The Business of Buildings


Capital has to find a home, and for many, real estate is increasingly being seen a safe refuge. Against the backdrop of trend-setting changes in technology, organisational culture and business innovation, Tania Jacobs asks the experts how this new global commercial world order is shaping up

They say a change is as good as a rest. In the disruptive world of commercial real estate (CRE) however, this sovereign mantra for life may be a tad over simplistic, given the potent overhaul redefining the industry at present, from business innovation and cross border working practices, to hybrid technology, not to mention changing tenant, investor and stakeholder expectations. While the retail and hospitality industries have been in the eye of the storm for some time; offices are closer to the beginning of the revolution. The industrial sector meanwhile, may well be storing up a few problems for the future, notably around building design in sectors where technology is advancing rapidly. So, just how is this industry metamorphosis being played out on both domestic and global fronts?

If the latest findings from Carter Jonas deliver on their xx, the future looks bright, at least for blue-chip European cities including London which continue to post stories of growth. Comments commercial agent, Julian Hislop: “The population of Greater London has risen by more than a million people over the last decade alone, and this has been matched by its increase in employment. It’s been a major driver of the UK’s economic growth, with output rising at a rate of around 2.8% per annum over the last five years, well above the UK average (2.2% per annum). In tandem with this, we’ve seen a significant upturn in both prime office and manufacturing space. Flexible working spaces in particular, are set to grow by up to 30% annually for the next five years across Europe. In fact, flexible workspace operators have taken up one sixth of all new commercial property in the UK capital. Last year their footprint outside the capital tripled, with Manchester and Birmingham seeing the fastest growth, with many more developments initiatives in the pipeline for second and third tier cities in the coming 5 years.”

Faisal Durrani, Associate, Commercial Research at Knight Frank paints a more cautious picture: “Whilst the London office occupier market has largely weathered recent political uncertainty, many interested groups are holding fire. They’re seeking political clarity and certainty before they resume investing.

“Risk is of course relative and with a rise in geopolitical tensions globally during July and August, London appears to have re-emerged as a global safe haven, with our teams reporting a notable upturn in international investment enquiries and schemes going under offer. Separately, the diminished level of investment has also in part been fuelled by a lack of available assets. Furthermore, there are no desperate vendors – in fact many are seeking premiums due to the lack of quality stock.”

One investment source weathering the storm with considerably more aplomb however he adds, is investment in the office sector from aboard which is still “going steady because of Brexit weakening the pound.” He adds: “There’s evidence to suggest that HNWIs are still very active across Europe and especially the UK. While larger institutional money may have pared back, individual investors continue to be attracted to the safety and security of London assets. The weakness of sterling is not surprisingly, a major attraction.”

“As it stands, US dollar buyers are looking at a discount of 16.9% and 7.9% for West End and City office assets, when compared to pre-referendum pricing. Furthermore, the attractiveness of commercial assets stems from high net yields, which stand at 4.50% in the City and 3.75% in the West End, positioning London offices as some of the best yielding office assets globally. We moved our yields out by 25bps for both markets in Q1, underpinned by the strength of the occupier market.”

The central London retail market also remains resilient, helped by an established tourism sector and the devaluation of Sterling. Vacancy rates are low in the West End’s prime streets, with continued strong demand from high-end international retailers, and a number of leisure operators are also taking space.

The pivotal reversal of the decision to close the House of Fraser store following the retailer’s purchase by Sports Direct has given a boost to Oxford Street, whilst Bond Street, Regent Street and Covent Garden have all seen new retailers take space. This includes Microsoft announcing a flagship store on Regent Street, part of a growing trend for global technology firms to open prime city centre retail stores.

In the much-diversified hotel sector meanwhile – London once again continues to operate at a high level, with PWC forecasting a marginal occupancy fall of just 0.5% in 2019, as new supply additions continue to switch up the offering and political uncertainty feeds corporate demand.

Comments PWC spokesperson Samantha Ward: “Our report predicted that Average Daily Rate (ADR) will manage 0.8% in 2019. This will drive a 0.3% gain in revenue per available room (RevPAR) in 2019, keeping RevPAR very high at £122 in 2019.”

Despite continued Brexit uncertainty, an expectation for continued inward investment from Europe and the Far East looking for prime opportunities and strong returns, especially given the relative low value of the pound. Adds Ward: “We anticipate the total deal volume in 2019 will decrease by around 10% to around £6 billion, albeit above our original estimate of £4.5 billion due to a number of portfolios that are anticipated to complete in 2019. A further softening in deal volumes is anticipated in 2020 to £5.4billion.”


As a seasoned benchmark, JLL‘s latest Global Market Perspective forecasts continuing steady performance from global commercial real estate. Report co-author Ben Breslau comments: “Though property yields remain compressed, falling risk-free rates have helped to stabilise, or, in some cases, widen spreads, keeping real estate investment an attractive option for investors.”

