COMMENT: Cities have existed since around 5000 BC, when the first were founded in what is now modern Iraq. Since then, mankind has been on a slow but steady journey of urbanisation – a trend that then exploded following the industrial revolution.
As cities start to emerge from lockdown, some are predicting the decline of urban living. Yet while cities will undoubtedly change in response to coronavirus, far from entering a period of decline, we are about to enter a new golden age of urban renewal.
While some may move to the suburbs in search of more space, lower cost of living and improved quality of life as a result of the pandemic, this will only end in suburbs looking more like city centres.
Urban ecosystems
Already it is outdated to talk of a single city centre or central business district in the world’s major cities. Think of London, Berlin and Paris; all have several business clusters supported by their own extensive ecosystem of retail, leisure, transport and housing.
The twin factors of geography and planning regulation mean European cities will never experience the same level of suburbification as US cities either. It is also expensive to build new suburbs, as you need additional transport links such as roads and railways, as well as social infrastructure like schools and hospitals.
Intensifying land use, either through densification or adding more uses, is the only realistic option for most European cities. Rather than seeing the inner city hollowed out, a migration to the suburbs – or even large towns – will simply see more inner cities recreated elsewhere.
Coronavirus is also undoubtedly going to see vast swathes of real estate repurposed earlier and faster than many in the property industry were expecting. The structural challenges facing retail have been known for years, but lockdown has accelerated the rise of e-commerce – a shift we are tapping into with our new last-mile logistics platform Crossbay.
Similarly, the rise of technology that better enables remote working had already started to impact the office sector with the advent of co- and flexible-working spaces. But with millions now having been forced to work at home, many companies, especially smaller ones, are reconsidering their space requirements.
Change of use
This is not to say the office is dead: people will always value the in-person collaboration that comes from having a fixed workspace, and many companies will still want centrally located, high-quality, well-designed headquarters.
Nor is physical retail dead: convenience stores and supermarkets have benefited during this crisis, while luxury retail demonstrated resilience pre-crisis.
Yet many retail and commercial properties will need to be repositioned to respond to changing consumer habits around working and shopping.
In many cases this will involve bringing in other uses, including residential, leisure and hospitality.
Through our urban mixed-use value-add strategy, Meyer Bergman has been doing this for years. From interwar residential buildings in central Milan that we are turning into modern housing and retail to The Whiteley, a £1.5bn redevelopment of London’s first-ever department store into luxury apartments and a five-star hotel, we are revitalising existing buildings into new destinations with a mix of uses that are appealing to modern occupiers.
From the perspective of institutional investors such as pension funds and insurers, which we typically partner with, mixed-use assets are attractive as they provide diversified income streams to help match their liabilities. Similarly, repositioning existing assets is typically less expensive and risky than ground-up development.
So rather than see the decline of the city, Covid-19 will only accelerate trends we were already seeing, and changes to urban landscapes will be driven by shifts we were already experiencing pre-coronavirus. For municipalities, there is a huge opportunity to harness institutional capital to drive urban renewal and prevent urban decline post-pandemic.
Josip Kardun is chief investment officer at Meyer Bergman
