While investors grapple with new occupier demands and development challenges, the greatest opportunity of the next 10 years is unfolding.
Insight
26 February 2024
Offices a tale of the very best and the rest
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The growing performance gap between office buildings with a high sustainability and experience offering, and those that are ageing, is both the biggest opportunity and the biggest problem facing investors right now.
Offices located outside the world’s biggest cities and failing to keep pace with modern demands are likely to be more attractive to investors looking to convert them to new uses as the sector becomes characterised by “the very best and the rest”, according to senior leasing brokers at JLL.
“We are all about to go through the greatest cleansing of office space in our careers,” said Jeff T. Eckert, speaking on the Perspectives podcast. “Tenants want to be in quality assets. I’m not saying there is not going to be future leasing done on ‘b’ and ‘c’ offices. There certainly will be. But where there is no demand, that real estate will be transformed into something else. We’re already starting to see it.”
Data captured in the U.S. shows a clear preference for buildings constructed in 2015 and later, with net occupancy over the past four years of 122 million square feet compared to negative 354m sq ft for older buildings.
Difficulties associated with building new offices, including availability of materials and labour, fast-moving ESG legislation and viability concerns are leading to occupiers putting their property requirements into the market as early as six years before their current leases expire, the brokers discussed.
And the potential for companies’ requirements to change over that time is leading to an “overriding need for flexibility,” says Tim O’Connor, head of leasing in Australia. “The further you go out the more challenging that becomes.”
This podcast episode features Jeff T. Eckert, president, Americas agency leasing; Tim O’Connor, head of office leasing, Australia; Alex Barnes, managing director of JLL’s Hong Kong and Macau operations; Neil Prime, strategic clients lead, UK markets; and Marie-Laure De Sousa, chief executive, France. JLL’s Perspectives podcast is hosted by Rebecca Kent, JLL content director.