By Tom Balme
Over the past six months, since COVID-19 sent Australia into lockdown, the commercial property industry was forced to do something it had rarely done before, act quickly.
As Coronavirus swept through the country, Australia’s largest landlords were forced to turn their battleships in response to a challenge that, for the most part, is unprecedented in modern times. Effected with an almost military-style approach, property managers rallied their troops and held war room briefings to decide on a suitable course of action. It was at this moment that an unprecedented challenge was met with an unprecedented response. And it was at this moment that we saw the property industry realise what is capable of.
Executive team directives were implemented by senior management and carried out by site teams within hours, not weeks or months. Data and analytical tools allowed management teams to make swift decisions based on a clear understanding of the facts. Collaboration and communication took centre stage as the various stakeholders worked together to roll out agile action plans.
Cooperation, communication and agility have emerged as the common attributes differentiating the companies that are successfully navigating their way through this period from those that are just treading water. Being able to respond quickly in a time of crisis is paramount to a business’s survival and future success.
Imagine what the real estate sector could achieve if the same level of agility and decision making was applied on a more consistent basis?
A new reality for the real estate industry
Real estate investment trusts (REITs) have traditionally been a reliable and secure investment within the Australian market, often providing returns above forecasted expectations with very little downside risk. This was never more evident than during the 2008 global financial crisis, during which the Australian property market made it through relatively unscathed in comparison to global markets.
Since the start of the pandemic, however, this reality has changed. The value of the S&P/ASX 200 A-REIT AUD, the index which tracks the performance of Australian Real Estate Investment Trusts (A-REITS) and mortgage REITS, fell by more than 50% in less than one month at the height of COVID-19.
The Australian economy and real estate market has not felt a shock of this magnitude since the war era. Faced with drastically reduced operating incomes, diminished capital budgets, higher vacancy rates, and less confidence in retaining long term leases, building owners and operators have had to drastically scale back operations, closely scrutinise outgoings and rethink future capital expenditure.
How real estate can survive and thrive
According to McKinsey & Company, COVID-19 will likely have lasting impacts on the property industry. Only by acting now and altering strategies in response to the current situation and the potential longer-term implications, will real estate organisations ensure their survival. And those organisations able to successfully strengthen their position through this crisis will do more than just adapt; they will strengthen relationships with their employees, investors, end-users and other stakeholders.
Perhaps the biggest potential impact for the real estate industry as it emerges from this crisis, is the perceived importance of it. The working from home test has now been extensively carried out by almost every business, and the long perceived notion that work can only be carried out at an office environment was spectacularly mythbusted. The remote digital workplace has leapt out of the underground and into the mainstream, forcing everyone to ask if this is the beginning of the end for office centricity.
As a result, pressure is mounting on commercial property owners to ensure that the benefit of the workplace justifies the rent and the commute. It will be all too easy for tenants to pull the pin on a lease if they don’t feel they’re getting value for money. Landlords must now focus on ensuring their assets deliver exceptional experiences for their tenants and customers, with a greater focus on tenant wellbeing, safety and connectivity.
McKinsey outlines a number of steps real estate leaders are implementing now to improve the viability and longevity of their assets, such as:
- Centralising cash management and portfolio capital expenditure decisions.
- Adopting technology solutions and digitising assets.
- Enhancing the tenant and customer with a greater focus on health and wellbeing.
The property industry, by its own admission, recognises that it is often a slow adopter of change, technology and new ideas. Many practices within the built environment have remained the same for decades, borne of a traditional, risk-averse approach to property management. As history shows us, it often takes a time of crisis and disruption to create a paradigm shift large enough to bring about lasting change.
Applying the lessons learnt from COVID to deliver a better, more resilient future
As we come out of this crisis, it is imperative that the real estate industry continues to apply the agile and responsive approach to building management demonstrated during the pandemic, rather than defaulting back to the way things were.
Technology will play a fundamental role in shaping the future of the property industry. Each leader within the property sector, and throughout many industries in Australia, is looking at how they can come out of this crisis in a stronger and more resilient position. They can either choose to return to the status quo, or adopt proven technologies that will allow them to build, monitor and improve resilience to stresses and shocks affecting their businesses.
For real estate, the time to act is now
Many leaders have been working on implementing real change for some time, but the circumstances have not been as urgent as they are now. The delta between acting now and acting later could now be the difference between success and failure.
A new ‘business as usual’ sits on the horizon and it offers a better, smarter and more data-driven future for real estate. Find out how CIM is helping some of the largest property portfolio owners and operators achieve their new normal faster, with the help of building analytics.