Investors are paying greater attention than ever to occupier activity, keenly aware that corporate confidence is underpining the broader investment market, especially in Europe. But no longer is it a simple case of investing and reaping the rewards of rental growth; several complex trends now dictate what companies want from their space and, for investors, taking stock of these trends could make the difference between a good investment and a great investment.
Every year JLL looks ahead at what will affect companies and their real estate in the future. Here are the top ten trends for 2016.
1. Security threats – cyber and real-life
Cyber attacks, geopolitical and currency instability, as well as uncertainty about the Eurozone, are all expected to threaten commercial property in 2016.
The cyber attack threat is especially real. The number of criminal attacks on businesses went up by 100 per cent in the year to October 2015. In the same period, the number of politically motivated cyber attacks increased by 56 per cent. Meanwhile, 29 per cent of those surveyed in the EY Capital Confidence Barometer said that geopolitical tension in Eastern Europe, the Middle East and Southeast Asia was the greatest challenge facing corporate real estate decisions in 2016, followed by increased volatility in commodities and currencies (24 per cent) and Eurozone instability (23 per cent).
2. Merging of HR, IT and real estate functions
With the C-suite demanding ever-higher levels of productivity, HR, IT and workplace strategies will converge. Their single aim will be to improve worker and workplace output and efficiency. Chief among the streamlining measures is an effort to integrate HR, IT and CRE functions into a shared services models; in three years’ time, it’s estimated that 19 per cent of workspaces will have amalgamated these departments.
3. Perfecting the workplace ‘user experience’
Happy employees are, on average, 31 per cent more productive and generate 37 per cent higher sales. Their creativity is also three times higher, according to the World Green Building Council. To meet employees’ increasingly high expectations of their workplaces, we’ll see an emphasis on better lighting, better ventilation and even individual temperature control. When these systems are in place, productivity goes up by 23 per cent, 11 per cent, and 3 per cent respectively.
4. Technology drives more flexible work practices
Tech will continue to transform the workplace according to research by McKinsey & Company. Virtual, flexible and part-time working practices will become commonplace, and this will have knock-on effects on building design, fit-out, and facilities management. It’s likely we’ll see a drive towards individual customization of the workplace.
5. Will large corporates return to office ownership?
Although corporate disposals are at record highs, new lease accounting regulations could potentially return the balance towards ownership. It’s likely we’ll see large corporations re-examining their criteria for deciding whether to lease or own property in light of new legislation that will come into force in 2019 and bring leases on to balance sheets.
6. M&A means business as usual
Globally, the number of announced M&A deals in Q1 2016 will be about 7 per cent higher year-on-year. Meanwhile, 59 per cent of global senior executives expect to pursue acquisitions over the next 12 months. This rise will encourage more businesses to consider the impact of their property portfolios within their overall M&A strategies.
7. Co-working becomes more popular with corporates
Co-working spaces grew globally to 7,800 in 2015 from 3,400 in 2013 and they’re expected to reach a million by 2018. How corporates tackle co-working remains to be seen. They may create a co-working space within a corporate office and open it to people from outside the company, or provide employees with external co-working membership. Another option could be to create an internal ‘innovation space’ in the style of a co-working space.
8. Data and analytics will drive office space decisions
57 per cent of companies plan to enhance their company’s data gathering capacities to drive productivity. Currently, use of data and analytics drives only 28 per cent of corporate real estate decisions. Lack of business intelligence talent remains a barrier and it is cited as one of the three biggest weaknesses inhibiting corporate real estate’s contribution to overall business strategy.
9. Emerging cities transform location strategy
Today, 26 per cent of firms with revenue above US$1 billion are based in ‘emerging world cities’ – major, fast-growing hubs such as Istanbul, Bangkok and Dubai. It’s a trend that will continue with potentially 50 per cent of these firms based in this type of city by 2025.
10. Offices embrace sustainability
Real estate will have to respond to the ambitious goals for sustainable buildings set by COP21 (the UN’s Climate Change Conference). It’s likely we’ll see more retrofitting of buildings, intelligent building systems, zero energy buildings, flexible building design and co-working, among other measures. Already several very large companies have signed major agreements on renewable energy use. And 43 business leaders, from companies in over 150 countries, declared their responsibility to support sustainable development.
All information is taken from JLL research unless stated otherwise.