Real estate is leaving “safe harbor” – five thoughts on sealing the ship
Regardless of how one assesses the development of the markets, the economic slowdown, the rise in interest rates or the effects of the pandemic, conditions have deteriorated significantly for the vast majority of players in the real estate sector. The mood has clouded over.
On the investor side, distrust of the asset class is growing. The question is whether real estate will remain an anchor of stability for investors under the new circumstances. In any case, the German real estate sector is no longer seen as a "safe harbor " for investors’ money. But beyond the gloomy climate, the real estate industry itself is at the center of numerous major transformation needs, mainly around social and environmental questions, such as moving toward greater sustainability or the call for affordable rents and housing.
As the number of topics increases, so does the number of relevant or involved stakeholders. They are gaining in voice and weight. The classic shareholder economy is no longer the model of the future. The real estate sector has entered the era of the stakeholder economy. The debate on affordable housing in Berlin, in particular, has highlighted that the positions of all parties could become crucial to the success, failure or social acceptance of business models.
As a result, the expectations towards the real estate sector have never been as high and complex as they are today: investments in climate protection, well-balanced urban development, improving sustainability, social and fair behavior, digitization and, last but not least, the battle for the industry’s most capable talents. And all this is combined with rapidly rising costs and further increases in interest rates. The list of issues that real estate players must face today goes on forever.
Management teams do well to learn the views and perspectives of their counterparts. Especially in times of change. After all, understanding these is crucial for answering the question: How does what we do or want to do fit with my stakeholders' expectations, or how can I harmonize those perspectives?
Management teams should therefore consider the following five thoughts:
1. Know your perception among stakeholders
The self-perception of many management teams is often shaped by feedback from investors or analysts. Their view is important, but opinion leaders and the general public are too often forgotten as stakeholder groups. An analysis of the public debate, for example in the digital universe, often leads to a great knowledge gain.
2. Identify weaknesses and talk about action fields
Leadership teams who guide companies through difficult times must explain their strategy well. Especially in the real estate sector, which experienced a long period of upswing, a good understanding of the direction the company is taking is important and will build trust with external as well as internal stakeholders. Therefore, management teams should publicly identify the weaknesses of their business as fields of action in their strategy and operations.
3. Have a strategy at hand before someone challenges you
For investors, German real estate is no longer a no-brainer. Management teams need to be able to communicate their plans for the company well, especially in turbulent times. Investors and other stakeholders can speak with a loud voice and may catch management teams by surprise. Therefore, it is important to have a strategy and messaging in place when a stakeholder publicly questions the management's strategy, a company’s valuation, the business model or the management team itself.
4. Develop a position on critical sector issues
Identifying critical developments at an early stage is crucial for the long-term success of a company. The real estate industry in particular, which has recently become the focus of increased discussion, will be impacted by this even more frequently in the future. Therefore, it will become more important for management teams to know the standpoints of their individual stakeholders, develop a position and be able to argue for it in public.
5. Give yourself a voice
Some management teams already have good monitoring of the multitude of critical issues relevant to the real estate sector. However, they still participate in public debates too rarely and do not take advantage of the opportunity to shape the decisions and the debate themselves. This means that if a management team wants to have a say, it should give itself a voice.