The flight to quality real estate takes off

From San Francisco to London to Tokyo, businesses are flocking to high quality real estate. No occupier, investor or developer can escape the implications of this “flight-to-quality” movement. Nearly all property types are impacted by this trend, which entails a rising demand for top-tier space.

Staying competitive requires a rethink of your portfolio and location strategies. Understanding what’s driving this trend will help you get ahead in your quest for quality real estate.

The gap between high-quality and lower-quality assets is widening. Many cities have seen an uptick in leasing demand for Class A assets — the newest, highest quality properties — while second- and third-tier space sits available. Case in point: older buildings in the U.S. have lost over 400 million square feet of occupancy since 2020, while buildings constructed in the past decade gained nearly 150 million square feet of occupancy.

“There have been some casualties as occupiers reduced their footprints to smaller, fewer but better locations,” says Piacentino. “Increased vacancies in second and third-tier assets create risk, but also opportunity.”

The shortage of high-quality space and the increase in stranded assets is not changing trajectory any time soon, particularly in the office market. JLL Research estimates that between 322 to 425 million square meters of existing office space in 66 global markets will likely require substantial capital expenditure over the next five years to remain viable. Expect to see more redevelopment and retrofitting activity, as well as rising demand in emerging hot spots.

Driven by a need to attract and retain talent, manage risk, meet sustainability goals and support digital workplaces, tenants and investors are rethinking their portfolio and location strategies. A flexible and agile approach is essential to prepare your portfolio for whatever lies ahead.

“You may not know what will happen in the future, but you can at least be prepared with a few scenarios mapped out,” says Carlos, who has specialized in location intelligence for JLL clients for more than a decade.

One global financial services firm leveraged data-driven portfolio strategy to generate significant liquidity while implementing hybrid work. Facing the challenge of determining which properties to retain, release or downsize post-pandemic, the company partnered with JLL consulting experts to analyze real-world attendance data beyond simple averages. This scientific approach revealed that while peak attendance reached 65% at one location, that level of usage was rare. Most of the time, attendance rates were closer to 36 percent. Upon following recommendations for their location and portfolio strategies, the firm achieved $120 million in annual savings and reduced its footprint by 2M s.f. The optimization freed capital to relocate headquarters to a modern facility half the size of their previous space, balancing immediate cost efficiency with long-term business flexibility.

Savvy executives know that quality real estate is essential to accomplishing business priorities. Now is the time to take a hard look at your portfolio to see if you have the right assets to achieve goals related to growth, cost optimization, risk mitigation, flexibility and sustainability.

Engaging executive leaders early in strategic conversations and bringing data-driven insights are critical for confident decision-making. A skilled partner can help facilitate those discussions, bringing the data and tools needed to assess your portfolio, as well as identifying your options.

The shift to high-quality real estate is about more than amenities and space design. It’s also about the address. Where you choose to locate sends a powerful signal to customers, talent and partners — it's like a business card illustrating your values and what your brand represents. Location decisions are typically long-term and involve risk and substantial capital expenditures, so it’s critical to get it right. Quality data is essential to optimizing site locations. Depending on your unique needs, you may need to examine population trends, workforce demographics, commute patterns, risks, real estate costs and many more data points.

A leading U.S. health system revitalized its growth strategy by employing advanced location analytics to guide expansion decisions. Using sophisticated mapping technology, the organization layered patient demographics, physician density, healthcare spending patterns and transportation data to identify underserved markets with high demand potential. This precision targeting allowed them to avoid oversaturated areas while strategically positioning new facilities where patients most needed access to care. The data-driven approach has supported over 150 successful transactions, transforming the organization into one of the region's largest healthcare providers while ensuring new locations maximize both patient accessibility and business performance.

“You can have a beautiful building in a great city, but does it align with your business requirements? Does it offer access to the right workforce, business partners and infrastructure? That’s where data and location analytics come in,” says Carlos.

The flight to quality is impacting every property type. Supply has not kept up with demand for high-quality space, especially in the office market. The shortage creates challenges and opportunities for every market participant. Whether you’re a tenant, investor or developer, we’ve created a guide to help you navigate today’s market. Fill out the form to get tips to help you stay competitive in the real estate space race.

Whether your business is evaluating what to do with outdated properties or considering new locations for expansion, JLL Consulting Services can create strategies to position your portfolio for a future where quality matters more than ever. We bring you independent, objective and actionable advice informed by our global experience, insights and a bespoke location model. What’s more, we’ll connect you with our colleagues who can help bring the strategies to life.

Ready to take your portfolio and location strategies to new heights? Contact us today.