As the world emerges from the pandemic, investors are faced with vast uncertainty, but most can agree on at least one thing: cities will never be the same again.
Trends that were forced by the pandemic, such as remote working, have been generally embraced by the population, creating a new normal of remote and hybrid working for many, while the necessity of addressing climate and sustainability challenges means a new suite of public policy responses are on the way, many of which will affect how the cities of the future are constructed and lived in.
Zsolt Kohalmi, global head of real estate at Pictet Alternative Advisors says the way to think about the future development of cities is to divide them into the functions which they perform; notably, as workplaces, leisure facilities, and the mobility, or transport links, between the two.
He says: “Most of the carbon generated by cities comes from buildings, and 90 per cent of the buildings we have in the UK were built before 1990. So the key in the future will be to refurbish the buildings we have.
"Technology has made refurbishing a building much easier, and refurbishing is now much easier than building a new one. And I think when these refurbishments happen, there will be a focus on energy efficiency, for example, [and] technology helps with that as well.”
He says that unless building owners bear energy efficiency in mind, and also factors including on-site gym and bicycle racks, “there could end up being stranded assets in the property sector, because in a world of remote working, people will only want to go into offices that are attractive. And that will drive the demand from employers. So property owners that do not ensure their buildings are evolving with the way demand is going could find the rent they can charge is much lower, or they may not be able to find a tenant at all”.
He cites the presence of electric vehicle charging points as another feature of future workplaces that he believes will become essential for any landlord.
Kohalmi says: “People talk about [environmental, social and governance considerations] and where the return on investment is for that. But the truth is, property companies that don’t think about ESG in future will struggle to sell assets. That’s because as companies try to reduce their carbon footprint, the biggest element of that will be their office building, so buildings will have to be ESG-compliant in order to be chosen as a headquarters.”
Commercial property still has a place
David Harrison, who runs the Rathbone Greenbank Global Sustainability fund, says that while the construction industry remains “quite old school” in terms of its works, technological advances mean the design work can be done in a more environmentally-friendly way.
He says, when it comes to retail, “shops won’t give up the physical space in good locations. The future is likely to involve omnichannel, which uses the physical stores for click and collect and order fulfilment, as well as for traditional retail. It is not going to just be a case of Amazon versus the High Street – Primark, for example, does not have a website. The key is more likely to be nimble, to adapt to consumer habits changing quickly.”