Emerging from the crisis: the road to recovery

Views expressed in this article are a reflection of individuals’ opinions at the time of speaking during the EPRA Annual Conference 2020 on September 9, 2020, and do not account for subsequent policy, regulatory or public health developments.
This year has witnessed a global health crisis that has impacted every facet of our lives, and the European Public Real Estate Association’s (EPRA) 21st Annual Conference was not exempt, moving to an entirely virtual event for the first time. Nevertheless, the REthink 2020 virtual conference was a resounding success that saw more than 600 real estate and investment professionals log on to listen to insights in a year that has seen unprecedented change and uncertainty.
And change was the order of the day as Méka Brunel, Gecina CEO, was announced as EPRA’s new Chair. Brunel did not waste time in making clear that the current crisis was accelerating trends throughout the listed real estate industry and that “today’s industry may be different to tomorrow’s”. However, Brunel was certain about one thing: “We must drive inclusiveness and ESG forwards.”
This heightened focus on diversity and inclusion is a positive step forward for the listed real estate industry, which now joins a number of other industries – including some its most important investors – in ensuring the views, opinions and experience of society more broadly are reflected in its leadership in the coming years.
Brunel is clear that diversity and inclusion are not just for appearances but about improving the industry as a whole. Increasing inclusivity brings diversity of thought, new ideas, new approaches, and “it brings greater efficiency in terms of our capacity to deliver results,” according to Brunel.
Brunel’s opening remarks showed that she will not shy away from the challenges that EPRA and the wider industry face, but that in starting to make changes now, we will see greater success in the future. Indeed, success in the future appears increasingly difficult to prioritise when we are faced with tackling the upheaval of COVID-19 right now, and juggling both imperatives will likely remain a challenge for the industry for some time to come.
Former ECB Chief Economist Peter Praet followed up Brunel’s call for change with his own frank assessment of the impacts of COVID-19 on the sector. And he wasted no time in laying bare the extent of the damage the crisis has inflicted, comparing the economic shock of the pandemic with “the terrorist attacks of September 11 and the global financial crisis” and that we should “not hold on to the idea that we will go back to normality.”
So, how does the European economy recover from these shocks? “The role of the state will be key,” according to Praet. A view echoed by James Wilkinson, Co-Global CIO of Real Asset Securities at BlackRock, who believes stimulus packages are one of the reasons the financial systems have coped with these shocks and the cumulative hit to GDP has been less than during the global financial crisis, so far.
The positive impact these stimulus packages have had, and are expected to have, was backed up by Sabina Kalyan, Global Head of Strategy and Research, Global Chief Economist at CBRE Global Investors, during her impact assessment of COVID-19. “Our basic global economic outlook is based on the ‘Nike’ tick recovery, with hopefully a rapid recovery in H2 2021 and H1 2022.”
State aid packages have undoubtedly been widespread and vast, and when we look at the European economy’s recovery, they are clearly a driving force. However, it is not fair to suggest that every sector has benefited from them equally. Government support is by no means a silver bullet for recovery. As Mahdi Mokrane, ‎Head of Investment Strategy and Research at ‎PATRIZIA AG, points out, these aid packages can, in fact, often be “erratic and even detrimental to certain sectors”.
An assessment that undoubtedly rang true for some in the listed real estate industry, both Biljana Pehrsson, CEO Kungsleden, and David Sleath, CEO SEGRO, were quick to point to the lack of government support they had received.
For much of the listed real estate sector, it would seem that the key to recovery is not about state support but instead about the adaptation of portfolios and assets.
E-commerce and logistics have both performed relatively well during the current crisis, and make up large parts of SEGRO’s business; however, these spikes in performance are unlikely to persist as we move into the recovery phase, according to Sleath. Instead, what will be important is understanding exactly how people’s needs have changed, and ensuring that “we adjust our portfolios accordingly,” he says.
The word “adjust” is key here for Sleath, as it seems to be so for the rest of the industry, but the changes we can expect to see are perhaps less overarching than could be assumed in March or April of this year.
In the office sector, for example, as the pandemic spread across Europe, entire workforces were suddenly forced to work from home whilst central business districts largely turned to ghost towns. However, as Pehrsson was quick to assert, “this is by no means a sign that the office is dead”.
Far from it, instead, the view is that the sector is well placed to deal with the changing demands of tenants, with many of the trends, such as working from home and de-urbanisation, predating the outbreak of COVID-19.
For Olivier Elamine, CEO of alstria, we must look beyond the immediate impacts we see today. “Although we do not know exactly when, the issues of the pandemic will fade and, in turn, the importance of the city centre will return,” he says.
This is not to say that Elamine believes they can simply wait it out; he admits that a desire to spend some time working from home is here to stay. But he asserts that this is nothing new. “Before the crisis even started, we had begun looking at how we can create environments in which people can work from home and come into the office. What we have seen is a sudden acceleration of these pre-crisis trends.”
There is a clear consensus that COVID-19 has accelerated trends that predated its outbreak. Ismael Clemente, CEO of Merlin Properties, similarly points to the growing demand for open and clean areas, parking and offices in peripheral locations; however like Elamine, he stressed that they are “well placed to meet these changing expectations.”
And it was not just office developers that were keen to dampen concerns. Christophe Cuvillier, CEO of Unibail-Rodamco-Westfield, suggested that over time “office workers will inevitably begin to come back to the office,” speaking, appropriately, from his own office in Paris.
Even when considering retail, Unibail-Rodamco-Westfield’s area of expertise, Cuvillier echoed the sentiments of many of his fellow speakers. Yes, there will be some change. It is not that retail is unaffected by the crisis but that it can still thrive despite it, and Cuvillier’s own portfolio is evidence of just that.
“As I walk around my shopping centres, people are here; they are enjoying themselves,” he says. “I have gone to as many of our assets as is allowed by the current restrictions and I find them functioning and full of people getting out of the house, socialising and shopping. People want to get out and about and interact, and this will not change.”
Cuvillier stressed that “it is not the time to be making wholesale changes to our business strategy.” Instead, it is about taking the time to understand what is permanent and what is only temporary. The safety of customers will undoubtedly be a priority, however, for Cuvillier. What will be most important is ensuring that “businesses are in the best possible shape to deal with the effects of the crisis whilst continuing to deliver on their strategy long-term”.
Cuvillier’s view that we must be more patient when it comes to understanding the full impact of the crisis was seconded by Chris Grigg, CEO of British Land. “I don’t think we can just get on with the next strategy; instead, we must keep things simple and see the trends and opportunities as they emerge,” Grigg stressed following Cuvillier’s assessment.
Just as with his contemporaries, Grigg is clearly keen to avoid making any premature assessments about the full impact of the current crisis. No one knows exactly where will be in six months’ time, but as Grigg points out: “You cannot spend too much time worrying.”
There is no doubt that COVID-19 has sent unprecedented shock waves through the European economy, and there is an acceptance that the listed real estate industry faces considerable challenges as we emerge from the crisis. However, the listed real estate industry’s outlook remains positive in the face of this adversity, and it feels as if its business leaders are well placed to move forward. The industry may not be the same in the years ahead, but it is certainly alive and planning its comeback to pre-crisis levels and beyond.