Businesses are returning to some form of centralised working, and real estate’s concerns over a slump in office demand are waning, CBRE has said in its latest Global Investor Intentions Survey.
Although nearly three-quarters of investors (72%) said they expect office demand to fall either slightly (51%) or significantly (21%) in the next three years, the mood has shifted in recent months, according to the advisory firm.
In the US, Brian Stoffers, global president of CBRE’s debt and structured finance division, said: “More recently, investors and lenders in particular are warming up to the idea of financing office buildings across the country, realising that perhaps there was an overreaction to work-at-home and that, in fact, more companies are going to be returning to a work environment of some sort.”
Major tech firms in the US have in recent months diverged on their policies on working from home.
While Facebook said employees can continue to work from home – subject to approval from management – Google has planned to reopen its offices in September and said it expects employees to be in the office at least three days a week.
Last May, Twitter made headlines by allowing employees to work remotely “forever”, later adding that when offices do reopen, it will be a gradual reopening with employees deciding “when and if” to return.
A different kind of office
Despite forecasting a return to the office, CBRE said the pandemic has reinforced the need for offices to provide amenities and ensure the health and safety of their tenants.
In particular, power systems, lift access and air-filtration quality are “becoming more important investment considerations than ever before”.
Having flexible office space options was identified as the most in-demand building attribute in the future, and CBRE said it also expects more ‘hub-and-spoke’ style office strategies as the decentralisation of the workplace continues.
Companies like CBRE and JLL have, in recent months, invested in businesses that benefit from those trends. While CBRE acquired a substantial stake in Industrious, the co-working brand, JLL has partnered with workspace analytics platform Vergesense.
Others, such as MRI, have also made investments in platforms that seek to ensure the health and safety of tenants as they return to the office.
Sustainability can make or break a deal
Attracting investment depends increasingly on ESG compliance, the survey showed. Led by Europe due to the region’s regulatory advancements, more than half of investors globally have adopted ESG criteria for prospective property investments.
Chris Ludeman, global president in CBRE’s capital markets division, said: “There is a strong desire and mandate for institutional capital to be ESG compliant. While European capital has always been way ahead in this regard, ESG is now permeating the Americas and will become increasingly important in Asia.
“CBRE expects to see a greater preponderance of investors including ESG in their investment criteria.”
While some measures, such as renewable energy generation, involves significant upfront investment, CBRE highlighted that other measures, including initiatives that target human behaviour and waste management, can have a “big impact” on emissions with relatively little cost.
As this trend grows, property management will have to play a larger role monitoring and maintaining ESG performance. Building management systems such as Smart Spaces have introduced more of these functions, analysing metrics such as carbon dioxide levels and particulates in the air.
Julie Townsend, head of environmental consultancy at CBRE UK, said: “I believe [good ESG data] is going to be the passport of the future for buildings. I think there’s going to be a lot more valued placed on ESG data than actually on the asset level certifications that we see today like the BREEAMs, the LEEDs.”
Whether there is a premium for buildings with strong ESG performance is not clear, CBRE said, because the highest performing assets are newer, high-grade assets, which are already highly valued.
However, it added that certain markets are starting to see discounts due to poor ESG performance. The growing threat of natural disasters has also led some to suggest that resilience should be added as a fourth component of ESG to form a new sustainability concept: ESG+R.