What Trends to Expect in Real Estate in 2021
by Clara Giampellegrini |
After putting a challenging year behind us, it is time to focus on the new one. Like every year, it is important to think about new trends, possible changes in the market and, this year more than ever, the market’s response to the previous year. The pandemic left many changes behind, and suggests a turbulent, challenging, but interesting year ahead.
In a joint survey by PwC and the Urban Land Institute, the term of deglobalisation appeared and is predicted to become one of the major trends in real estate in the new year. Over the past decade, globalisation allowed investors to look at properties overseas and cross-border investments were extremely popular. In 2020, however, Covid-19 measures severely restricted international travel and, thus, made it almost impossible to view assets and manage investment logistics abroad. Consequently, cross-border investments shifted towards domestic markets, and local investments are likely to take overhand in 2021. “North American capital is finding its domestic market more attractive than Europe, and the survey revealed a strong expectation that European investors will play a greater role in their domestic markets than in previous years” (PwC & the Urban Land Institute).
It is thus advisable for European real estate agencies to increase their focus on the European market. According to the survey by PwC, Germany suggests a particularly promising market in 2021. Especially in the main cities such as Berlin, Hamburg, Frankfurt and Munich, vacancy rates are low and the economic stability of the country suggests higher investor confidence due to income being resilient in the face of the crisis.
The general trend suggests that the value of the real estate market in megacities is expected to drop in 2021.PwC, 2020
The general trend suggests that the value of the real estate market in megacities is expected to drop in 2021. Due to the pandemic, more quiet and bigger spaces have gained in popularity and offered attractive alternatives to the high costs, complication and crowdedness of big city life (PwC, 2020). Nevertheless, investors are optimistic about the investment opportunities in European capital cities, especially in London and Paris, for the year ahead.
In Luxembourg, it is safe to say that the real estate sector is overall in good shape. Its economic stability allows optimistic market forecasts, and despite the crisis, investors’ confidence is predicted to remain high. The attractiveness of the Luxembourgish job market and expansion in R&D leads to an increasing inflow of foreign firms and talents, positively affecting both residential and commercial property demand.
In an interview with Inowai Property Partners Luxembourg, Claude Turmes, Minister for Spatial Planning, underlines the importance of maintaining the good quality of life in the country, which could suffer under the phenomenon of overcrowding.Inowai Property Partners Luxembourg, 2020
However, the Luxembourgish real estate market faces different, country-specific challenges in 2021. In an interview with Inowai Property Partners Luxembourg, Claude Turmes, Minister for Spatial Planning, underlines the importance of maintaining the good quality of life in the country, which could suffer under the phenomenon of overcrowding. The aim is to restructure Luxembourg around three major development poles by 2035: the Center, the South and the “Nordstad”, so that not everything - mobility flows, infrastructure, businesses, schools, housing, etc. - solely focuses on the capital.
In terms of property pricing, Luxembourg is facing an imbalance between supply and demand for housing, which suggests a continuous price increase in 2021.
Regardless of the industry, the trends of sustainability and digitalisation rule the year 2021.
In Luxembourg, green construction projects can attain a 33 percent rental premium over comparable non-green certified buildings.JLL, 2020
According to real estate leaders, climate change and the environment are named as the two factors likely to have the biggest impact on the industry over the next three decades (PwC, 2020). The pandemic has massively accelerated efforts towards sustainability, which will have a major impact in 2021. Green construction techniques, self-sufficient buildings, and the overall shift towards net zero emissions are becoming more and more popular. This sustainability trend can be observed in the financial sector as well, as assets with high ESG (environmental, social and corporate governance) ratings are being prioritised and supported. In Luxembourg for example, such green construction projects can attain a 33 percent rental premium over comparable non-green certified buildings, according to JLL.
Another keyword in the real estate sector in 2021 is flexibility. With rising concerns about obsolescence, especially in the commercial real estate market where the fear that demand for office spaces will permanently decrease is persistent, the sector must adapt. The optimal solution could be the repurpose of assets and the improvement of their operational resilience and flexibility. To achieve this, the use of technology is not to be underestimated, and can create comparative advantages to its pioneers.
The fast-track of property technology in the real estate industry has grown by 1,072% from 2015 to 2019, and in 2018, venture capital firms invested $8.3 billion in Proptech companies around the world.Forbes, 2020
The fast-track of property technology in the real estate industry has grown by 1,072% from 2015 to 2019, and in 2018, venture capital firms invested $8.3 billion in Proptech companies around the world (Forbes, 2020). According to John D’Angelo, US real estate leader, Deloitte Consulting, the technologies that will primarily accelerate the commercial real estate industry in 2021 are digital twins, robotic process automation, data and analytics, and last but not least, direct digital engagement.
All in all, 2021 undoubtedly announces another turbulent year. Predictions are always known to be wrong, therefore, it is advisable to use them as a mere guidance, and to stay open and flexible to adapt to new trends and changes.