Real Asset Insight #6 June 2020

Covid-19 crisis will ‘accelerate
existing real estate trends’
Caution will reign in the market post-crisis and we can expect
more cooperation and communication, while ESG remains key
‘The need to be
cautious and
selective will
have an impact
on next year
and beyond.’
Norbert Kellner,
Berlin Hyp
The pandemic has not changed the real
estate market, but it has been a great
accelerator of existing trends, experts have
told Real Asset Insight.
‘Covid-19 is definitely something that will
accelerate a few structural changes that were
already emerging before the epidemic,’ says
Norbert Kellner, head of syndication at Berlin
Hyp. ‘What would have happened in two or
three years’ time will come a lot earlier.’
The shutdown clearly had a major and
immediate impact on Q2, drastically altering the
picture after what had been a positive start to
the year. But regardless of exactly when the
recovery will come, it is already apparent that
the pandemic will bring some long-term changes.
MORE SELECTIVE
One is caution. ‘The need to be cautious and
selective will have an impact on next year and
beyond,’ adds Kellner. Being more selective is
no longer a matter of choice, it is a must.
‘The pandemic has accelerated the pre-existing
shift to quality assets, good locations, strong
tenants and reliable borrowers,’ says Carsten
Loll, partner, real estate, at Linklaters. ‘The
process will create opportunities and we’ll see
some interesting changes in the market in the
next few months.’
Another trend that was already present but has
come to the fore is the shift to more openness
and cooperation. ‘Keeping the channels of
communication open with our key investors
to know what they are thinking and doing is
absolutely key,’ says Kellner. ‘Cooperation has
emerged as a key trend.’
Another aspect of improved communication is
more clarity. A better relationship between debt
and equity arose out of the ‘trauma’ of the GFC
and the result is that ‘there is better reporting
and communication in the market and more
openness to collaboration’, says Emma Huepfl,
managing director, European credit strategies, at
CBRE Global Investors.
It has already become clear that sustainability
and related issues have not been moved off
the agenda because of the crisis. The opposite
is the case, says Kellner: ‘We embarked on
that path a long time ago, but ESG issues have
become even more of a focus for us and I
believe that more and more players will want to
play a part in the ESG space.’
The real estate sector has been behind the
curve on ESG issues but it is catching up fast,
adds Huepfl. ‘Investors want ESG-compliant
assets, and we on the credit side try to
influence investors’ behaviour by creating and
incorporating minimum standards.’
Positive recovery before year end predicted by many
Predictions are difficult given the
unprecedented nature of the
crisis, but many in the market are
confident there will be a positive recovery
before the end of the year.
‘This crisis has been a black swan event,
that unlike the GFC couldn’t have been
predicted and the consequences of
which are even harder to predict,’ says
independent consultant Anthony Shayle.
‘Normality will return, but we don’t know
when and in what shape or form. We’re
in uncharted territory and we don’t have
a map.’
The pandemic was a surprise and a shock
to many and it will lead to a correction
and some distress in the market. The
question is, how much.
‘I think it is very unlikely that we’ll see
massive distress in the market this year,’
says Emma Huepfl, managing director,
European credit strategies, at CBRE
Global Investors.
‘Renegotiations and restructurings
will be required, because too many
businesses have suffered,’ says Jonathan
Lye, director at Auxilium Financial Risk
Management. ‘The way ahead depends
on how much permanent change there
will be in the way people behave, whether
they return to shops, offices, restaurants
and so on. Personally, I believe there will
62 Real Asset Insight | Issue 2 July 2020