This does not mean that the market has come to a halt or that major players are stalling. Not at all. Rather, the situation has acted as a catalyst for self-evalution, driving an assessment of the best way to respond to, and support, the needs of market. This process has contributed to sharpening our focus.
New trends have come to light
As a result of this exercise, some trends have come to light. Of these trends, we would highlight the rise of real estate as a safe haven asset class benefiting from a flow of global capital coming from savings. Another trend: the need to advance innovative ideas and cutting-edge urban development of our cities to enhance greater connectivity and sustainability. The confinement measures put in place in response to the pandemic have caused us to rethink how we want our living spaces, our homes and, in a large part, our society to be structured. The implementation of and adaption to the fourth industrial revolution – the technology revolution – also has a significant role to play. Another trend worth noting is that companies have returned to focusing on the management of their core business, and this has led to even greater outsourcing of the management of their property assets.
Logistics and PRS stand out
Two segments that have stood out, not merely for their resilience, but also for their growth during this time: PRS (private rented sector) and logistics.
In the PRS sector, the scarcity of housing and the resulting increase in prices that complicates access to affordable rental housing has caused a counter-cyclical response from private capital, which is betting on a correction in the Spanish residential market: that it will move closer to the reality of its neighbouring countries. Today in Spain, close to 90% of housing is privately held, and as a result the rental market lacks true professionalism. This is striking when compared to markets such as Germany where private capital is much more prevalent in the market. A greater volume of homes in the residential market will help address the housing problem in our cities, not only by increasing the supply of rental units but also because management synergies and improvements generally accompany this capital. This segment also stands out thanks to its consistent growth as an attractive investment, a trend that has been untouched by COVID-19 and looks to continue in 2021.
Logistics has positioned itself as one of the best performing sectors of the year, with investment deals that have had yields that are more usual to core transactions in more traditional markets such as offices. This segment has significant room to grow in Spain; this is based on an outlook of continued medium and long term growth in online consumption. Today, e-commerce accounts for 10% of total retail sales in our country, whereas in other countries like Germany or the United Kingdom the figure is above 20%. Because of this, we believe that the inventory in the logistics space will have to grow and be updated, with significant challenges to be faced, such as the “last mile”.
60% of people miss the office
Other traditional segments such as office space – the need for which has been called into question on the back of the pandemic – have proven that they are not defunct, quite the contrary. JLL has conducted studies – with responses from more than 300,000 participants worldwide – that reveal that 60% of people miss the office. This does not mean that remote working is not here to stay, rather it gives us the confidence to predict that it will be used once or twice a week. The office space segment will also be impacted in the medium term by the implementation of measures such as businesses moving to the outskirts, transforming space so that it less compact and crowded, more flexible in the short term and the reinvention of the CBD (central business district), which will embrace a mixed-use model.
Retail and hotels suffer the most
The retail and hotel segments have been most directly impacted by the lack of footfall and people not travelling as a result of the pandemic; consequently, on the surface, the outlook may appear more negative as a result of stalled business activity. Still, many of the assets that have known how to develop their supply and management over the last few years will be able to effectively respond to the situation. Furthermore, there are numerous investors who will find good-value opportunities in these segments in the medium term. A clear example takes place in grocery retailing, where we are seeing interesting activity and investment interest. Another example would be prime location high streets that continue to be attractive targets for more conservative investors with deals like the recently announced Gran Vía 18 in Madrid where the new retail concept WOW will open its flagship store.