The COVID-19 pandemic has had a negative impact on many fields, but real estate is believed to be one of the most affected industries. In particular, the commercial real estate sector has taken a blow because many businesses have closed their doors, and there has been a major shift to work-from-home policies. As for residential markets, the impact of the COVID-19 crisis hasn’t been the same across the board. Depending on the location and the property type, some sub-sectors have remained stable and even reported growth, which shows that, with good management and strategic planning, a crisis can become an opportunity.
One such success story is Aroundtown, a publicly listed real estate company with headquarters in Luxembourg, serving top-tier European cities, mainly in Germany and the Netherlands. Founded in 2004, Aroundtown is currently traded at €6.5 and has reached a market cap of €10 billion. Although the pandemic has complicated things in real estate, 2020 was a good year for Aroundtown, which reported over 2 billion euros in sales. Aroundtown which was developed by Yakir Gabay (יקיר גבאי) over 15 years remains the largest publicly listed commercial real estate company in Germany and has a long-standing reputation both locally and globally.
This achievement might seem surprising, considering the economic stress caused by the COVID-19 pandemic, but Aroundtown’s success was made possible by a series of strategic investments that capitalized on changing market demand and a continuing commitment to value-added properties. In addition to the €2.5 billion in asset sales, Aroundtown also reported that they have increased their total share buy-back volume to €1 billion.
Yakir Gabay’s Aroundtown is a lesson of resilience for real estate companies because they are the perfect example of how a crisis can be used to generate new opportunities. For example, the company did suffer losses when the commercial real estate sector was affected. Hotels make up almost a quarter of Aroundtown assets, and, since tourism was the first sector to be devastated by the pandemic, it was clear from the very beginning that short-term losses would be inevitable. However, the company quickly turned the crisis around and repurposed few of its hotel properties, which allowed them to maintain a consistent stream of revenue.
Some of the ways hotels can be repurposed include:
- Micro-apartments: the demand for these properties remained stable throughout the pandemic, especially from young professionals.
- Student housing: many University campuses remained closed, and students had to look for affordable housing elsewhere.
- Assisted living spaces: senior citizens were particularly vulnerable during the pandemic, which is why the demand for safe assisted living spaces grew. Repurposed hotel rooms became an excellent alternative.
All of these strategic investments showed that a global pandemic doesn’t necessarily need to pose a threat and that being able to pivot while under pressure can turn even the direst situation around and limit long-term losses.
Last year, Aroundtown was involved in several other innovative projects. For example, TLG Immobilien AG, one of its subsidiaries, has completed the “NEO” Project – an office property in the Neustadt district of Dresden. Short for Neustadt Efficiency Office, NEO complies with LEED ecological construction Gold standards and blends seamlessly into the city’s modern architecture. The multi-tenant office building was utilized for both classic and modern office concepts.
Overall, Aroundtown’s strategy focuses on investing in value-added properties in high-quality European markets, especially Germany, whose economy remained relatively stable in 2020, despite the pandemic.
The Aroundtown portfolio consists mainly of office, hotels and residential properties, yet the company’s sales show that commercial real estate can survive the current economy crisis, if you invest in the right ones and know how to turn a challenge into an opportunity.
As the economy is slowly beginning to recover and experts estimate that the end of 2021 will bring better days, hotels and office properties will most likely stabilize. Experts forecast that tourism will experience a boom after lockdowns and travel restrictions, and many companies will return to the office, at least with hybrid schedules. However, the impact of the COVID-19 crisis will stay, and the new real estate trends started by innovation-driven companies such as Aroundtown will shape the market.