MIPIM: reshaped occupier strategies present new challenges for seasoned investors

Defining the right product for investors has become more difficult as occupier strategies are reshaped by e-commerce, social and business change, low growth, and affordability constraints, says Cushman & Wakefield.

The global real estate broker, in Global Investment Atlas 2019, reviews international investment patterns from 2018 and anticipates market performance for the year ahead.

The report, authored by David Hutchings and Carolina Dubanik in Cushman’s EMEA investment strategy team, continued:

“In today’s connected and environmentally-conscious world the margins for error are tighter than ever, and the pace of change is only set to accelerate as advances in technology, living and working habits change how people interact with property and therefore what occupiers expect from their buildings.

“An increasing focus is rightly being placed on flexibility and mixed-use, while the sharing economy is leading to new patterns of leasing and space configuration, and opening up new sources of income for landlords. Hence while an abundance of capital will continue to drive the market and sustain pricing in 2019, performance will be reliant on the occupier, on innovation, and on tapping into added services.”

Cushman also highlights the industry’s imperative to tackle climate risk, given that the built environment is responsible for an estimated 40% of global greenhouse gas emissions. The real estate sector needs to rise to the challenge to meet the Paris Accord targets across recycling, efficiency, tech monitoring, resilience and use of renewables, Cushman warns.

Cushman’s David Hutchings and Carolina Dubanik explain:

“This can contribute to reduced running costs, better employee goodwill, brand enhancements and potentially higher capital values as evidence grows of investor preference for green buildings. This, however, has been known for some time. What is different now is that changes to policy, regulation and indeed the climate itself are likely within the lifespan of investments being made today: meaning investors must take action now and deepen their engagement with suppliers, regulators and users in the process.

“While an upside risk is always preferable, investors who ignore these forces, both natural and market, do so at their own peril risking a loss of liquidity, higher insurance premiums, and weakened tenant demand if no action is taken.”

Cushman says investors wishing to pre-empt the climate risk to their portfolios should therefore consider:

  • Asset-level resilience to climate change related threats;
  • City-level resilience to these same threats; and
  • Their asset management strategy.

Inaction risks developing competitive disadvantage, as reporting standards become either regulatory necessity or market demand driven standard practice, and may lead to future liquidity concerns when assets are being sold to investors who prioritise climate risk, Cushman warns.

You can download the full report, here.

james.wallace@realassetmedia.com