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How is coronavirus affecting the office sector?

Office BuildingsThe onset of the Covid-19 pandemic has seen many more people working from home, leaving offices largely empty - but the sector remains resilient for now.

A recent report by Hamburg-based Intreal found that the office sector accounts for around 54% of open-ended property funds on average in Germany.

These open-ended funds saw inflows of €1.3 billion throughout March, April and May. At the height of the crisis in April, open-ended real estate funds’ net assets still surpassed €110 billion, Intreal’s report shows.

But as the ‘working from home’ trend expedites, investors in the office sector may need to rethink certain aspects of their portfolio, such as location and functionality of space.

Energy Impact Partners

According to Axel Drwenski, head of research at asset manager KGAL, the concept of what constitutes a good location has been changing in recent years. He believes the pandemic has accelerated this trend. “This applies not just to the inner-city prime locations, but also to satellite locations which benefit from good public transport system access and sufficient amenities of daily needs as well,” he says.

Those who can work from home will likely do so for the foreseeable future to free up office space and save money, as well as avoid the risk of infection. This means investors will have to pay more attention to the functionality of the buildings they invest in – in terms of, for instance, how robust they are to crises such as the pandemic and how good the ESG credentials are to offset other future risks.

According to Gunnar Herm, head of research strategy for Europe at UBS-AM Real Estate & Private Markets, some investors started to change their approach to real estate a few years ago – but the majority still think in terms of providing space that tenants should occupy.

“Now I think things will move more towards the direction that you, as a landlord, should understand the reasons why this particular tenant wants to use that space,” he explains.

Investors have to understand the operational needs of a business seeking to operate in any given area – “and that means you become much more operational as a real estate investor”, Herm adds.

Read the full report: Real estate: 'the office is not dead yet'

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