The Emerging Commercial Real Estate Trends of 2024
PropTech Connect
Connecting Global Real Estate Executives, Entrepreneurs, & Investors.
On Wednesday, 24th of January, Nils Henning , Founder & CEO at CASAFARI , Dimitrios Vlachopoulos , Head of Portfolio & Location Strategy EMEA at 戴德梁行 , and Frederico Leit?o de Sousa , Head of Offices Agency & Investment at 第一太平戴维斯 , joined us on this session about the emerging Commercial Real Estate trends of 2024.
It was a pleasure to witness such an engaged audience and to gain insights from our fantastic speakers on the opportunities ahead this year.
In case you missed it, here are some key quotes from this week's webinar.
The session recording can be accessed through the link here:
Webinar Highlights
Nils: "Real estate was a very bearish market up until 2022, it was very difficult to make the wrong investment in real estate because everything was growing for the past 10 years. Rising interest rates to a level that nobody could foreseen completely changes the ecosystem. (...) One of the trends that came out of this is the continuous demand for data. In a very bearish market, it doesn't matter what you decide and decision makers with decades of experience would consider that they did not need data because they knew how the industry worked. Right now, there's more and more uncertainty. We see trends on a hyperlocal level, so it is really important to have a laser sharp view on data and understand what's happening in real time. In the past, the real time view was second tier."
Dimitris: "There are three main areas in real estate that are currently being impacted by current trends. The first one is that work and workplace have changed forever and there is a shift from quantity to quality. We see a hospitality mindset in offices. We're talking about work, live and play ecosystems, and then of course, the integration of PropTech and ESG standards within the site. The second bucket has to do with rethinking the purpose of the buildings. Talent goes to the office because they want to learn, they want to develop, to collaborate, to innovate. We need to think about the implications of this in the workplace in terms of well-being, connection to brand and identity, and creating a community of cohesion across the employees. So that changes the purpose of the office. The third bucket is about reassessing the location strategy with flexibility to work from anywhere in the world. Companies are moving towards a global talent sourcing, with over 50% of the respondents from our survey saying that they have already started recruiting from anywhere in the world or outside of the city boundaries. That means that we expect new locations to emerge and some of the key characteristics of these new locations are shifting away from the business environment and more towards the living conditions."
Frederico: "I think it's important to distinguish the investment market from the occupational market. And regarding the investment market, the decrease across all the markets was clear last year. In Portugal, it was a 50% drop due to the rise in interest rates and competition with other financial products. Regarding Portugal, in addition to the high interest rates, our landlords took too long to adjust the price of their assets while countries like the UK, Germany, or France did exactly the opposite. For that reason, last year was not a good year for us in terms of investment. Now, the occupation market is a totally different story. If you look at big markets like the US, UK, France and Germany, you can see that their market has not yet recovered from the post pandemic, but the opposite has happened in Portugal. This is related to the characteristics of our country. Here, our commutes are short and safe so people really want to go to the office. In 2022, one year after everyone was said that the offices were dead, we achieved the highest take-up ever in our markets. And even last year, 2033, was a good year where we have witnessed an increase on the prime rent as well."
Frederico: "We expect to have better interest rates and a clearer view in the second half of this year. But conversations around CRE investments are already changing. Last year, no one wanted to hear about offices and right now it's completely different. We expect to see a stabilization of interest rates that will positivelly impact our sector, but also other segments. We need to remember that we are not only competing with other countries, but also with our other financial products with the same level of returns and the same level of risk. So we need to do something in order to make the markets good again."
Nils: "I'm 100% certain that interest rates are falling. But I think most important was a signal sent out by the EZB that this level of uncertainty that we had with increasingly high inflation rates and a constant increase in interest rates is over. I think this is a key message because real estate and uncertainty is a very bad marriage, it leads on the side of investments to wait until we get more clarity.(...) I would say we will end up asking and talking about interest rates somewhere between 2.5% and 3%. It is less important if we are a little bit higher or lower, the direction and the signal to the market is more important. That was missing and that was a trigger point to waking up the markets of investment."
