Stranger Things in

What happened to the traditional property cycle? In 2018 and beyond historical trends will be replaced by new trends, predicts JLL's EMEA CEO Guy Grainger

January 10, 2018

Local administrations with devolved economic powers and clear long term visions will shape the best future cities

The world seems upside down when after nearly 10 years of growth in property values all forecasts are predicting more of the same. What happened to our traditional property cycle?

In 2018 and beyond historical trends will be replaced by new trends, and property, in the short term at least, will benefit.

1. Money, Money, Money

Global wealth is rising, investors want a safe place to leave (and grow) their money, and real estate is now an asset class in its own right. In 2016, over $260bn was invested in real estate globally.  That increased by 10% for 2017.  And closer to home, the value of what JLL buys, sells, finances and funds is 66% higher than a decade ago: in 2007 we transacted on average $300m each working day, last year it was over $500m.

“The numbers are truly striking. We think that real estate is going to continue to outperform and return close to 6%.”
(Credit Suisse CEO Tidjane Thiam, singling out real estate as his top asset class in recent years)

Traditional office blocks or co-working spaces; Experiential in-store shopping experiences or last mile logistics for e-commerce; Homes to buy or Build-to-Rent. It might not all be bricks and mortar, but it’s all real estate.  It’s changing and there’s never been more money flowing to it.

2. We built this city

With 2% of the global population moving from rural to urban areas each year, what will our cities look like in the future? One of the big things around the urbanisation trend is the provision of living in cities is going through massive change.  Already we’re seeing different types of homes (e.g. rise in multifamily residential), using different building materials (e.g. buildings use over 60% of our energy – how do we make them more sustainable?) and eagerly waiting for driverless cars to ease congestion.

The real estate industry will influence what future cities look like. The class of “new world cities”, like Austin in Texas, and Berlin, are centres of tech excellence.  Relative to their size they attract a disproportionate share of global investment.  Digital connectivity is just as important as geographical connectivity.  If you want a city to thrive – make sure it has great internet!

So come 2050, when 70% of the global population are living in urban areas, I expect our cities to be data-driven and pollution-free, where autonomous vehicles transport people on clear roads between purpose-built spaces for work, rest and play.

“…real estate plays a critical role in meeting society’s changing needs and challenges – arguably as important as hospitals [and] rail networks to the wellbeing and fabric of society and economic success.”
(Emerging Trends in Real Estate – Europe 2018, Urban Land Institute report)

3. Year of the Unicorn

Last year the iPhone celebrated its 10th anniversary, which meant it was used as every example to explain the power of tech disruption.  In 2018 we can point to a few different examples.

For example, Airbnb was founded in 2008 – so it turns 10 this year. And a US study predicted that 65% of children entering primary school today will work in completely new jobs that don’t yet exist.

But let’s think forward to 2028. What technology innovation will be celebrating its 10th anniversary then?

I’ve spoken before about my personal commitment to finding proptech unicorns. I can’t guarantee we’ll find one this year, but I’ll guarantee this: if you’re working in real estate and still don’t know what proptech is, even at its most basic level, then you might as well give up now.

“Technology and data will be embedded in everything the property sector does. With any luck, tech may help the property sector solve some of the biggest global issues such as global warming or housing the ever growing population.”
(Dan Hughes, 2017 #1 Proptech Influencer UK, with his 2018 predictions)

4. War (for talent), what is it good for?  [Answer: the office market]

A physical work space alone can attract talent.

And whether it’s by having a great coffee bar, or technology that knows exactly how and when you take your coffee (and delivers it hot to your desk!), you need to create a space where people want to be. Getting the human experience element of the workplace right really can make the difference.

A recent global study found that only half of employees were entirely satisfied with their current work environment. Businesses are seeing the opportunity in implementing the right workplace solutions that ensure more employees are entirely satisfied.  About 20% of corporates currently outsource their building operations, but that will rise.

Coming from a retail background, I remember 10 years ago when we started to see the influence of online retailing; I could see businesses ignoring it, and not many of them are around now. The ones that are, needed a lot of advice.  I’m seeing the exact same thing with workplace, but it’s moving much quicker as there’s so much demand for attracting the right people.

“Human experience is about how the work environment ultimately impacts company performance, not just its culture. Work places and work spaces have a key role to play in fostering engagement, empowerment and fulfilment.”
(Workplace powered by Human Experience, JLL study)

5. Take a chance on me

With all good opportunities, you’ve got to know how to take them. So here are my tips for 2018…

  • look to Asia for real estate investment (in 2017 Chinese companies were involved in landmark deals on the continent, with Japanese and Korean capital to add weight in 2018)
  • local administrations with devolved economic powers and clear long term visions will shape the best future cities. Partner with these if you want to make an impact
  • invest in training and change management if you want to get the most out of technology. Or work with someone who knows what they’re doing

There you have it.  And I’ve managed to predict the main trends of 2018 without even mentioning Brexit…..doh!

And for other Corporate Real Estate trends in 2018, watch Neil Murray, JLL’s EMEA CEO for Corporate Solutions, on CNBC