Beyond re-entry: An investor journey to a portfolio fit for the future

While both investors and occupiers are now beginning to reimagine their strategies through an entirely new lens, it is ultimately the tenant’s decisions about their portfolios that will influence how investors think and act, thereby creating a lasting effect on the industry. Now more than ever, it’s time to carefully reconsider how the future of work will impact your real estate strategy.

In the eBook below, you’ll learn about key considerations and see specific examples of how you can help your organization prioritize transforming portfolios and physical spaces as you embark on the journey to the next normal.

Real estate is changing rapidly, becoming more operational, experiential and variable. The corporate real estate community is propelling shifts in behavior as it moves beyond re-entry to focus on reimagining work and the workplace. Investors will need to respond accordingly to attract, retain and support their tenants. 

As global economies adapt and re-emerge, they, too, will enter the reimagine phase. Markets will begin to establish the “next normal” in investment and this will place an acute focus on people-first, tech-enabled and responsible strategies. To maintain success, investors will need to manage, operate and invest in property markets to build resilient, productive portfolios in a sustainable way. This is the start of a new journey for investors that will be shaped by a confluence of innovative ideas from across the real estate landscape, including corporates, developers, lenders and advisors.  

The journey to reimagine is an opportunity for investors to re-position their portfolios in the built environment, re-design the historical use of their portfolios and re-connect tenant experiences. Here’s how:

• Look at every avenue to recover revenue. Corporations are in active liquidity sourcing mode to avoid economic collapse and sustain business activities.
• Rebuild operations to set a foundation for what’s to come, whether that means maintaining business continuity or pivoting to minimize disruption.
• Accelerate digital adoption to attain successful business continuity and corporate health.
• Rethink organization models according to employee and tenant needs and preferences.

As markets start to awaken, investors must recalibrate their strategies to suit a vastly changing landscape and portfolios will need to evolve with the markets to remain resilient and productive.  

Investors will deploy new strategies to gain real estate exposure, portfolios will be repurposed and diversified, debt will be re-assessed, and new metrics will be developed to maintain sustainable portfolios. 

Today, traditional strategies are being challenged as asset values and portfolio performance respond to economic headwinds. In this environment of ultra-low interest rates and uncertainty, investors will look to income-producing assets and the relative stability of real estate as a vehicle to safely deploy capital.

Investors are actively balancing their existing portfolios with defensive, operationally critical property sectors. As the office sector adapts to the next future of work, sectors and markets that are deemed more resilient to geopolitical and environmental risk will benefit, particularly the living, logistics and select alternative sectors. 

Housing shortages, affordability pressures and an increasingly distributed workforce will challenge the investment hierarchy of cities and support the growth of innovation geographies. Long-term secular trends will support investment into alternative sectors that are benefitting from demographic, technological and social changes.

As investors become increasingly accountable for the social responsibility of their decisions, there will be a shift towards balancing portfolios to include impact investments. In recent years, three out of four investors have committed to formally evaluating nonfinancial disclosures that relate to the environment and social aspects of their performance, according to EY. This indicates the significance of these commitments and their impact on decision-making. 

In today’s market, capital is still available, as the debt markets have remained more liquid during the coronavirus crisis than during the Great Financial Crisis. This positions markets for a faster recovery.

Rates are expected to remain lower for longer in major economies around the world which will keep markets competitive and reinforce the attractiveness of investing in real estate. As rates remain low, more investors will lock in attractive refinancing terms as a way of mitigating pressures of economic headwinds, weakening fundamentals and valuation declines.

Borrowers also have a wider pool of capital sources with the emergence and growth of non-banking lenders. For those who allocate funds to debt strategies, real estate finance is offering an attractive risk-adjusted return compared to other asset classes.

A mix of traditional and flexible space will be even more important in commercial real estate portfolio strategies in the future, especially as employees now expect the ability to work at home and be closer to home. Businesses will have a greater need for flexible space to accommodate portfolio expansion and contraction along with crisis support to flex their space needs as necessary.

JLL Research’s The impact of COVID-19 on flexible space predicts flexible space demand will continue to increase as a result of COVID-19, although in a different form than it took before the pandemic. Overall, we believe 30% of all office space will be consumed flexibly by 2030. 

While corporates will dictate future norms for spaces over time, investors can lead by re-designing spaces to create productive environments. That will include supporting communities across the real estate spectrum — from office buildings to residential assets, and even in the streets and on transportation. As we move beyond re-entry, landlords will need to rethink space configurations to include government mandates on social distancing and traffic flow, maintaining flexibility on these requirements.

As corporates adopt a hybrid model of flexible working between the workplace, home and shared spaces, it will be imperative for investors to leverage building technology and data to tailor space to specific tenant needs and remain flexible to changing demands. Technology will need to be integrated throughout buildings, creating a digitized asset that will unleash cost savings and maximise profitability.

Investors are also being pressured to design buildings and spaces to achieve net-zero carbon and address climate change with ultra-efficient, eco-sensitive places powered by clean energy. In order to futureproof their assets and avoid becoming obsolete, landlords will need to ensure that their buildings adhere to Healthy Building and Wellness standards and global accreditations. Owners who commit to these initiatives will appeal to current and future tenants who place a higher importance on the buildings they’re in than ever before.

The landlord/tenant relationship and communication has never been more important and will need to be stronger than ever before in order to maintain trust, enable flexibility and ensure maximum financial protection on both sides.

Investors can leverage technology to build tenant relations and re-connect experiences for their communities. Robust and compliant safety systems will need to be implemented and well communicated by landlords in order to rebuild tenant trust in shared spaces. Virtual programming and engagement will play a key role in future workplace communication and landlords must leverage technology to support tenants in this.

This journey will enable you to reimagine company performance. We anticipate that businesses will not go back to the “old” normal as we knew it before the COVID-19 pandemic. Innovative businesses will reinvent themselves to be more resilient, adapting their operational models to the next normal: re-entry, re-activation, re-imagination. These are opportunities for organizations to flourish in the future. 

Is your business prepared to thrive in a post-pandemic world? Take a deeper dive into these topics by downloading the full eBook below.   

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