Transformation as a 360-degree task

A real estate investment needs to be sustainable, resilient and perform well. If no returns are generated, money would cease to flow into the asset class; without resilience and environmental sustainability, there is no long-term economic viability and thus no return on investment. Meeting these demands is no easy task because real estate markets are currently being buffeted by change. The Covid-19 pandemic has turbocharged existing trends such as the growth of online shopping and working from home, which in turn means that real estate assets need modernising and recalibrating.

As digitalisation gathers pace, it is not only buildings that are impacted, but also the traditional business models of established real estate companies. Climate change and the associated increase in regulation likewise pose challenges for the real estate industry. Restructuring of the real estate industry is set to gain significant momentum over the current decade. Transformation is therefore unavoidable and needs to take place on many levels: in investment and asset management, as well as many other aspects of how companies operate. It is crucial to keep a close eye on the full spectrum of changing requirements and take an integrated approach towards tackling them.

Expanding the investment strategy to include new sectors and investment styles is essential in order to leverage additional potential for returns and diversification. For example, Union Investment successfully tapped into the residential asset class outside the DACH region last year. Creative joint ventures or joint investment vehicles are another way of opening up additional acquisition opportunities. In the quest for security, high-quality, well let core properties in good or very good locations are proving more popular than ever in the investment markets. Accordingly, these properties are becoming scarce and expensive. Mixed-use properties and ensembles also offer attractive long-term investment prospects. The coronavirus pandemic has significantly accelerated the structural changes taking place in housing, work arrangements and retail. It is vital for the real estate industry and local authorities to develop strategies and establish structures and use concepts here that allow a flexible response to market changes going forward. 

Responsible transformation of properties that no longer meet market requirements can make an important contribution in this regard. Particularly where sustainability is concerned, this is an important step in terms of complying with increasing regulation. 

However, for transformation to succeed in the long term, foundations also need to be laid within businesses that support an innovative corporate culture, diversity and new forms of collaboration. This must be bolstered by digitalisation and innovative data strategies that enable streamlined, efficient processes and create space for successful evolution of the business model. Transformation is a 360-degree task. It is therefore essential for all divisions to be included and involved.

Title image: Union Investment / Urban Zintel

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