Today, we are living in what has been termed a VUCA environment; that is one that is volatile, uncertain, complex and ambiguous. Brexit, technological change, urbanization, climate change and demographic change all present threats to those ill-prepared to manage the impact, but also opportunities for those agile enough to capitalize on them.
The challenge facing real estate investors is how to make decisions to anticipate, adapt, maneuver and change course as needed within a dynamic world; making investment in the right places and at the right time that will continue to deliver value in the future. Resilience is key to delivering this.
The International Standards Organisation defines resilience as “the ability to absorb and adapt in a changing environment.” Essentially, this describes the ability to manage shocks, such as flooding, power outage and continue through disruption in the short term, and to adapt to stresses like climate change, Brexit and other challenges in the longer term. Better resilience allows realization of strategic ambitions through protecting critical resources, creating and sustaining opportunities for enterprise and empowering individuals, communities and places not only to survive but also to thrive.
Resilience yields five main benefits for property owners and managers. First, resilient real estate minimizes business disruption and asset damage. In turn, this reduces costs and keeps you and your tenants and the community in business. Second, resilient cities and communities attract business and people, and this increases the demand for real estate. Third, a resilient organization can gain competitive advantage by being agile enough to avoid risks and seize opportunities before others. Fourth, resilient real estate reduces whole life costs by providing a flexible, adaptive building that is easier to change to meet future needs. The fifth benefit is that a resilient culture and approach facilitates clear, evidence-based decision-making and prioritization of investment, which leads to realization of strategic goals.
Approach to creating resilient real estate
Based on BS67000 – the British Standards Institution guidance for increasing city resilience – a good resilience strategy has a balance of measures that are durable, adaptable, inclusive, integrated and reflective. Durable measures protect and enhance the value of assets. Investing in protective measures should consider risk, cost, benefit and adaptability. Inclusive measures take a strategic human-centered approach, including stakeholder participation – building users and the wider community – in your development. This provides a shared ownership and maximizes value delivery. Think about how your real estate can help deliver community value by, for example, incorporating community amenities such as green space. To be effective, resilience needs to be integrated; real estate is part of a wider system so look at how resilient other parts of the system are and look for ways to invest in measures that achieve multiple benefits.
Adaptability should be built into long-term planning, to incorporate potential changes to technology, working patterns, population, usage, loading and transportation modes, for example. Agility should be developed to maneuver quickly in a changing risk landscape to avoid risk and seize opportunities; spotting the next trends, for example, where the next up and coming area is. And finally, resilience is reflective; an ongoing process of continuous assessment, learning and improvement, so monitor performance of assets, capture lessons learned and learn to thrive not just survive.
How to create resilient assets
1. Understand the greatest risks and opportunities within your portfolio. Consider the shocks (floods, terrorism), stresses (changing demographics, urbanization) and trends (how these change over time) that will affect your portfolio. Use this to guide future investment decisions (locations and sectors).
2. Conduct a resilience assessment (gap analysis) on your portfolio to prioritize assets where resilience capacity needs to be increased.
3. Develop a strategy for your portfolio that plans for resilience with a combination of integrated measures that balance upfront mitigation with the risk of potential downtime and recovery cost.
4. Determine resilience requirements for future projects with tenants based on risk, cost and benefits.
5. Take a broad view by considering the resilience of locations and communities, and how your assets contribute to this.