Participants of the 2022 Insight event series in Paris, London, Germany and the Benelux region seemed to agree on a few points when it comes to the year ahead: the role of ESG in any portfolio, the comeback of retail and the perseverance of office. At the same time, they recognised that we are at an inflection point, with the end of the pandemic and rising inflation.
ESG was at the centre of the discussions in all four locations, with participants agreeing that it is becoming a must-have for our sector. For those who lag behind, regulation will force them to keep up the pace or not be investable. Panellists recognised that more and more European listed real estate adopt decarbonisation strategies and net zero targets because this is what their tenants demand. Embedding ESG is no longer about preserving value but about higher rents and quicker occupancy.
European Union’s initiatives in the ESG domain aimed at supporting financial markets to adopt more sustainable financial products have everyone’s attention and will undoubtedly drive companies’ and investors’ strategies going forward. Participants raised their concerns about the EU Taxonomy putting too much emphasis on new constructions versus renovations. The latter is known to have a greater climate mitigation potential given the embodied carbon issue. Energy performance of buildings is one key aspect of a sustainable portfolio, and participants said we should also look into helping educate tenants’ behaviour when it comes to energy usage, water consumption, waste management, etc.
The shift to a working from home dynamic was swift, thanks to various technology solutions. However, this could not fully replace human interaction and in-person collaboration. Office demand has not really changed since the pandemic because space requirements are linked to peak occupancy, and we are witnessing a decrease in office density. Panellists in London agreed, however, that it is more about what the office can offer to the employees rather than a pure demand for space. Offices with short commute in prime locations with innovative social spaces and co-working arrangements will definitely lead the way.
As the endemic phase of the pandemic looms, it looks increasingly likely that the workforce of tomorrow will be hybrid where business operations allow. Occupiers will place a stronger emphasis on buildings’ energy performance and healthy workplace features as they focus on employee health to preserve long-term productivity and retain talent.
The feared ‘apocalypse’ of retail did not happen – quite the contrary. While we are still experiencing slightly lower footfall compared to 2019 and early 2020, the recovery is clearly underway. At the same time, the average sales basket spend is higher than pre-Covid. When it comes to shopping malls, food anchors and leisure areas continue to be a strong means to create traffic and encourage people to stay longer. It is more than ever about experience and community-building rather than a simple trip to the shop.
With demand for retail parks especially strong, we are starting to see competitive tension back in that specific market. Retail operators are also becoming more innovative, with moves to flexible or turnover-based leases. This allows for the diversification of the tenant base by appealing to small and independent retailers and businesses, creating new experiences for shoppers. To put it simply, well-managed locations run by experienced operators in attractive catchment areas will continue to perform strongly.
Panellists agreed that going forward, inflation and interest rates will continue to be important topics for the European economy. With investors increasingly focusing on thematic investment, following trends such as an ageing demographic, urbanisation and omnichannel transformation, the industry’s growth is expected to be primarily driven by the new alternative sectors. Self-storage, life-science, data centres and, to a certain extent, also cell towers are expected to gain in importance. The growth potential for Europe is huge, and everyone hopes it will come to fruition.