• Thursday, February 29, 2024
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5 questions real estate investors are asking in 2024 amid disruptions

Real estate firm trains 350 realtors

The world today is facing broad-based disruptions manifesting chiefly as economic and political challenges. This is why experts in the real estate industry are asking questions and examining what the future holds for the industry, more so with the dawn of a new year.

Whereas other parts of the world have a mix of technology, in Nigeria, the disruption arises mostly from economic issues, especially at the macro level. With a hyper-inflation that peaked at 28.20 percent in November 2023, volatile exchange rate, high energy and input costs, the industry was more than challenged and its future is still hazy.

Jones Lang LaSalle (JLL), a professional real estate services company, in its latest ‘Global Real Estate Perspective’ publication, notes that “navigating disruption and uncertainty are now standard in a world that continues to face economic and political challenges.”

The company also notes that investors and corporate occupiers have enormous concerns, ranging from the productivity of a hybrid workforce and how to gain an edge with artificial intelligence, to the ongoing problem of what to do with office buildings that are heading for obsolescence.

The five big questions which these investors and occupiers are asking, according to JLL, are whether hybrid is really working; AI will go from hype to habit, or there will be enough net zero offices. Others are ‘what next for real estate investment’, and ‘will investors become conversion converts?’

Is hybrid really working?

JLL notes that years into the great hybrid work experiment, many firms worry it just isn’t delivering the goods, citing its recent research which found that boosting productivity is one of the top three reasons employers are encouraging people to work from the office as they feel it’s needed to maximize collaboration and innovation.

“Employers associate on-site work with major benefits such as social connection and cultural bonds,” Flore Pradere, Global Work Dynamics Research Director, was quoted as saying, adding that the employers see on-site work as a significant contributor to employee performance.

But there are conflicting issues from an employee standpoint. Almost half the workforce believes they’re more productive at home. Their reason is that “office noise and lack of privacy are significant problems, discouraging many employees from returning,” according to Pradere. “People say they simply can’t concentrate and it’s affecting their work,” he added.

The answer, then, is that more work is needed to bring expectations closer together. A big part of it will be creating offices that deliver what’s needed for a hybrid workforce. Pradere suggests office use data and human-centred design are key to cracking the performance code.

Will AI go from hype to habit?

JLL says Artificial Intelligence (AI), and the future it has come to represent, has taken the world by storm. It’s creating a job boom for related skills and it is such that property industries such as data centres have expanded on the back of growth expectations.

It points out, however, that as the initial excitement wears off, organizations are grappling with how to fully harness the technology to fuel their future goals.

There’s no lack of conviction from investors, developers, and occupiers, who agree it’s among the top three game-changing technologies for real estate in coming years, not least for decarbonizing real estate.

“It’s becoming the norm to use AI to make light work of complex data, whether financial, contractual, or the vast datasets generated by smart buildings,” says Yao Morin, Chief Technology Officer at JLLT. “Companies across all sectors are exploring how AI can drive efficiency,” Morin noted.

However, she cautions that as the use of AI becomes more common place, businesses should be mindful of the various AI regulations that continue to emerge across the world, concerning data quality, IP rights, privacy and data security.

Will there be enough net-zero offices?

Investors and corporate occupiers are really worried about net zero offices, wondering if there will be enough of such offices. JLL’s answer to this is that demand is on the rise for real estate that helps organizations meet their net zero carbon (NZC) goals, adding however that, for now, there’s just not enough space, particularly in the office sector, to accommodate everyone.

“The gap between supply and demand is only set to widen,” says Guy Grainger, Global Head of Sustainability Services and ESG at JLL. “It’s creating opportunities for forward-thinking developers and investors to consider retrofitting existing office buildings with the prospect of higher rents in the short-term and protecting value in the long-term.”

Grainger points out the commercial case for sustainable buildings has never been stronger. “Mounting costs from climate risk, increased tenant demand, tougher regulation and restrictive finance all point to investment in decarbonization as the smart long-term strategy,” he says.

What next for real estate investment?

JLL notes that commercial real estate investment is in the early stages of a significant reallocation of capital. But Sean Coghlan, Global Head of Capital Markets, says that depending on location, it’s fair to say that diversification will take different forms. “And even for those sectors which are currently out of favour, we still see a place for global, diversified portfolios,” he notes.

Will investors become conversion converts?

Another concern on occupiers’ minds is whether investors will become conversion converts even in the midst of rising vacancy rate in office buildings. JLL notes that while office vacancy rates hit an all-time high, and housing shortages abound, investors and landlords are questioning what to do with buildings past their prime.

According to the company, converting these spaces into apartments, life-science labs, luxury hotels, data centres or even vertical farms are becoming increasingly attractive options.

In Nigeria, conversion of residential buildings into offices has become common-place as companies downsize and so downgrade their space requirements. Hibrid work is also a major reason for the conversion which many investors are embracing.

“With many buildings now out of date – if not yet out of use – and others simply failing to generate suitable yields, conversions are increasingly on the cards,” says Walid Goudiard, Head of Project and Development Services, EMEA.

He adds that as more repurposing projects are finished, developers are gaining valuable experience. Financing is also becoming more readily available.

“The environmental and social benefits are now clear, while future financial rewards are boosting investor confidence in the emerging business case for adaptive reuse strategies,” says Goudiard.