It’s said that necessity is the mother of invention, and the major changes to our lives in the past few weeks have led to greater adoption of existing inventions to enable us to function (or survive) in as normal a way as possible.
Two in particular, online retail and working from home, are not new but have seen a forced acceleration in the use of technology, which will have a material 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 has since been steadily rising at a rate of around 1% to 2% annually.
However, although the trend was strong, penetration was inconsistent. Office for National Statistics data from 2019 shows that over-65s acquire far less online, with just over 50% of them carrying out any shopping this way compared with 82% of the general population.
This has changed significantly in the past few months, due to Covid-19. New research from Retail Economics shows that around a third of consumers have switched to purchasing products online that they have previously purchased in-store.
Although the dust will settle when physical stores reopen, some of these new habits will last a lifetime.
So what does this mean for real estate? We know there is a place for online and physical retail, but the big uncertainty has always been what the equilibrium position looks like and when. Although retail markets continuously evolve, a more stable market share between the two is better for landlords in terms of pricing risk and owning or even developing retail assets.
There will be casualties, as already seen, but over the past three months we have jumped perhaps five to 10 years closer to understanding the optimum balance between physical and online routes to market.
The other structural shift has been working from home. Through connectivity, it has been around for about 20 years, and back then there was conjecture about the future of the office, but there remained cultural resistance to home-working. The current predicament has broken down these barriers with former non-believers appreciating the tech and seeing the benefit of a more efficient use of diaries and the chance for people with long commutes to see their children.
Another plus is the easing of pressure on our strained road and rail infrastructure and a 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.
These are trends that we have monitored and planned for. By skipping a cycle, this creates some advantages for investors as it reduces unknowns and provides greater insights into occupier demands.
Landlords were already responding to demand for more flexible and modern office accommodation in well-connected and sustainable locations, with a consideration for health and wellbeing built into the design. These demands will evolve.
Although the journey towards a ‘new normal’ is uncertain, the new habits and lessons imposed will last a lifetime.
Matthew Howard is fund manager at BMO Real Estate Partners