Meanwhile, capital values and rents are both predicted to edge up as 2019 continues. Adds Breslau: “In this environment we expect full-year global investment in commercial real estate to decline by about 5%-10%, to roughly US$690 billion. Much of this decrease will be a result of weaker activity in the Americas and EMEA, while Asia Pacific is likely to continue to outperform.”


Consensus in the industry remains largely optimistic that the office market will keep global buoyancy with vacancy rates decreasing further in Q4 of this year to 11.1%, the lowest of the current cycle in spite of elevated levels of new deliveries. Vacancies fell in Europe to 6.0% and the Americas to 14.5% but were broadly stable in Asia Pacific at 10.3%.

Adds JLL’s Ben Breslau: “New deliveries are forecast to peak this year at over 19 million square metres, comparable to levels at the height of the last construction cycle in 2008, with completions projected to be one-third higher than in 2018.”

Rental growth for prime office space has also remained remarkably consistent over the past 18 months, trending at an annualised average of close to 4% across 30 global cities. Boston, Singapore, Amsterdam and San Francisco top the global rankings with double-digit annual office rental growth.

Singapore is predicted to be the leading rental performer in 2019, but the top positions are likely to be dominated by select cities in the Americas, notably Boston, San Francisco, Toronto and Sao Paulo.


KPMG’s latest international round-up indicates that retailers and landlords are continuing to experiment with new formats and uses for space as competition for consumer attention and expenditure intensifies. Comments KPMG’s Willy Kruh, Consumer & Retail, Partner-in-Charge - High Growth Markets in Canada: “Retailers are focused on improving their omni-channel retail offer, with some now using stores as cost-effective delivery hubs, while others are investing in robot-driven smart warehouses and self-driving cars for local deliveries.”

In the U.S., average lease lengths for general retail shops and apparel stores have contracted notably over the last decade. Underscoring this move to shorter leases, pop-up stores continue to gain appeal as they represent a low-risk way for retailers to experiment with new types of products, technologies, and services, while boosting their brand.

In Europe, retail sales have rebounded as consumer confidence returned in Q1 following a sharp slowdown at the end of 2018, with strengthening labour markets and wage growth expected to fuel consumption over the next two years. Adds global retail analyst, Deborah McKean: “In Asia Pacific markets, landlords and retailers are keeping a focus on tech-driven services to enhance the customer experience; meanwhile, rental growth continues to be variable across the region.”


It’s easy to lose perspective on just how much technology has shaped the travel and hospitality industry in such a relatively short time. In 2009, the first hotel and airline apps were hitting the market. Instagram and iPads didn’t exist. Most travellers scoured newspapers and magazines for vacation rentals. Taxis were hailed by hand, and small luxury hotels were among the only businesses that could attempt to create a personalized experience for every guest.

Fast forward to today, and according to the World Travel and Tourism Council (WTTC), travel and tourism is the fastest growing global industry, accounting for almost 10% of the global GDP and almost 300 million jobs. Comments analyst Libby Bierman: “Global hotel investment activity amounted to US$11.8 billion during the first quarter of 2019. Whilst this figure is down 25% on last year due to an absence of large transactions and investors adopting a wait-and-see approach in some markets due to political uncertainty, several key regions are bucking the trend, notably Asia Pacific with a 12% increase in transaction activity driven by China and increased liquidity in Japan. India is also forecast to receive a jump in investment levels and a number of larger portfolios are expected to transact in 2020.

Another region seeing an increased pipeline, is Africa with over 300 projects under contract including six new openings for InterContinental Hotel Group (IHG) and Radisson putting down its inaugural Radisson Red footprint in Cape Town.

These findings are mirrored by Zion Market Research’s latest report, which confirms that the global hotels market valued at approximately USD 147.57 billion in 2018, is expected to generate around USD 211.54 billion by 2026, at a CAGR of around 4.6% between 2019 and 2026.

ZMR spokesperson Nitin Sirsat adds: “The market is, unsurprisingly, heavily influenced by the tourism sector, which is booming worldwide, valued at $7.6 trillion, but there are other influencing shifts happening globally. Large numbers of multi-billion companies are opening their headquarters in various locations overseas, and with it, the number of business travellers will continue rising. As companies in the hotel industry also focus on improving the customer experience, individual travel is a huge niche sector on the rise.

Moreover, as more millennials start to have disposable income, the demand for luxurious travel is set to fuel the hotel industry’s growth in the next years to come. It’s a truly exciting time. Digital innovation is helping form a lattice for entirely new segments to not only enter the market - but thrive. You only need to look at private accommodation and ride-hailing brands who were just finding their legs in 2009. Now, they’re sitting side by side with the titans of travel.”

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