In my current role I think a lot not just about cities and their markets at the metro level or even at the precinct level but at the level of real estate. That is to say: I am thinking about the consequences for different kinds of buildings and land of key urban economic trends and public policy agendas.
So as much as I am involved in discussions about the future of cities, I am also talking about the future of CBD office stock, the future of rail stations, the future of the shopping mall and the future of industrial land. That future has clearly changed in response to COVID-19 but also in response to the key new public agendas which I think will dominate urban planning, infrastructure planning and projects in the built environment for the next 20 years: maximising both social impact (the health and well-being of users of buildings but also surrounding communities) and environmental benefit.
We are already seeing significant economic consequences for existing real estate assets due to a decline in rents arising both from hybrid working and from the new agendas. Lower-grade buildings are being particularly hit as they may no longer offer users the work experience they need to be persuaded to get out of their homes to commute into work, or the sustainable environmental and energy outcomes users, investors and the community now crave.
While rents for all CBD offices in most parts of the world have been coming under pressure – with some predicting that the next banking crisis will be caused by the decline in office valuations and rental income to levels not sufficient to satisfy stock lenders – such lower grade stock has been significantly discounted. There are stranded assets out there needing serious investment and retrofit/renewal strategies with local governments coming under pressure to rezone and move CBD assets towards a more mixed-use environment and even in some locations to accept conversions from commercial to residential.
The good news? Where there are challenges there are innovators offering new solutions. We are seeing innovative, far-sighted and brave local authorities embrace rezoning and the recycling of buildings for new uses. We are seeing industrial landowners bank the extra rents they’ve been securing on the hottest real estate in the modern city as the urban fabric gets reorganised around new supply chains, “just in case” warehousing and new means of distribution.
They are also introducing new approaches and designs to maximise space, land utilisation and technology while diversifying uses. We are seeing shopping malls becoming town centres and places not just for retail, but for other jobs and services, education and training, and homes. Offices are providing amenities and services which cannot be provided at home.
Those who wait for Godot will be left behind
With the end of one era of urbanism and real estate usage another begins: “The king is dead: long live the king!”. This also means that those who believe that creativity in the built environment is all about designing and building new real estate assets have a limited sense of what is now required of them in the market – and they run the risk of being left behind. Obsolescence faces those who can’t adapt and are awaiting Godot – the return of the old city and the demand for 60-story statement office towers – while mounting evidence shows otherwise.
Arm yourselves Citizens! Assuming nothing has really changed is more or less what the dinosaurs agreed until the first meteors started landing.
For those able to see beyond past glories I recommend materials and thinking from the “insights” or research sections of the websites of real estate agents such as Savills, CBR or JLL. My latest finding from JLL is about ‘Responsible real estate and social value’. This usefully advises on the key decisions or priorities you need to focus on when seeking to develop offices that maximise social, health and well-being benefits.
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JLL envisages five elements of success: Location selection focussing on places that are accessible, affordable and offer wider amenities; Lease negotiation, with occupiers partnering with landlords to support social value creation; Design and operation of facilities considering the impact on local communities, local employment and procurement opportunities and social inclusion; Place-making, supporting outreach activities with and economic opportunities for local communities; and responsible procurement using purchasing power to ensure positive environment and social outcomes including the ethical sourcing of workforces and indeed materials and services.
The world of real estate is experiencing radical reconfiguration. Marx wrote of the transformative nature of mid 19th century capitalism that what we were seeing was that “all that’s solid melts into the air”. Current market conditions are as revolutionary in the world of real estate.
Arm yourselves Citizens! Assuming nothing has really changed is more or less what the dinosaurs agreed until the first meteors started landing.
