Two in particular, online retail and working from home, are not new or revolutionary but have nevertheless seen a major, forced acceleration in the use of their associated technology, which will have a material and lasting impact both culturally and on the real estate industry.
Perhaps a more appropriate, albeit less eloquent, proverb might be: ‘necessity is the mother of adoption’?
Take ecommerce. In 2019 online retail accounted for 19.2% of all retail sales in the UK. In 2008 this was 4.9% and, since then, online has been steadily chipping away at c. 1-2% of sales annually. Although the trend is strong, penetration remained inconsistent. 2019 data from the ONS shows that over 65s acquire far less online, with just over 50% of this cohort carrying out any shopping this way compared to 82% of the general population. This has changed significantly in the past few months, owing to Covid-19.
New research from Retail Economics shows that around a third of consumers suggest that they have switched to purchasing products online that they have previously (and exclusively) purchased in-store and people are getting far more used to having their groceries delivered (if they can get a booking!). Although the dust will (gradually) settle with the reopening of physical stores, for those new to this way of shopping these are habits that will last a lifetime.
So what does this mean for real estate? We know that there is a place for both online and physical retail, but the big uncertainty has always been what the equilibrium position looks like and when. Although retail real estate markets will continuously evolve, a more stable market share between the two is better for landlords in terms of pricing risk and developing retail assets. There will inevitably be casualties, as already seen, but over the last 2-3 months we have jumped perhaps 5-10 years closer to understanding the optimum balance between physical and online routes to market.
The other structural shift has been working from home. Such practice has been around for approximately 20 years, ever since connectivity made it possible, and back then there was a fair amount of short-lived conjecture about the future of the traditional office. Although working practices have evolved there remained cultural resistance and some stigma to homeworking. The current enforced predicament has broken down these barriers with previous non-believers appreciating and trusting the tech, while also seeing the benefit of a more efficient use of diaries and the chance for people with long commutes to see their children during the week. There are also upsides from easing pressure on our already strained road and rail infrastructure and a potentially significant reduction in carbon emissions.
Even with one or two days at home the office will continue to be the beating heart for most office-based businesses and remote working suits some professions more than others. Many are longing to get back into the social and creative environment the office provides, or even just escaping an unsuitable homeworking set-up.
As real estate practitioners these are trends that we have consistently monitored and planned for. By essentially skipping a cycle, this creates some advantages to investors as it reduces unknowns and provides greater insights to occupier demands. Landlords were already responding to demands for more flexible and modern office accommodation in well-connected and sustainable locations, with a consideration for health and wellbeing built into the design and amenity offer. These demands will evolve, but they won’t expire.
Although the journey towards a ‘new norm’ is uncertain, the new habits and learnings imposed will last a lifetime.