This article represents the second piece in a two-part series on how the Coronavirus pandemic will transform the real estate business. Undoubtedly, this transformation will prove disruptive to some incumbents in the sector. However, this transformation will also usher in compelling opportunities for innovation. Real estate developers who capitalize on such opportunities will not only survive the crisis, but position themselves to thrive in the post-Covid19 paradigm.

Agya Ventures, a real estate tech VC fund (with whom I serve as an advisor) has produced a detailed assessment of the secular transformation underway in real estate, identifying the key transformative trends as well as sourcing several startup actors driving the forthcoming innovations in the sector globally. Feel free to contact me directly if you are interested in accessing the full paid version of Agya’s detailed analysis, The Future of Real Estate Post Coronavirus.

In the previous piece I reviewed the first three of seven key trends in real estate deserving the attention of senior management at companies with real estate holdings, notably (1) Increased Hygiene, (2) Social Distancing, (3) Healthy Buildings. Here in part 2 I will discuss four additional trends.

Shifts In Mobility

Mobility patterns in cities will shift significantly over the short to medium term. People will be encouraged to walk and bike, at the expense of crowded public transport, subway lines and pooled rides.

1. Less room for cars: Governments, particularly in Europe, are calling for restrictions to private car ownership, citing a high correlation between air pollution and COVID-related mortality rates. The mayor of Milan has been particularly vocal in his advocacy against cars, suggesting that “if everyone drives a car, there is no space for people, no space to move and no space for commercial activities outside shops.”
2. Expansion of cycling and walking spaces: Cities are working overtime to expand roads and sidewalks to allow citizens to walk and bike without being in close proximity.
   1. Berlin has installed pop-up biking lanes almost overnight to respond to the crisis. Brussels is now making the entire city center a priority zone for cyclists and pedestrians. Paris is fast-tracking its plans to build a new network of 9 long-distance cycleways.
3. Curtailed public transport: In what will be particularly challenging for cities like Tokyo and New York that rely heavily on metros, strict distancing curbs will need to be applied, especially at peak office hours.
   1. Milan is expected to limit ridership to 400,000 daily rides for its metro, down from 1,400,000 before the crisis. To accomplish this, it will draw circles on the floor of the metro trains to ensure social distancing and temporarily close stations when capacity is reached.
4. Emergence of micromobility: In the context of reduced public transit options and growing infrastructure for cycles (alluded to above), we anticipate a surge in demand for micromobility options. Specifically, companies that are responsive to the needs cities and work collaboratively with governments will benefit from these tailwinds.

Virtual Everything

Agya anticipates an accelerated embrace of technology across various points in the real estate leasing and property management value chain, specifically in areas that previously required in-person visits or frequent human interactions.

1. Apartment viewings: Future tenants and homeowners will increasingly view apartments only online, partly basing their decisions based on the quality of virtual tours offered by developers: schematic floor plans, interactive maps, VR offerings, voice-overs and live panoramas will assist in closing transactions.
2. Lease Closings: Commercial lease transactions that tend to be complex with multiple parties, documents and rounds of negotiations involved also stand to get more streamlined through workflow / process automation software.
3. Interior Design: Using software to design the interiors of an apartment or office will gradually shift from the domain of experts to that of regular individuals wanting a visual sense of how their future space may look like.
4. Tenant Communication: Landlords will need to communicate cogently with tenants to ensure they feel safe and confident in returning to their workplaces.

Eating Out While Eating In

As we increasingly move towards a stay at home world, there will be a surge in getting food delivered to our doorsteps. While this will have ramifications for the traditional restaurant industry, Agya forecasts that ghost kitchens and drone deliveries will further accelerate an ongoing trend.

1. Ghost kitchens: Often referred to as the ‘coworking of the food and beverage industry’, ghost kitchens have attracted a lot of press over the last few months. Such companies offer kitchen space to restaurants, purely focused on takeouts and deliveries, helping them lower their fixed costs.
2. Drones for deliveries: Given the increase in demand for food deliveries, companies like Uber Eats have experienced a surge in demand in recent weeks. This increased demand will likely be met partially by the deployment of drones, either by incumbents or by established players in the space.

Do More With Our Space

As we emerge from this crisis, one of the key learnings for the real estate industry should be to identify ways to make our spaces less intractable, more flexible and responsive to the needs of society. Agya envisions this trend playing out in the medium term in the following ways listed below:

1. Hybridization: There has been a growing realization in the commercial real estate space that existing lease structures are not nimble enough.
   1. Moving forward, a 10,000 SF food and beverage facility should allocate space not just for restaurants but also for ghost kitchens, food delivery company warehouses, pop-ups and drone delivery stations.
   1. Similarly, existing tenants should be given the flexibility to use their spaces for different purposes – ghost kitchens in the afternoon and restaurants by night – and not remain confined to a specific use case.
   1. While demand for such hybridization is imminent, supply will need to consider design, safety and zoning considerations over the medium term.
2. Agile Construction: Over time, developers will be expected to move faster to build new buildings or modify existing ones. Of particular importance would be to come up with a strategy of whether to build these capacities in-house or strike strategic partnerships with startups operating in the space, and leveraging key aspects of their technology.
3. Adaptive Reuse: Agya would encourage real estate developers to also think about the industry’s role in such crises. One way for to make an impact during these times is by designing buildings in a fashion such that they are adaptable for reuse as emergency medical facilities.
4. Similar to how Javits Center in New York was converted to a 2,900-bed hospital, and London’s ExCel Field turned into a medical facility for 4,000 patients, perhaps it is time to think about how real estate can double up as space for emergency healthcare in times of dire need. While the financial implications of building such adaptable real estate is unclear, the societal impact will be extremely high.

Conclusion

In summary, Agya Ventures believes there will be an initial wave of incremental innovation in real estate to address immediate needs cantered around increased hygiene, social distancing, and making buildings healthier as employees gradually transition back to office. Subsequently, this pandemic is likely to bring some lasting shifts to how real estate operates over the medium to long term. This includes shifts in mobility patterns, hybridization of leases and making real estate more open to adaptive reuse. While the real estate industry evaluates the impact of the Coronavirus crisis, for pro-active real estate owners, this could be an opportunity to leverage technology and position their businesses for sustainable growth.