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Five big questions commercial real estate is asking

The past few years have been bumpy, with one event after the other challenging the economy, businesses, and the way we work.

Tuesday, January 17th 2023, 10:44AM

by Sally Lindsay

This year looks set to be another year of transformation, with questions looming around climate goals and hybrid work, to whether inflation will abate and the tech industry will grow.

At the start of the year, uncertainty remains high. JLL experts weight in on some the big questions it says will motivate decisions among investors and companies this year.

How will the balance between home and office evolve?

Hybrid work has become non-negotiable for many employees, and companies must incorporate and support effective work, whether in the office or at home.

Recent JLL research  shows that younger generations and hyper-hybrid employees, who work more than three days a week remotely, tend to be least loyal and have left their jobs or plan to leave at a much higher rate.

“Employers are facing complex challenges, but they also have a unique opportunity, as the office takes on a new role and becomes the new central hub in the hybrid work ecosystem,” says Flore Pradere, JLL global work dynamics research director.

With the office emerging as a place of collaboration, Pradere says this year, the evolution of hybrid work will see the office play a more significant role in helping alleviate the isolation employees face working from home.

“Balancing the need to provide flexible working arrangements – an imperative – against the need to offer a working environment that meets the complex demands of employees requires solutions aligned with the aspirations and priorities of a more demanding workforce,” says Pradere.

What’s next for the economy and investment?

Record-high inflation and rising interest rates have created an uncertain investment environment, with the potential for further economic deterioration possible as the year unfolds.

The Reserve Bank of New Zealand says it is engineering a recession that could be a year to 18 months long, although falling inflation overseas is boosting hopes interest rates may be near a peak and the heat could start to come off later this year.

There is emerging evidence that inflation has peaked in the U.S. and potentially across Europe. Ebbing inflation also has tempered expectations for central bank rate tightening, suggesting that reference rates will not rise as high or fast as recently expected.

A challenge for commercial real estate is uncertainty over the adjustment’s size, speed, and duration. However, there’s still a significant amount of capital on the sidelines and property owners and investors will take this as an opportunity, according to JLL’s 2023 economic outlook.

Questions remain this year surrounding logistics and supply chain disruptions with the flow-through effects on commodity and energy prices.

Will companies really decarbonise their real estate?

Talk without action around climate-related initiatives and goals is no longer acceptable. The message was received loud and clear at COP27, where United Nations figures revealed the built environment emissions were at an all-time high.

This year, key players — consumers to shareholders — will be looking for action and systematic change from the real estate industry. For many companies, though, formulating a clear action plan, and collecting and analysing data, proved to be pain points.

Guy Grainger, JLL global head of sustainability services and ESG, says companies will need to implement solutions to decarbonise their operations, emphasising a need to retrofit existing buildings and invest in renewable energy. For instance, shareholders and lawmakers are holding companies accountable by requiring them to disclose their greenhouse gas emissions and the climate risk their businesses face.

Reaching net zero targets can be daunting for companies of all sizes, but it is achievable, says Grainger.

Where will the tech industry expand?

During the pandemic’s peak, the tech industry saw astronomical growth. However, last year there were signs of slowing, and by the fourth quarter, headlines focused on layoffs rather than massive growth.

But it’s not precisely all grim news. The start-up scene in many markets shows promise.

Industry experts see growth in tech clusters. With valuations coming down, investors are also placing bets on early-stage companies and focusing on exits in four to five years instead of the following year.

“Emerging innovator” markets are also gaining additional momentum as work becomes further distributed along geographic and cost lines. For example, in Bengaluru, India nearly 1.3 millionm2 of net occupancy growth on the back of inward tech investment and expansion since the beginning of 2020 has coincided with a 6.8% increase in rents. Similarly, Hyderabad, India has experienced a rental uplift of nearly 8% over the same time frame.

JLL’s tech outlook points to innovation around A.I., blockchain, cleantech, and cloud solution, saying the markets are poised to expand despite economic headwinds.

“A.I., cleantech, and blockchain specifically are in their nascent stages with considerable opportunity to grow beyond their existing market size, indicating investors should look past the market turbulence and consider the long-term opportunity available in these industry verticals,” says Alexander Quinn, JLL research director.

Can real estate give back to the community?

The impact of ESG on the real estate industry is moving beyond sustainability. Awareness is growing that the built environment can have a significant social impact through efforts that rehabilitate public spaces, add required infrastructure like care centres, or help attain environmental goals with green buildings.

Some successful examples can be found in smart cities  such as Dubai, which has used tech innovation to impact transportation, tourism, energy, housing, and security, and Singapore, which uses street lampposts to monitor changes related to environmental conditions.

Julia Georgules, JLL head of Americas research and strategy, says real estate can be highly transformative on a community, even in minor ways. For example, she points to public art instalments and greenspaces or parks as tokens developers can leave behind after working on a project.

“The impact that development can have on a community is immense, and with a spotlight on ESG, these investors and builders must think about a broad range of social impact, from affordable housing to providing jobs to a diverse population,” says Georgules. “It’s a must now.”

Tags: commercial property

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AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 6.39
ANZ 8.64 7.74 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
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BNZ - Mortgage One 8.69 - - -
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CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 6.79 - -
Co-operative Bank - Owner Occ 8.40 6.99 6.79 6.65
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Co-operative Bank - Standard 8.40 7.49 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
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Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.69 6.59
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Kainga Ora 8.64 7.79 7.39 7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 6.99 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
Pepper Money Advantage 10.49 - - -
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Resimac - LVR < 80% 8.84 8.09 7.59 7.29
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Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.74 7.29 6.59
SBS Bank Special - 7.14 6.69 5.99
SBS Construction lending for FHB - - - -
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SBS Unwind reverse equity 9.95 - - -
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TSB Bank 9.44 7.79 7.55 7.45
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TSB Special 8.64 6.99 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - 6.55 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.89 7.35 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.75 6.65
Median 8.64 7.21 7.29 6.65

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