The current global economic climate is marked by significant uncertainty. As we approach Spring, ever-increasing energy expenses and ongoing difficulties associated with the cost of living continue for many already suffering the pain of the effects of the Russia/Ukraine war and the Truss government. Throw in COVID-19 and the consequent adjustments to our lifestyles, and you have profound implications.
As concerns mount regarding a lengthening recession, escalating expenses for energy, fuel, and water, along with soaring inflation rates, it isn’t easy to envision a scenario in which real estate remains unaffected. Nonetheless, it is worth noting that not all aspects of the situation are unfavorable. While the cost of living crisis will certainly present significant difficulties for many individuals, there are areas where this may prompt beneficial changes.
Shift in Remote Working Trends
In light of the COVID-19 pandemic, many individuals have opted for a work-from-home arrangement, either full-time or through a hybrid model, primarily due to the benefits of convenience, productivity, and cost savings, such as reduced commuting and childcare expenses. However, with the winter season here, more people are likely to return to work due to concerns over higher energy bills.
Individuals are weighing the financial implications of working from home versus going to the office, with a potential shift towards implementing the hub and spoke model, offering more regional workspaces, resulting in shorter commutes for employees, particularly given the expected rise in fuel prices.
This model has been on the rise, and we anticipate it to continue as a growing trend.
Expansion of Flexible Working Environments
Flexible workspaces are work environments that are intentionally designed to cater to a variety of specific needs. They can be tailored for collaborative group work or individual-focused tasks. They can also be designed to foster a relaxed and creative atmosphere or a more traditional and formal ambiance. The primary purpose of a flexible workspace is to provide adaptability and customization to suit individual requirements as needed.
Typically, flexible workspaces employ hot-desking techniques, which involve sharing desks and workspaces among individuals based on their requirements rather than assigning them fixed, personal desks. As more and more people seek to work in more effective and efficient work environments, landlords of commercial properties are increasingly opting to create flexible workspaces. A recent survey by the Instant Group revealed that 64% of landlords are exploring the option of delivering flexible office solutions of varying degrees on their existing properties.
The Transformation of the High Street
The high street has undergone significant changes in recent years, mainly due to the surge in online shopping. This has resulted in a decline in some high street shops, while others, such as cafes, have flourished. The growing trend of working from home has further boosted the popularity of local cafes and restaurants. This trend is anticipated to persist as businesses establish regional hubs rather than central headquarters. Research conducted by Savills suggests that the retail industry is currently in excellent shape, as weaker companies have been phased out, making room for stronger retailers to prosper.
As we move forward, it may be necessary to re-evaluate specific retail units and consider transforming them into local service providers to serve the community better. This could be a challenging time for us all, but by adapting to changing circumstances, we can overcome these difficulties and thrive.
Reduced Expenditure on Leisure and Recreation
It is a concerning thought, but with decreased disposable income among the public, the demand for leisure activities will likely diminish. The leisure activities that will remain popular are those that are either low-cost or offer additional benefits to their customers. Presently, individuals are exploring ways to take vacations while optimizing their budgets due to the effects of inflation and the rising cost of living. Considering the current all-time high inflation rate, non-discretionary items like travel and lodging are typically the first to be sacrificed.
As fewer families can afford holidays, it is expected that the popularity of “special treat” leisure activities will increase, especially those that cater to children and are located in regions where the public might typically vacation.
Growth of Staycations and Domestic Tourism
It is estimated that approximately 17% of British citizens are electing to vacation domestically this year, and this trend is anticipated to continue into the upcoming year. This presents a favorable outcome for local economies, particularly in the classic British tourist locations, such as coastal regions and famous cities of interest.
Due to this heightened tourism, there has been an increased demand for related infrastructure, giving a significant boost to the leisure and tourism sector, such as hotels, restaurants, entertainment venues and tourist attractions.
An Ever-increasing Demand for Flexible Workspaces
Due to a growing desire for remote work and many individuals opting for hybrid work arrangements, shared workspaces have gained immense popularity.
This trend increases flexibility for businesses, freelancers, and entrepreneurs, enabling them to pay for space only when required. The competition among shared workspace providers to offer attractive features such as personalised heating controls, wellness facilities, advanced video conferencing and booking services, and outdoor areas has become the norm. To attract high-quality tenants, flexible office providers are becoming increasingly innovative.
Impacts on C-Suite Leadership
Real estate executives in the C-Suite are expected to take in a broader range of responsibilities than ever before. Boards I speak to these days need a whole raft of skills and expertise as par for the course: restructuring teams, refinancing/repositioning/repurposing assets, hold/sell strategy, fundraising, balancing changing occupier requirements, carving ESG/DE&I strategy, stringent investor reporting, motivating a hybrid workforce and managing compensation expectations in light of the current cost of living crisis are just some of the many requirements a C-Suite executive is expected to take on.
Indeed, according to a recent report by McKinsey, resilience is now an essential quality for CEOs. More opportunities arise for those just below the C-Suite to progress as teams are restructured to take advantage of individuals’ strengths and distribute responsibilities more effectively. As a result, boards are taking more time and care to identify and prepare potential C-Suite candidates. They know that a wide range of responsibilities now fall outside traditional C-Suite roles, making succession planning more complex.
Final Thoughts
The cost of living is affecting everyone, from the most senior CEO to the most junior-level receptionist. Rising inflation and interest rates are anticipated to exacerbate the situation. Real estate is not immune to this challenge. Significant changes are taking place such as an increasing desire to get back to the office, redefined workspace concepts, and evolving market needs.
However, in these turbulent times, the ability to seize the opportunities that change brings is the key to success. Those who fail to adapt to the rapidly changing landscape will be left behind, while those who swiftly and confidently navigate the shifting terrain will inevitably come out on top.
“In the middle of every difficulty lies opportunity.” – Albert Einstein
About Hunter Scott
Hunter Scott is a boutique real estate executive search firm founded to deliver the best talent for clients. Leveraging years of expertise in real estate search, we work with real estate funds, private equity firms, REITs, lenders and sovereign wealth houses to achieve immediate and sustainable results. Each client is treated as a “partner” with a view to creating long-term value. All searches are undertaken by Managing Director Lucy Winberg, who has over 15 years’ experience in the real estate sector including in-house for a Tier 1 investment bank. All this means you can be assured of a professional, “white glove” experience, providing absolute discretion and ensuring the best possible chance of securing the candidate who will add the most value.
For more information or a confidential discussion, get in touch with Lucy Winberg at +44 208 323 2552/Lw@hunter-scott.com.