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Dimitri: "From what we've been hearing from the market, inflation is going down across the markets. The challenge is that the core inflation doesn't seem to follow that trend. A big part of the impact on inflation over the last couple of years was related to energy prices and the war in Ukraine. That has actually been going down and it has had an impact on overinflation. So there is a question mark about the impact of the interest rates on the core inflation."
Nils: "We are coming from, basically from total opacity, no centralized database or real time stock, no understanding of offer and demand in the market to starting to monitor this, building historical timelines, matching listing data with sales data with some value in what we do, and then monitoring clearly what's going to happen. These insights help a lot, for example, to make decisions like, where am I going to invest? Which areas are currently trending?"
"Also, data has revolutionised the speed of development. In the past it would take decades to develop a neighbourhood, and now it can be within a couple of years. (...) This is simply because you can identify trends earlier. An example is the correlation between posts of famous influencers on Instagram and second home locations. Over time, this impacts flight connections to certain locations and the development of points of interest in these locations. If you would go the traditional way until you understand it and you don't really go data driven and you have a look at historical transactional values that are published by the government with a delay of 6 to 12 months in some locations and other countries even not at all, you simply have a too big time gap between understanding a trend and acting upon versus what is publicly available."
Dimitri: "As I mentioned earlier, companies are adopting a global talent strategy. This means that we now need to run cross regional analysis, which is quite challenging because although there's a lot of data, at the same time there's a lot of noise, especially for labor labor data and transparency across countries and regions. It’s difficult to compare the number of, let’s say, financial analysts between US locations and locations in China. (...) The final point is that data doesn't always give us the full answer. We always need to overlay the softer elements of the market. That's why it's important to incorporate the local nuances, have our local teams in the markets, connect with them, talk to different stakeholders. (...) Of course, there is a massive transformation with the data. But at the same time, there is still a need to make sure that we overlay qualitative research to run these type of decisions."
Frederico: "For the investment market, data has played a really important role because information is essential not only for transparency, but also to give market players confidence. Investors know they will hear the exactly the same figures from Savills or any of our competitors. What can be different is the interpretation and the understanding of those figures. From the occupier's perspective, data has also played a very interesting not only in measuring productivity, but also attendance. In other words, understanding exactly what space the companies really need and what kind of space is that space. In one of the studies we did in 2021 showed that the two most negative points for employees returning to the office was the commute and the cost of that commute. Something that has been done in the tenant representation team is postal codes analysis in order to understand where the employees live in order to inform decisions about relocation of headquarters. Data is informing both the investment and the leasing markets, and it is good to have companies like Casafari who can bring information and credibility to the markets across the world."
Dimitris: "There is an opportunity in terms of repurposing buildings and we see this already is happening in the US in some key markets, for example, in New York already they are changing the zoning to be able to convert some of the office towers into mixed use buildings. There is an investment opportunity in co-living and co-working. The second area is retrofitting for ESG, with pressure coming in from regulation and occupier demand. As investors and as developers, we need to think how can we make sure that our assets are compliant with ESG regulations and they are not becoming obsolete. The third bucket is that we need to revisit our portfolio, see where we have assets both from an occupier perspective as well as from an investor perspective."
Frederico: "I think today companies have a mission to attract people to their offices and they can only be successful if they have a quality office with collaborative space, with services inside the building such as retail areas, cafeterias or gyms, because demand is completely different from what it was three or four years ago. We have been seeing that companies and tenants are looking for smart buildings, and this is something that we expect to continue increasing in the near future."
Nils: "What we also see is a trend to second tier cities. What we believe is going to happen is not anymore the idea of the trophy commercial real estate building where you get 3,000 employees coming in daily and a big logo on the top. It is be more about quality, and to instead have 300-500 employees in rotation with a smaller, high quality office with all the amenities for the team to have as a place to come together for exchange, for learning, for mingling, for bonding the team. What we also see is satellite offices, smaller offices in other locations where other team members can come together. And I believe this will be a trend in the future."
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