a holistic phenomenon in which the use of sustainable materials is just as important as the quality of stay in the property or the underlying corporate strategy.

Such sustainability aspects have long since been of not only ideological but also concrete economic value: Because without sustainable concepts, valuable tenants are missing, who now require certain sustainability standards.

A functional, long-term “manage-to-green” strategy is based on a partnership relationship with the tenants. In this way, we create incentives for sustainable behaviour and work together with tenants towards a more sustainable, transparent and digitalised real estate operation.