Investors must urgently review their portfolios to ensure they are aligned with the major changes taking place – it’s happening faster than you think.
It is widely acknowledged that real estate is set to see widening polarisation in performance, but the speed at which this will occur – and the consequent implications for investment strategy – are much less well recognised. Assuming that the pandemic can be brought under control soon, we are likely to see the condensation of structural changes that might otherwise have taken five or ten years to play out into a mere 18 to 24 months. If the pandemic cannot be contained and the current heightened state of alert drags on well into next year, these changes could be permanently established much sooner.
For example, household online shopping habits will become more ingrained the longer the pandemic continues. Physical shopping will be increasingly unfamiliar, meaning old habits are harder to revive. E-commerce platforms will become more efficient at serving customers after recalibrating their supply chains and fulfilment mechanisms to adapt to higher demand, making the online retail process even more appealing to consumers. More high-street retailers will collapse from poor trading because of the combination of ongoing social distancing measures and weakened consumer sentiment, further damaging the high street.
For landlords and real estate investors, this situation means that the divergence between those assets that will benefit positively from structural change and those likely to lose out is happening right now. The accelerating consumer shift from physical to online retail is already leading to polarisation in performance between the assets, sectors and locations that are positively aligned to this change, such as well-located logistics units, and those that are negatively aligned, such as fashion-based high-street retail. Performance divergence between the winners and losers will be much faster and far more pronounced than many investors expect.