Can We Forecast
the Future of
Commercial Real Estate?
Forecasting the future of office, the workplace and more post pandemic
As the COVID-19 pandemic shuttered offices around the globe, many have been left wondering what the future might hold for commercial real estate, and particularly the office. But is it even possible to take a data-driven stand on where we might be in the next month, six months or even a year?
JLL’s Chief Research Officer Ben Breslau sits down with James Cook to mull it all over and give some thoughts on possible scenarios for the future.
Our question today, how can we predict the future of real estate in these incredibly uncertain times today? I'm going to an expert to find out this is building places where we look at the world of commercial real estate Through The Eyes of the experts that study at every day. My name is James Cook. I research real estate for jll. And today I'm talking to Ben Breslau. Ben is the chief research officer for jll in the Americas. Welcome Ben.
[Ben Breslau]Thanks James. That's definitely a challenging question those of us who are you still forecasting the economy forecasting business-to-business conditions or real estate markets aren't Public Health experts were not epidemiologists and the health component of this has been so fluid so fast moving.
So really uncertain and instill is although I think we're further along in and know more now than we did a week ago or months ago. And if you think about the the Cascade effect of the outbreak itself, which causes some fear and impacts the financial markets and comes down to real estate that way. Then the public health government policy response, which is kind of lockdown stay-at-home some variation of that all, around the world pretty much all at once. This has a big impact on the financial markets in terms of risk and in terms of pricing and also on the real economy.
And then you think about trying to guess at the relief packages which have been coming out and have a strong and our or give us some hope. Given all of those unknown. We are really trying to avoid and talking to clients about avoiding point forecast that that try to predict the future. Point forecast are things that we've all used to to guide us at least directionally. I've seen forecast for very standard things to get forecast like GDP for the second quarter for the year 2020 and for interest rates as wide as I have ever seen was just reflects the fact that there are significant amount of unknowns. The situation is fluid. So we were suggesting instead of betting on a point forecast for business or for your assets, take a scenario approach think about what the possible outcomes are, maybe a science and probability to them.
Hope for the best but be prepared for all those possible outcomes whether this outlook looks like that the V which has been the case in some past pandemics. Or if it's if it's something more like an L which takes a little bit longer to get to come back on line given given our ability to get the health issue under control and get that stimulus out to the economy.
So we think the scenario approach is really much smarter for your business now than looking for and betting on any one point forecast.
[James Cook]So it sounds to me like your recommendation is, you know, if I'm in charge of a business that hat that has real estate or is involved in real estate in some way. I really need to say, "what do if this is a mild recession, what's our reaction going to be if it's going to be deeper how we're going to handle it?" So it's really, you know just doing your best guess and preparing for all scenarios is what it sounds like.
[0:03:21-0:04:14] [Ben Breslau]
This downturn has shined bright light on the importance of preparedness and the importance of understanding possible, you know tail risks that are out there. You can't prepare for every risk, James. But what I think you can do is understand where there are risks and any risks, even if they're low probabilitym like this help outbreak may have been on any given year. But if they are potentially high-impactm you still want to have a plan to prepare for them. What do you do with the bounces back quickly more quickly than we expect and what do you do if it's a little bit slower or a little choppier on the way back. Again that variation could be across your business by geography by industry concentration or exposure. Can you find your assets as well?
[0:04:12-0:05:14] [James Cook]
So Ben what are the longer-term impacts of all of this?
[Ben Breslau]Yes, some of the long-term impacts you actually are easier to frame out now even in some of the short-term ones ironically. So clearly there will be a focus on healthy buildings, on how we keep buildings clean and sanitary, how the built environment only real estate assets, but even more broadly cities and transportation modes and how do we how do we keep people safe and healthy in the built environment in and around the built environment? That was how a growing important area anyway, but I think you could easily that obviously be very important that the whole the whole question of density. We've been driving utilization in hotels and office buildings in multi-family residential, on airplanes in concert venues everywhere in the built environment. We've been driving density and I think there will be a question about that clearly in the short-term. But even in the longer-term, how do you how do you collapse or expand how close people?
Together in certain parts of the built environment. I think you know the sharing economy which has emerged as a really powerful part of what we do in real estate and and in society will will will have to be at least a little bit. I don't expect you to slow down or or change, but I do think it needs to be rethought of how people feel about sharing, you know until they get confidence back at least sharing Community spaces and other places throughout the economy clearly, they'll be a focus on technology both for online consumption or remote work for Automation in manufacturing facilities where technology can help replace or accelerate or Bridge or people can't get to I guess lastly I might say I do think that there will be more focused on forward on financial performance particularly on liquidity, which is coming to full view. I think during during this crisis just giving out quickly everything happened.
[0:06:14-0:07:02] [James Cook]
I'll be doing more podcasts and on different questions that dig deeper into specific sectors of the economy and end of commercial real estate, and I think you've said a great macro stage, and we're going to be digging into different elements of that as we go. Thanks James. Thanks for having me. Give a comment on today's episode. Maybe a question you'd like for us to tackle in a future episode. Tell us about leave us a message on the podcast hotline and will use your voice on an upcoming show. Call us at 602-633-4061 and be sure to tell us your name and where you're calling from. You can subscribe to building places on the iPhone podcast app Spotify or wherever it is you get your podcast.