Real estate demand is still there, but it is changing

Ian Albert is CEO, Colliers International |Middle East and North Africa, and has worked in the real estate industry, for both real estate companies and real estate consultancies, for 32 years. As well as the MENA region, Ian has extensive industry experience in the United Kingdom, the Levant, North, Southern and West Africa. He led the MENA valuation and consultancy teams at Colliers International MENA Region for 20 years, and as chief executive officer, leads Colliers International offices in the UAE, Saudi Arabia and Egypt. He appears frequently at international conferences, on radio and in numerous print and online media.

Website: www.colliers.com

Commercial real estate was already experiencing major change in a new world of cloud technology before COVID-19 accelerated the digital shift exponentially. Going forward, landlords must adapt to the new digital world to remain competitive, says Ian Albert

  

Prior to 2020 the ongoing conversations on the future of real estate circulated around the themes of office space, logistics/IOT/AI and the demise of traditional retail.

The conversation hasn’t really changed; but the subtext may, or I would propose, should have. Well, in part anyway.

In many ways the lockdown year can be seen as the great accelerator - “necessity is the mother of invention” as the saying goes. However, the platforms to allow for the great shift in our office or work relationship, the “invention” component of the proverb, already existed. I would propose that 2020 was in fact the year of unfortunate serendipity.

The growth in cloud computing use - reportedly 84 percent of all enterprises have at least some partial use of a cloud system - is set to continue. AWS (Amazon Web Services) is the market leader in cloud service provision and saw a 29 percent Q3 over Q2 2020 revenue growth, this could be set aside as a direct correlation to the global lockdown had it not been preceded by a doubling of revenues between 2017 and 2019.

Remote or home work has been around for many years, and, certainly in five to eight years before 2020, Colliers Workspace teams have been advising our global clients on how to maximise their returns from the space they occupy. The advent of the cloud, allowing companies not only to access their secure data, but also cloud-based software applications (estimated at 60 percent of companies in 2019 up from 45 percent in 2018) supported the growth of co-working spaces. People can now work from home, or work from a co-working space, and companies no longer need large server rooms in their offices. So, there is an overall reduction in demand for net leasable office space.

Office landlords must make themselves more competitive to survive. Companies are looking at their budgets for 2021 in what has been a very difficult 2020 for many. If the return of a “normal economy” is not anticipated, as is generally reported, until the end of 2021, business are looking to make savings offset against a likely increase in their spending on cloud, platforms and IT provisions. 

We are seeing several of our global clients looking to relocate to cheaper office space and this is not just an exercise in end of year budget review. Cheaper is not only about rent or service charge, it’s now the overall operational package. Is the landlord willing to contribute to cost of fitting out the space? Or, is it already fitted out? What are the lease flexible options within or close to the building? Does the landlord have an internal co-working space that allows for expansion or contraction of the business at short notice? Office landlords need to adopt a retail mall landlords strategy, working collaboratively for mutual benefit. There is, and will be, movement in the office sectors throughout the GCC, mostly downsizing, but therein lies the opportunity for individual landlords to improve their market share.

Whilst the global transport and logistics (T&L) B2B industry has taken a significant hit from the pandemic and trade wars, B2C, particularly in the form of fulfilments centres, has grown during 2020. Regionally we expect the recovery of T&L as the world economies start manufacturing again and overall consumer demand begins to recover. However, the B2C courier and express parcel (CEP) that mostly service private consumers are expected to grow, not least due to some fundamental changes in the landscape.

There are now a number of Airbnb-style warehouse platforms that look to maximise underutilised space for both storage and transportation. These supported again by a growing cloud, work for both the T&L and the CEP operators, plus the e-commerce merchants who operate inside or outside of the large global and regional players.

It is still early in the introduction cycle in the region for these warehouse sharing platforms to clearly see adoption profiles and direction. However, the recent change in business foreign ownership laws by the UAE government could further increase the demand (already growing through greater online purchases) of warehouses. Typically, T&L and CEP are restricted to fixed location free zones. The ability to expand outside of these zones into “industrial areas” also brings the CEP operator closer to the consumer for that all important and expensive “last mile” delivery driving greater competition. On a GCC basis, the arrival of alternative platforms increases the competition and demand for T&L space.

The silver lining is that demand for real estate is still out there. How you adjust to meet that demand, from individual landlord actions, to a higher governmental economic policy decision, dictates the recovery period or growth.

Any opinions expressed in this article are the author’s own

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