The route to enduring financial & sustainability out-performance.
Times are hard for real estate investors. Not only must they contend with higher interest rates and weaker economic growth, but they must also grapple with the impact of powerful structural trends that are reshaping performance. On one hand, occupiers are being more demanding than ever before on specification and sustainability criteria and are unwilling to compromise. On the other hand, financing, environmental and government impediments make it harder to find new development sites and deliver new supply.
The same trends which make it challenging though, increase the performance potential for investors who can facilitate the modern space occupiers need. That space is scarce, meaning that occupiers will pay a premium to access it. As the supply shortfall worsens, the premium will grow. That promises profitable returns for investors who can bridge the supply gap.
New asset requirements
Occupiers today have much higher expectations for the buildings they lease. Office occupiers need high quality space that can attract, retain, and engage sought-after workers who are empowered to work from home. They need offices which can facilitate hybrid working by providing a mix of environments, amenity, and seamless digital connectivity. Logistics occupiers are increasingly reliant on automation, operational efficiency, and fulfilment speed. That requires a modern asset which is power resilient, energy efficient, tall, well-doored, and situated close to customers.
This is before we even consider sustainability. Responding to customer, worker and investor expectations, occupiers in all real estate segments are making serious carbon neutrality commitments alongside tangible ESG goals (Figure 1). This necessitates occupying assets with the highest sustainability credentials that minimise their environmental impact, promote staff health and wellbeing and which are integrated into their local communities. These are radically new asset-specific considerations.
