a German perspective
“As asset managers, we are asked not to lose sight of profitability even in difficult times. The implementation of new portfolio strategies often entails high investments, the monetary benefit of which will only become apparent in the long term and therefore requires a sophisticated concept rather than ad-hoc solutions.”
Simone Knopf
Director Investment Management
Avison Young
Maintaining or expanding the profitability of a property is demanding. It is a matter of constantly balancing the interests of the various stakeholders in order to secure rental income in the long term and to keep user satisfaction and the operational safety of the properties stable.
In the course of the Covid 19 pandemic, the implementation of these simple strategic goals was suddenly catapulted to a completely different level by new - even unprecedented - challenges. Out-of-the-box thinking now guides the daily lives of property management experts.
Formerly solvent tenants suddenly reach their limits, which leads to unexpected rent losses - sometimes on a dramatic scale. Originally long-term tenancy agreements are cancelled and or terms are shortened. Thoughts of relocation are replaced by flexible utilisation scenarios of the current rental spaces. The real artistry is to intensify the communication between a professional administration and the tenants and to find amicable solutions despite understanding the economic background of the user and that also takes into account the interests of the owner.
The pandemic also acted as an accelerator with regard to building technology. For some time now, proptech solutions for technical optimisation, e.g. digital monitoring or as concierge services, have been on the rise. The one or other "nice to have" became a "must do" and "must have" overnight, with the intention of limiting contacts with digitalisation. Digitisation retrofits that have been planned for a long time are suddenly to be implemented alongside the management of the pandemic challenges on site. Owners are confronted with the necessary investments without being able to estimate whether the users are willing to participate in the costs.
Administrators and owners are also called upon to be open to medium- to long-term measures and to rethink; to adapt to flexible lease structures, or to alternative utilisation concepts. Such potentially value-enhancing measures must be planned carefully and projects must be viewed from the changed perspective. Conceptual realignments are not necessarily at the expense of profitability.
"Owners will have to accept more flexible lease terms, e.g termination options after 3 years, turnover rent instead of base rent, etc. Additionally, the creditworthiness of the tenant and its crisis resilience will come to the fore."
Christian Wolf
European Capital Markets
Avison Young
As critical as COVID-19 was and is, and as it has pushed for acute solutions in many extreme cases, it has promoted a change in thinking. While ESG has often been described as a new trend, it has been pushed and implemented in numerous initiatives and strategic decisions since the pandemic began. Companies have taken advantage of the quieter buying phase in 2020 to scrutinise their portfolios. Instead of purchasing decisions, they have turned to strategic considerations of the portfolio. The E-criterion - the environmental aspect - has been established for years and is integrated into the reporting and standard valuation of properties by the majority of owners and investors. Now the focus has also been turned to the S (social) and G (governance) components. For a long time now, it has not only been about renewable energies or certifications, but also about more transparency, cost optimisation, user participation in initiatives, but also sustainable protection of users and their environment.
Whether it is an acute pandemic decision or a new strategic direction that needs to be accelerated, facility and property managers are increasingly required to be flexible and creative. They currently have to maintain property operations under difficult conditions, such as additional hygiene regulations, and at the same time look ahead to build and implement new long-term initiatives with the owner.
