Corporate real estate investors refocusing strategies

THE current pessimism over the economy as a result of the Covid-19 pandemic has seen a decline in real estate investment in the Asia-Pacific region.

Investment volume fell 29 per cent globally to US$321 billion in the first six months of 2020 compared to the same period the year before.

Meanwhile, widespread city lockdowns and the mass work-from-home exercise have forced an abrupt change in the way many employees do their jobs and how corporates are thinking about their property portfolios.

But the real estate industry is finding its feet amid the flux.

Even as some companies are re-examining and reducing their office footprint, with the likes of Fujitsu announcing that it will halve office space over the next three years, others such as Netflix have decried work from home as a "pure negative". Facebook leased all 730,000 square feet of the available office space in the Farley Building in New York City last month while Ping An Insurance paid HK$11.27 billion (S$1.45 billion) for office space in West Kowloon, Hong Kong, in April as part of its expansion plans for the Greater Bay Area.

It has also been reported that Chinese giant Tencent is setting up a regional office in Singapore.

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Zooming in on Asia-Pacific

Most corporates, however, are taking a more measured approach.

In a survey done by JLL as part of a report on corporate occupier sentiment, 76 per cent of 200 corporate real estate (CRE) leaders in the region say that they expect only a moderate impact on their office footprint due to Covid-19.

Nearly two thirds of these CRE leaders also expect their total number of sites to remain the same.

This optimism and resilience can be attributed to the faith that corporates in the region place in the governments of the countries they are operating in.

The same survey reveals that 70 per cent of CRE leaders are feeling confident in their governments' abilities to advise on the pandemic and mitigate future risk.

The pandemic has also sharpened the priorities of CRE leaders, with 58 per cent citing ensuring the health and wellness of employees as their key focus.

An overwhelming percentage of occupiers (94 per cent) foresee that their share of higher quality space will remain the same or even increase.

This is not surprising.

Premium Grade A spaces not only boast high quality fixtures, many tend to have interiors and amenities that take into account the health and comfort of occupiers.

Impact on investors

Investors are paying close attention to this shift and what their tenants are saying. Many are keen to start deploying capital again.

In a separate JLL survey with 38 global and regional investors who possess combined assets under management of more than US$1.8 trillion, 52 per cent of investors expect a recovery in the market in the first half of next year.

What stands out is that offices remain a favoured central and strategic asset class set with this investor set - 88 per cent of survey respondents indicate that they would either increase or maintain their exposure.

The office continues to be essential because work from home is not an ideal long-term solution for many in the Asia-Pacific region.

With more complex demands, investors are thinking long-term.

They want Grade A offices which are certified sustainable and equipped with the latest technologies optimised to ensure the safety and health of occupiers as well as support the new way of working.

One example is the feature for conference rooms to allow mixed realities - the merging of AR and VR technologies with real life.

Offices are evolving fast in light of the pandemic, and they continue to be desired by both employees and corporates.

Investors must consider these new space and location requirements to build resilience into their portfolio.