Megatrends — ready for tomorrow?

Megatrends — ready for tomorrow?

Identifying the potential for change — and the implications of change — is a key driver of decision-making. Megatrends are structural shifts, they are longer-term in their nature and their effects cause real and irreversible change in the world around us. An awareness of megatrends offers real insight — helping us to build today for tomorrow.

Megatrends generally take a global perspective that is not tied to one industry. REINZ commissioned a Megatrends report that focuses on real estate business in New Zealand. The nine megatrends identified are hybrid working, digitisation, the rental reality, wealth inequality, skills shortage, climate, sustainability, urbanisation, and generational expectations.

Understanding these trends and how they are likely to evolve over time can reveal challenges and opportunities and, importantly, what we can do now to ensure an enduring and future ready profession.

1. Hybrid working

Before COVID-19, we were seeing a shift towards hybrid working, as people sought to create a balance between work and life through flexible working and the adoption of technology. Over the past two years this trend was accelerated. Now, many employers are coming to terms with a more remote approach to working.

The impact on real estate is multi-faceted. Within commercial real estate, high-rise offices remain a big question. But while some heralded the ‘death of the highrise’, this seems an overstatement. The challenge will more likely be for employers navigating the transition and creating workspaces that incentivise employees to engage with their companies and return to the office and the central businesses that support them.

Reduced requirements for employees to be in the city will see those able to transition to dual occupancies — a home outside of the city centre and a smaller dwelling in the city for office days. Evidence points to an increased preference for outer suburbs, and more buyers and renters making a ‘home office’ a key consideration when looking for a property.

2. Digitisation

Again, while not new, the rate of digitisation was accelerated through the course of the pandemic. In practical terms, it means the automation of many simple work tasks, the enhancement of others through PropTech, and a shift in ‘sought after’ skills. For the real estate profession, this is likely to mean many ‘back-office’ functions will be digitised, while the sales pipeline will continue to require personal relationships.

Within the industry, engaging the real estate workforce will require managers to place more trust in technology to enable employees to communicate and collaborate effectively. There are some key areas where technology will come to the fore:

• Blockchain: Blockchain contracts will almost certainly become mainstream — connecting buyers and sellers and enabling new ownership structures.

• Transparency: There is already a growing expectation for freely available data, and an opportunity for agents to add value by analysing and providing it to clients in a format that meets their individual needs.

• Hybrid transactions: COVID-19 changed how properties are sold and rented, and as with hybrid work, it is likely that property will be sold in a hybrid fashion — enabling non-traditional residential property buyers to acquire property, such as institutional investors.

3. The rental reality

Falling homeownership rates mean an increase in those renting. However, uncertainty remains a challenge for renters — the sector will need to adapt to accommodate. This may include longer secure tenancies, increased freedom to customise the dwelling and increased budget for improvements.

Major changes in this segment include a shift towards build to rent. While in its infancy in New Zealand, we are likely to follow the global trend. With 40% of Kiwis now renting — a figure expected to increase to 60% by 2043 — the build to rent asset class has the potential to play a central role in our futures.

For years, small-scale investors have been buying residential rentals geared at families. However, institutional investors are increasingly beginning to invest in residential real estate — a trend accelerated by COVID-19. It is seen as a defensive rebalancing of portfolios, but equally important, the industry is also addressing the need in society for more affordable housing.

4. Wealth inequality

In New Zealand, 70% of household wealth is held by just 20% of New Zealand’s households. Increasingly, wealth inequality is fundamentally tied to those owning residential assets and those renting them.

COVID-19 had a disproportionate impact on lower wage employees. While knowledge workers have discovered the benefits of fluidity between work and home, blue collar workers continue to have fewer options. For real estate, this could exasperate the wealth divide between suburbs and regions.

5. Skills shortage

A 2021 survey found that nearly a third of young Kiwis planned to move overseas for greener pastures. Commentators, including Tony Alexander, note that, "If employers think it's bad at the moment, they ain't seen nothing yet.”

A New Zealand Work Research Institute survey found 60% of New Zealanders said COVID-19 changed their work priorities; ranking working remotely (42%), better health and wellbeing support (44%), and increased salary (44%) as their top considerations. Despite existing flexibility for agents and earning potential, agencies report a high turnover of newer agents due to the difficulty of prolonged periods with little income and difficulty getting listings when competing with more experienced agents.

Agencies attracting back office and rental staff will need to compete with other sectors for employees in the establishment years. The role of agents is moving from gatekeeper of information to a trusted guide who can help vendors and buyers seamlessly navigate the property market and provide professional analysis into the nuance of the market.

6. Climate

There is a big opportunity for real estate leaders in the convergence of energy and property. The property industry is wellpositioned to drive disruption in the energy market and grab a piece of the $6 trillion carbon capture market. (See page 30 on carbon sequestration).

Real estate and the broader property profession must recognise climate risk as a core issue. Recently, a SeaRise website was released providing detail on projected sea level rise around New Zealand and shining a light on areas around our coast that may be impacted sooner rather than later.

As such, planning should account for continual bigger and more destructive floods and storms as well as rising sea levels. The potential for regions in New Zealand to become ‘uninsurable’ will have clear impacts on real estate in those areas.

7. Sustainability

Increased consciousness has produced growth in green investments in real estate. Tenant space requirements, Governmental regulations, and demands for socially responsible investments (SRI) are primary motivations.

Additionally, homebuyers want and will pay more for sustainable features — from solar and windows to features that improve air quality. With generations Y and Z being more sustainability-minded, this trend is expected to become more relevant to all industries over the coming decades and further accelerate the green housing agenda.

8. Urbanisation

Increasing urbanisation in New Zealand is expected, particularly in Auckland which will likely continue attracting people from rural towns and, to a lesser extent, other cities and immigrants who predominantly move to Auckland.

Globally the long-term trend is for a proliferation of megacities, supported by regional hubs. Due to New Zealand’s small population with a relatively low population

growth likely and limited land availability, megacities are unlikely. Instead, the ability to enjoy a suburban and semi-rural or rural lifestyle will continue, especially for knowledge workers who can increasingly work remotely.

Improved housing choice, diversity and equity in cities that combined cater to different price brackets and ages, enables people to stay in one area longer. The diversification of urban property also supports more properties transacting, with empty-nesters able to remain in their community but downsize to free-up the family home for the next generation.

9. Generational expectations

As new generations move into homeownership, they bring with them new generational expectations. Generation Z (those currently aged 10-25) and

Millennials (26-41) make up 43% of the New Zealand population and both share a heightened commitment to sustainability. They will also expect property to the level of their parents.

The ‘coming of age’ generations are balancing these expectations with affordability, access to finance and changes to the property landscape. If affordability remains an obstacle and institutional investment in residential real estate continues, the consequence may be that an increasing number of young people will be locked out of homeownership.

Those whose parents are able and willing to provide the bank of mum and dad will continue to enable entry to the property market. However, the rise of the bank of mum and dad will create an inequitable situation and potentially cement longerterm wealth inequality, with many young people seeking greener pastures abroad.