Although there is no one measurement to calculate near-term obsolescence or stranding risk, building age tends to correlate best with respect to the ability to meet tenant, investor and sustainability requirements along with the rate of occupancy and rent growth. Age aligns strongly with existing engineering, technological and climate adaptation capabilities as well as the ability to retrofit them at pace. In parallel, the presence of social value- and wellbeing-oriented design through the presence of private outdoor spaces, biophilic architecture, retention of some or all of the substructure to better manage embodied carbon, and floorplates that maximize light penetration all have a greater presence in new construction, meeting newer standards for users of all forms of commercial real estate.

The scale of these impending capital needs should not be underestimated, particularly for highly differentiated sectors. Of the 776 million square meters of existing office space in 66 key markets globally, anywhere from 322 to 425 million square meters is likely to require substantial capital expenditure to remain viable in the near term. In practice, this equates to roughly US$933 billion to US$1.2 trillion in spending, roughly 2.2 to 3.1 years’ worth of dry powder in the entire United States.

At the same time, this is unevenly distributed: 44% of projected obsolescence is likely to arise in the U.S. given higher levels of structural vacancy, with a further 34% in Europe as flight to quality in select segments leads to a smaller but still significant amount of vacant product with little demand chasing it. Such divergence also exists at the market level, where New York, Washington DC, Paris, Chicago and London alone will account for US$242 to US$320 billion of necessary global capital expenditures. These discrepancies underscore the distinctions that owners will need to make when assessing the gradient and distribution of super-prime, core, value-add and distressed investment opportunities and strategies.

There are four core pathways to avoid stranding risk, each with requisite market, financial and political considerations

Explore more of JLL's latest insights on World Economic Forum themes at our dedicated Davos page.