Posted on 14 March 2022
Real Estate: The Building Blocks of Tomorrow's World
Featuring Stéphanie Bensimon from Ardian
Some 24 months after the initial disruption of the global pandemic, a new economic landscape is emerging, shaped in part by clear shifts in working patterns and societal expectations. Sensus Magazine recently sat down with Stéphanie Bensimon, Head of Real Estate at Ardian, about developing trends, the growing importance of technology and what the future holds for the real estate industry and the office sector in particular. Is the sector set for significant transformation?
Q: We have all experienced the rapid shift towards online purchasing and telecommuting – a move that would almost certainly never have happened so extensively without the impetus of the health crisis. But what does this mean for office and retail infrastructure, what does the future look like?
A: With regards to retail, structural changes such as the rise of e-commerce have played a huge part in accelerating the shift to online purchasing. Changing buyer behaviours were already occurring before the pandemic, but today’s significant adjustment, as a result of the public health measures, is likely to be permanent. High-Street flagship stores will be used purely as a ‘showcase’ in prominent, high value locations while smaller stores will act as simple distribution points. Traditional key metrics such as footfall, frontage and layout need to be redefined and new metrics to be found. Offices will face the same future due to the rise of digital technologies on working and lifestyle trends. Most office space will be redesigned to respond to the growing demand for better social and environmental behaviour. While remote working may be a challenge, it is also a real opportunity to offer a new vision and to build a brighter future.
Q: In terms of office space, how are you seeing this change play out in operational terms and decision making?
A: Companies are reshaping their office footprint, with some relocating to smaller yet better, greener and more central buildings. In short, companies seem to want fewer but better square meters. Such a move seems to underline that the new ways of working are here to stay. The relationship between landlords and tenants is also evolving, as they are working more closely together in the design and day-to-day operation of these new buildings. Hybrid working requires flexibility at every level: from the development, to the operation and to the occupancy of the office space. And, while new business models are emerging, core investors may not yet be convinced – counterparty risk must be carefully monitored.
Q: ESG considerations now dominate many boardroom agendas as investors and stakeholders alike demand much more responsible, sustainable products and outcomes. How is the real estate sector responding to these demands? What role can real estate play in building a better tomorrow?
A: Climate change is without a doubt the largest macro trend that will affect real estate going forward. Both tenants and investors are increasingly asking for greater transparency and carbon responsibility, now becoming a key factor of a building’s selection. Real estate investments must meet a high level of environmental, social and governance criteria, which requires effort throughout the entire lifecycle of a building whether in the construction or the day-to-day operation. At Ardian, we aim to transform obsolete assets into “Green+” assets, which means with strong sustainability credentials and answering the new needs of tenants in key city-centres across Europe. “Green+” buildings emit on average 40% less CO2 than other office assets on the market. Our carbon reduction trajectory is in line with the 1.5 degree Celsius target set by the Paris agreement in 2016. Our investment approach is built on the conviction that it is our fiduciary duty to produce positive outcomes not only for our clients but also for all stakeholders including the environment.
“The future workplace is moving towards a mix of traditional offices and telecommuting, where spaces are redesigned, favouring social interaction, cohesion and creativity. The optimisation of the number of workstations is less of a determining factor than the quality of the space and the services that accompany it.”
- Stéphanie Bensimon Head of Real Estate at Ardian
Q: Global supply chain disruptions have impacted many industries and sectors, with construction perhaps being among the hardest hit. What impact does this have on the real estate sector?
A: At the height of the Covid-19 pandemic, we saw delays in our construction sites across all our projects, similar to all industry players. This highlighted just how dependent construction companies are on raw materials coming from abroad. We saw firsthand how the collapse of one single supply chain from China, for example, could stall construction and thus impact performance. That episode is a great example highlighting why companies should seek to source more local solutions, reducing reliance on overseas suppliers and developing more sustainable processes.
Q: It has been said that the real estate sector is resistant to embracing technological transformation. Do you see this as a problem and is it likely to change?
A: Yes, I think this has been the case historically with real estate investment management being notorious for its resistance to change. However, the shock of Covid-19 pushed the real estate sector towards a more tech-based industry. Property managers are now more likely to turn to technology to support every step of their investment management process – a process which seems set to change. A better integration of data collection and data automation will help streaming tenants’ demands and facilitating financial reporting. Investors will also shift from spreadsheets to digital software with access to real time data on investment performance to more quickly identify new trends, needs and solutions.
Q: What about the investment side, will we see a greater willingness to welcome the latest technologies?
A: I think it is inevitable and we could expect to see a shift towards more transparency with the rise of digital platforms listing all data on deals ultimately generating more market volume and a faster pace for transactions. Additionally, new data collection processes may lead to more accurate growth trajectories, as traditional appraisal metrics may not fully capture a building’s key aspects.
Q: And finally, with the transition in the real estate sector already underway, what key points should be particularly monitored?
A: I see three areas to keep an eye on. First, whether rental values for prime assets will continue to increase. It is hence crucial to assess supply and demand to ensure renting the best products at good rents while continuing to offer an excellent quality/price ratio to tenants. Next, we should monitor whether the risk remuneration for undertaking Core+/ Value-add projects continues to decrease, given that in today’s market, the risk premium between Core and Value-Add assets is increasingly narrowing. Finally, we need to evaluate whether prime yields will continue to compress even though interest rates continue to rise. This is especially relevant in today’s context of price inflation with real estate remaining a strong hedge against inflation.
“Eventually technology will help investment managers manage their portfolio and tenant relationships more efficiently through data collection and data automation, focusing on the essential: finding solutions through social interactions.”
- Stéphanie Bensimon Head of Real Estate at Ardian
Ardian is a world-leading private investment house with assets of US$125bn managed or advised in Europe, North America and Asia. Their mission is to generate sustainable, long-term returns for clients, alongside positive social impact that benefits all stakeholders and society at large.
This article was originally published in the Sensus Magazine. Click the image on the right to flip through our most recent issue or browse through our previous editions of the magazine.
Global Sector Head, Real Assets
Director, Real Estate Europe