Will the assets of our urban fabric survive the Covid-19 pandemic?

Massive socioeconomic upheaval puts components of our urban fabric at heightened risk of becoming stranded assets.

We live in a rapidly evolving world where interrelated drivers for change are combining to create long-term consequences for the built environment. More specifically, these six drivers comprise regulatory, cultural, physical, cultural, microeconomic and macroeconomic levers. Assets that cannot be easily adapted within such a dynamic environment are at increasing risk of becoming stranded.

The term “stranded assets” is often used in connection with the fossil fuel industry. It is, however, also relevant in understanding certain risks posed to our cities. Stranded assets in this context are buildings, infrastructure and land that either lose value or become redundant for their existing purpose. When an asset becomes stranded, the structural changes affecting it will result in a long-term impact that is significant or irreversible. Subsequently, transformation of the asset is required.

For many years, Buro Happold has been helping to reimagine infrastructure and real estate assets that have become stranded. Success stories include consultancy work to reinvigorate the Erie Canal in New York State and transforming Kent’s Folkestone Harbour into a vibrant seaside destination. We support asset owners to develop and implement forward-looking proposals underpinned by sound economic, social and environmental strategies.

The Covid-19 pandemic brings the problem of asset stranding into sharp focus. Actions being taken by governments and public health authorities around the world demonstrate how quickly a universal shock can dramatically influence our assets with far-reaching effects for owners and occupiers.

Some of our urban fabric has become temporarily unusable, such as cultural facilities that are currently unable to open. Elsewhere, the pandemic is exacerbating existing weaknesses within certain sectors or pushing people into new habits that could permanently strand assets, such as retail centres that are seeing trade move online. So, though we have seen the volume of UK retail sales in April 2020 fall by a record 18.1%, online retailers have reported the highest proportions of increased turnover out of any retailers – 54.5% of online businesses recorded an increase in turnover while 41% experienced a decrease (ONS Monthly Business Survey Retail Sales Inquiry April 2020).

Away from the economy, more positive effects have been felt. Many people have enjoyed a better work-life balance with less commuting and more family time; albeit temporarily, the environment has benefited from drastically reduced travel and energy demands with positive gains in air quality and reductions in carbon emissions.

This pandemic provides us with an opportunity to evaluate the risk of assets becoming stranded, make them more resilient or consider transformation where stranding has already occurred. We apply our stranded assets evaluation approach to considering Covid-19’s impacts. Assessed against the six drivers for change, it is clear there are a number of unique pressures arising from Covid-19 as shown in the table below.

Regulatory	Introduction of emergency legislation Restrictions on business operations Stimulus packages implemented
Physical	Improvements in air quality Reduction in carbon emissions
Cultural	Restrictions on movement Enforced changes of behaviours
Technological	Acceleration of the shift to online (e.g. home working and online shopping) Introduction of tracking apps
Macroeconomic	Disruption to global supply chains Sharp increase in unemployment FDI downturn / reversal
Microeconomic	Spike in demand for certain products Squeeze on consumer spending

The effects* of the pandemic are playing out across all sectors of the economy. Beyond the short term, some impacts will persist as we get to grips with a transitional way of life and the requirement to maintain social distancing even as lockdown eases. But what if there is a second wave? When will a vaccine be developed? What if a vaccine is never found? As we move into the medium and long term, what happens to assets will depend on getting answers to a variety of questions:

• How quickly will the economy recover?
• What shape will the recovery take, and which sectors will be last to bounce back?
• What sort of stimulus packages will the government put in place and how will they be targeted in geographic and sector terms?
• How will investors and insurers assess risk in the medium to long term?
• Which consumer habits will have changed and will they persist?
• What changes in societal norms will endure?
• Will the pandemic engender a desire for a complete rethink of how we live, work and socialise?

These are the questions that many of our city authorities, businesses and infrastructure providers are currently grappling with. The challenge is that multiple possible scenarios could play out and there are many complex interrelationships between the drivers for change that will affect our urban assets.

As we endeavour to make our cities and infrastructure more resilient to sudden change, it is vital that we consider not only the risks of asset stranding but also the opportunities that such unexpected shifts bring. To do this, evaluation of risks must be multidimensional and incorporate a range of possible scenarios.

The response to Covid-19 demonstrates that we can quickly adapt our cities, assets and way of life to derive some hugely positive benefits. By evaluating and planning for the potential stranding of assets, we can transform them to deliver greater resilience to change. This will benefit asset owners and our society as a whole.