Interview with Prof Dr Kerstin Hennig, real estate professor and head of the Real Estate Management Institute (REMI) at EBS Universität für Wirtschaft und Recht.
Which major trends will play a role in the real estate industry over the long term?
Prof Dr Kerstin Hennig: There are megatrends that have been changing our world for decades and consequently also the real estate industry, here in particular the way we live and work. The trends that are most relevant to the property sector are certainly urbanisation and suburbanisation, digital transition, connectivity, mobility, sustainability, safety and health. Some have been significantly reinforced by the pandemic, the impact of the war in Ukraine and recent changes in the market. Our economy and, closely linked to it, our real estate sector are at the start of a fundamental transformation. It is important not only to look at how buildings of the future will look, but how the requirements of their users have already changed and will change in the future. The aim here is to ensure that buildings and thus also our cities are designed to meet demands and to be sustainable. A change in attitude has long been seen among users. The trend towards remote working combined with flexible sharing arrangements, both with regard to mobility and working (e.g. desk-sharing models), is here to stay. Interestingly, however, personal interaction and the quality of the user experience are becoming increasingly important, combined with a growing emphasis on sustainability and saving resources. However, the existing stock of buildings does not yet meet these requirements. As a result, we will continue to see a lot of change in all asset classes.
Name four aspects that are most important for the future viability of the real estate industry.
Prof Dr Kerstin Hennig: Flexibility, agility and resilience, but also quality of life with a healthy work-life balance. This leads to major research topics that we also focus on. Examples include the future of the office and social impact investing. The latter is a relatively young field of research. In addition to the economic and ecological components, the future focus will include the consistent implementation and integration of the social component, and the social added value. We bear responsibility for this, while the precious resource, people, is gaining new importance relative to the built environment.
How important are modern working conditions in this context?
Prof Dr Kerstin Hennig: They play a major role in the competition for skilled workers alone, the ‘War for Talents’, which will remain one of the greatest challenges for the future. It is becoming more and more difficult to recruit and retain qualified staff. The industry must offer attractive working conditions to attract talent. It must also constantly evolve to satisfy the changing demands of the younger generation. This is not just about the place of work, but increasingly about the working conditions. Competition for talented employees will continue to rise in the coming years. If we want to optimise work productivity, however, we will have to be much more innovative, with more flexible work models, growing integration of artificial intelligence, automation and data-based solutions that enhance efficiency, for example.
And what is currently causing the greatest transformation pressure in the real estate sector?
Prof Dr Kerstin Hennig: The greatest global pressure for change is coming from the sustainability megatrend (ESG). This set of issues is playing an increasing role in society, including among investors and users of real estate. It requires new solutions, which must also be reflected in the appropriate legal framework. The major drivers of transformation in the German real estate industry also include market uncertainty, digital transition and regulations. This is also a key finding of the ‘Innovation Barometer of the German Real Estate Industry’, a study carried out annually together with Real I.S. In addition to Covid, the market environment has also seen extreme change due to the impact of the Russian war of aggression on Ukraine, high inflation, rising interest rates, and the shortage of skilled workers. The combination of exogenous shocks, macroeconomic developments and the impact of megatrends poses a challenge to us all: to deal intelligently with an environment undergoing transformation. This puts pressure on the industry to adapt and find new solutions. Regulations such as the EU taxonomy and the Disclosure Regulation are increasing the complexity more and more. Implementation of the social taxonomy is something to look forward to.
To what extent does sustainability play a key role for innovation in the real estate industry?
Prof Dr Kerstin Hennig: Sustainability and ESG have unequivocally been classified as key drivers of innovation within the real estate sector in the latest Innovation Barometer. Through the UN Millennium Agreement and the UN Paris Agreement, specific goals for social and environmental sustainability have been established globally, and are currently being implemented at local level. In very practical terms, real estate users and investors (must) now place greater emphasis on sustainability. With this in mind, and due to increasingly tight regulatory requirements, property companies also have to develop sustainable strategies and solutions in order to remain competitive going forward. One of the greatest challenges in the future will be to design and successfully implement sustainable processes for real estate, taking also account of economic factors, such that they comply with ESG requirements (in as far as known). This means, going new, innovative ways.
In which operational area of real estate does this result in a need to adapt, for example?
Prof Dr Kerstin Hennig: There is enormous pressure for transformation in the ‘Design & Realisation’ segment, for example, as it is seeing a large number of changes at present. Here again, sustainability is a key driver for innovation. The industry needs to come to grips with new building technologies, greener materials, and more efficient processes for development and recycling. Through innovation, it needs to find sustainable and technologically advanced solutions in order to continue meeting increased demands in the future. The greatest challenge lies in the existing stock of buildings and in economic feasibility, in addition to the ecological and social components.