Trend 1 – Environmental, sustainability and governance (ESG) – trends to a zero-carbon world
Many investors are looking for more sustainable investments, says Davis. A commitment has been made by many global Fortune 500 companies, as outlined in Avison Young’s report, 10 Trends for a Zero Carbon World: “a third of the global Fortune 500 lists, including the top four U.S. Fortune 500 companies, have publicly and voluntarily pledged to achieve a net-zero carbon, 100% renewable energy supply or science-based targets aimed at keeping global warming below 2 degrees C.” This is a huge statement and there are a lot of eyes on the real estate industry given the impact buildings have on emissions, says Davis. So, buildings will be affected, and markets will be required to adjust.
ESG will impact many, from single-building owners to institutional investors who own multi-buildings. ESG assessments will be completed by city planners, investors, real estate companies, and office users to help them reach decisions that support working towards a zero-carbon world, Davis says.
The industry has seen similar policy impacts. The most recent of which was about 20 years ago, with the introduction of policy around the environment. At that time, lenders were not lending based on environmental assessments. With ESG principles becoming essential components of financial viability, it will impact the value and saleability of properties moving forward.
Canada is ahead of the pack in incorporating ESG into portfolio management, at about 50%, and this will only continue to climb, says Davis.
ESG will also impact how investors look at different investments. For example, ESG commitments will impact whether they secure a long-term agreement, will it improve a property’s cap rate, or will it help to draw desired tenants? These, in turn, will ultimately impact overall equity value and saleability.
Trend 2 COVID-19 – Post-pandemic workplace
How has the COVID-19 pandemic impacted how workplace real estate will look going forward?
There has been time for consultants and real estate groups to research the numbers and explore how the workplace has been impacted. It would be fair to say the pandemic has been a disruptor to workplace ecosystems, says Davis.
Both employees and employers have had time to rethink how workplace real estate will look and be consumed moving forward. The world has seen there’s the ability to work efficiently while working remotely.
Interestingly, only 15% of respondents in a Leesman Global Survey said they would return to the office full-time (five days per week). This tells us that 85% of employees want a hybrid work experience and are seeking flexibility.
Nevertheless, Avison Young’s research shows that while hybrid work is desired, employees also want to return to the office for some level of interaction with colleagues—activities that can’t be done over a video call. How does this impact office space? Avison Young anticipates a shift toward a more agile and flexible campus-style workplace, says Davis. The future workplace will be fluid, expansive, and varied, providing a work-life balance that will be a major draw for talent retention and recruitment.
Trend 3 – Technology
Davis believes commercial real estate is going through a technological revolution, “with occupancy costs rising, ESG top of mind and a rethink of office design; occupiers will look to build efficiency in their buildings through technology.”
From a financial standpoint, tenants are looking to take advantage of cubic space. A company with distribution centre needs and head office requirements may no longer need to be in the same place. It could relocate to a new distribution centre in a tertiary market and have a smaller satellite office in a major urban centre due to cloud-based technology and remote work component. This could reduce their total square footage costs.
The use of technology or robotics such as movable racking and automated cranes within certain sectors will reduce overall building footprint requirements and improve worker safety, says Davis. Davis also notes smart buildings will also become more important in all sectors to guide continued improvement in all aspects of commercial real estate.
Courtesy: CREA
