The ability to survive crises and adapt to new market conditions has become essential for success in the property sector. Resilience is no longer a buzzword, but a fundamental principle influencing both investors and companies. In times of global uncertainty, economic turbulence and climate change, the resilience of property portfolios has increasingly become a focus of attention. Since the pandemic and Russia’s invasion of Ukraine, increasing attention has been paid to the capacity to survive crises or shocks. Stability is just one aspect of resilience. In fast-changing times, adaptability is also needed to build future-proof portfolios and be able to hold one’s own in times of crisis.
The problem: so far, there is no standard definition of, or instrument to measure, the resilience of property portfolios so as to guide market participants and facilitate a comparison of property products. In the media, the word resilience is used in very different ways and in a wide range of contexts in connection with property investments. Some academic studies and analyses have already dealt with resilience factors. In its publication, The Resilient City – Concepts, Conflicts, Solutions, Helmholtz Centre for Environmental Research (UFZ) highlights the importance of resilient city structures in surviving crises and safeguarding people’s long-term quality of life.¹ A study by Urban Land Institute (ULI) and BNP Paribas REIM also outlines ways to increase urban resilience.²
These studies are certainly valuable; they stimulate further discussion and provide approaches to increasing resilience. However, as far as standardisation of the definition of the term resilience and comparability of resilient property investments is concerned, there remains considerable room for improvement.
Resilience at various levels
We too are faced with the question of how we can remain resilient in a VUCA world (that is, one characterised by volatility, uncertainty, complexity and ambiguity). With more than 30 years of experience in the European property market, we have identified some points as being essential. We do not claim to have compiled a comprehensive list; our intention is to initiate and promote discussion in the sector.
Overall, resilience in property investments needs to be examined by an integrated approach, looking at different levels – four fundamental ones being the location, the property, the portfolio as a whole, and the asset management.
Location – Location has a key influence on the resilience of properties. For instance, despite the challenges of the past few years, office real estate in the top locations in major European cities has proved to be a resilient asset class. These properties continue to provide secure cash flows due to high demand, limited supply, and long-term appreciation potential. It is also important to consider relevant location-specific factors such as proximity to restaurants and optimum public transport links.
Property – The more flexibly properties can respond to new challenges, the more resilient they are. An ability to adapt to the changing requirements for workspaces and residential spaces will secure high rents and stable cash flows. In addition to construction quality and the credit ratings of the chosen tenants, sustainability considerations have a significant impact on the long-term value of a building, as investments in core properties with high ESG standards will benefit from increasing user and regulatory requirements
Portfolio – Wide diversification provides substantial protection against risks. Geographical diversification of portfolios, focusing on countries with robust economic growth and including different categories of use with stable demand, ensures stability in different market phases. Long-term investment strategies offer additional protection against short-term market volatility and increase earnings potential.
Asset management – Whereas in the past the market has often been the key determinant, nowadays professional asset management is more important than ever in ensuring the future viability of property investments. Approaches such as manage to green and manage to core help to make buildings compatible with the pathway for climate change mitigation provided by the Paris Agreement, and increase their values in the long term. Proximity to tenants, along with a thorough understanding of their needs, guarantees a stable performance. Active asset management is crucial for stable rent incomes – in terms of earnings potential and as an important element in value retention for the relevant building, and thus for the entire portfolio.
Resilience – a guiding principle for Real I.S.
We see resilience as more than an ability to survive crises. For us, it includes active adaptation to the new reality, as well as the strength to take advantage of opportunities – through ESG-compliant investments and categories of use with very good rental prospects. We are continuing to focus on office real estate, but we are also taking advantage of specific opportunities in other segments such as residential and logistics. Sustainability also plays a central role in our activities: more than 75 percent of our portfolio assets already comply with the requirements of Article 8 of the EU Disclosure Regulation. We are continuing to improve the energy efficiency of our buildings and reduce emissions using the latest technologies.
Our team is present in key markets such as Germany, France, Spain, the Netherlands, Ireland and Australia. In-depth knowledge of the local sector environment and a broad network ensure direct market access and enable us to promptly react in a targeted manner on local developments and trends. An example for our readiness to take advantage of opportunities is our new acquisition in Australia. Recently we have purchased another office building in Sydney for our institutional real estate fund Real I.S. Australian Institutional Portfolio Fund (AIPF) and further diversified this portfolio managed exclusively for German institutional investors. The office property complies with the requirements of a modern working environment. The complex is in a prime location on Walsh Bay, in the rapidly growing district Barangaroo. The recently opened underground station Barangaroo is within short reach and has decisively improved the district’s accessibility by public transport, and thus also improves the attractiveness of our newly acquired office property for current and future tenants.
Conclusion
Resilience is more than just a response to crises – it requires far-sightedness and willingness to adapt continuously. For property investors, this means not only overcoming current challenges but keeping an eye on long-term trends and building up resources to enable opportunities to be exploited. Diversification, ESG-compliant investments and active asset management can strengthen the resilience of portfolios and properties. However, to improve the comparability of property investment products, it would be beneficial if the use of the term resilience were standardised, and a kind of resilience indicator developed.
¹ Press - The resilient city - concepts, conflicts, solutions
² Wowi-architektur-ULI-und-BNP-2024_ULIBNPPREIM_Urskussionspapier.pdf