(ATF) The future of the workplace is changing. While some look to return to what was once considered “normal”, the reality is that there is no going back – the cat is already out of the bag.
The immediate consequences can already be seen. In commercial real estate, for example, remote working is expected to result in a 10% drop in capital values for offices in the Paris region over the next 10 years.
This can be seen in other sectors and industries as well – some more discernible than others. Infrastructure, for example – including telecoms, power and transport – will need to adapt to a new era of flexibility, shedding its historical stability and predictability to embrace the “new normal”.
Telecoms infrastructure bears the clearest hallmarks of the impact of Covid-19. Existing digitalisation trends pre-Covid have been accelerated by the pandemic. Since the outbreak, some telecoms players have reported a 30-40% jump in data traffic – further accelerating the need for new and additional data centre capacity. This is increasing demand for the financial industry to provide M&A and new financing support for companies worldwide.
The shift to working from home, meanwhile, will stimulate demand for the fibre to the home (FTTH) market. Municipalities in medium- and low-density regions will be under pressure from their citizens to to deploy more FTTH to bridge the gap between urban and rural access levels. Indeed, high-speed fibre connections will prove a strong discriminating factor for real estate transactions at a time when many households are looking to relocate (or invest in secondary homes) in the countryside.
For the power sector, the crisis resulted in a sharp drop in demand due to lockdown measures, and has yet to fully recover. The longer-term consequences are still unclear, notably whether production and demand from electro-intensive industries such as the automotive industry will pick up, and the extent to which demand will shift towards residential areas due to the remote working trend.
Mind the gap
The transport sector also saw sharp reductions in demand due to the crisis. It is unknown whether this has been permanently changed by the pandemic. For commuters, this is not just a question of more remote working, but also of using other means of getting around. Bicycle and electric scooter traffic volume has exploded, but will people keep cycling once a vaccine has been found? Similarly, will business continue to rely on Zoom calls or will in-person meetings once again become the norm?
To regain their financial health, the operators of urban transport systems will need to adjust capacity to align with new demand patterns. Yet these patterns are both difficult to forecast and difficult to adjust, due to the historical rigidity of the systems in place.
The aviation sector has perhaps been most negatively affected by the pandemic. At the peak of the crisis in April, amidst the height of national and regional governmental lockdowns, global air traffic was down almost 95% compared to the same time last year. Since then demand has started to increase as travel restrictions have eased, but the recovery has been slow and is expected to take year to fully recover. According to IATA, global traffic in August had improved to approximately 25% of the August 2019 level, but significant differences exist between international (-88%) and domestic traffic (-51%).
The recovery of international traffic will largely be determined by two factors: governments’ responses to further outbreaks, and the development, availability and acceptance of a vaccine and therapeutics. Domestic travel is recovering faster, led by the visiting friends and relatives market, but varies widely by region. China domestic travel, for example, is back to over 80% compared to the same time last year, whilst in the US and Europe demand is still down by approximately 70% on 2019 levels.
Air travel will no doubt return to pre-Covid levels, but the questions are when and what will it look like. Airports and airlines will need to adapt certain infrastructure. Rapid testing and health screening before departure and/or upon arrival are likely to become the norm in the near-term to help remove the requirement for quarantine restrictions.
The creation of standardized international airport and travel protocols, together with the development of universally agreed methods of contact tracing, should provide a stable framework to rebuild traveller confidence. This may also be accompanied by “health/immunity passports”, with travellers required to show they have been vaccinated.
The pandemic highlights the need for flexibility in the workplace, but the consequences go far beyond the office. How can we forecast the impact of these decisions on transport network and energy grid capacity? How will these changes to the way we work affect urban planning and real estate market trends?
Part of the solution will be an increase in cross-industry collaboration to help align network capacity with expected consumer behaviour. However, while data-sharing exercises should facilitate forecasting, they will not exempt infrastructure companies from improving the flexibility of their systems and accelerating the digitalisation of their networks to provide real-time data.
There are no straightforward solutions to the challenges, but there is an opportunity for a fundamental change in the way industries are organised and the way society functions. If we integrate flexibility into our work, it must be successfully translated to the infrastructure that supports this.
In turn, adaptation and innovation, fuelled by data and aligned with the way we work and live, will be key to a successful “new normal”.
We must unlearn how these industries function, and rebuild them through gradual change, always keeping in mind the new, flexible, end user. If we fail to do so, we risk deepening the gap between our needs and our infrastructure’s ability to meet them.
# Anne-Christine Champion is Global Head of Real Assets, Corporate Investment Banking at Natixis