Episode 2: 2023 trends and reasons for optimism
Head of Americas Research & Strategy
In this episode, Michael Griffin talks to Julia Georgules for her perspectives on whether there’s a silver lining in 2023 amidst...
Michael: First up is Julia Georgules, Boston-based, head of research for the Americas at JLL. So, Julia, there’s been so much news recently about the toll that uncertainty is taking on commercial real estate.
Everything is so much easier, obviously, when the economy and the markets move along at steady and predictable rates. But with all this turmoil, what should we really be concerned about? And is there any kind of silver lining?
Julia: Michael, it’s a great question. You can be certain that in times of uncertainty there will be a lot of questions emerging around, how will people respond, how will people behave? What will demand look like within the commercial real estate sector? And I like to think about it right now through two different lenses.
The first, you know, reflecting back on the past three years, which raised a lot of questions around how people would live, work, or play in a future world following the pandemic and there were a lot of kind of big, speculative guesses around what would or wouldn’t return to normal.
Would people get back on public transit? Would people go back on airplanes and travel places? Would they go back to hotels? Would they go back to restaurants? Would they go back to open, public spaces? Would they go back to work? What we’ve seen, you know, at different points along the way, whether it was the release of the vaccine or just the prolongment of the situation is that people revert back to the mean.
They go back to normal patterns and behaviors when there’s a level of personal certainty or safety, when we’re out of that crisis-mode thinking. So we’ve seen people going back to all of their regular activities. The one that hasn’t recovered as much as those other areas, II mentioned, certainly, remains within the office sector.
But even there, we’ve seen a steady uptick since Labor Day of people going back into offices. We’ve also seen employers mandate more of a structured schedule around going back into the office or just coming back in general. So we’ll continue to see progress in those areas. I think, you know, we’ll continue to see some uncertainty from users of real estate really trying to understand where is the economy heading.
That’s kind of universal right now, and it impacts that longer-term thinking, right? When do you strike a deal or what is it that we actually need, especially when you’re going back and talking about return to office? So there’s still some details that are being fine-tuned and strategies that are being developed.
But the second lens that I like to think through is longer-term, what do we know will remain true that impacts the commercial real estate sector? And I always lean on the fact that people will always need places to live, they will need places to work or to come together and socialize, or to experience different social events, or entertainment, or personal activities.
They’ll need a place to acquire goods and different services, and that really kind of spans across the spectrum of commercial real estate. But the questions emerging over the past couple of years and really pre-pandemic were around location. Where will that happen? What type of real estate product does that kind of match? And what is it that we’re really trying to serve in terms of the experience?
And we have a lot of good thinking around that in terms of workplace design or location preferences. There’s been a lot of movement toward the Sun Belt, those high quality of living and lower cost markets will remain attractive, but not to the detriment of those big dynamic cities that continue to attract people who are looking for urban lifestyles, arts, entertainment, lots of different people to interact with and meet.
So that doesn’t give you a ton of certainty necessarily, but we do feel like we’re seeing, again, that reversion to the mean, normal behaviors that we know to be core to human nature. And, you know, the desire for these really unique, interesting, and engaging experiences within any real estate property type that we’re talking about.
Michael: If we zoom out, what are some of the big trends that everybody watching should be keeping their eye out for in 2023?
Julia: Yes. Trends in 2023 to watch, despite the uncertainty that we just discussed, you know, there are definitely business areas and commercial real estate areas to watch for. You know, we’ve seen in past cycles is that when there are times of uncertainty or there are structural shifts in the economy or the business landscape, that’s usually when we see some creativity and innovation emerge.
The past 10 years was a great example of that really transitioning everybody over to that digital age of information sharing and on-demand mobile services and e-commerce and, you know, shifting everything over to the cloud. That created a lot of business growth, a lot of demand for real estate, you know, predominantly within the office sector, but certainly, as the shift toward e-commerce and the growth in that area accelerated, that’s had an impact on the warehousing and distribution sectors as well.
If I look ahead and think about some of those critical questions or challenges or opportunities that businesses are trying to solve for, a couple of areas come to mind. One, we’ve seen life sciences emerge over the past couple of years as a bright spot in terms of solving critical health challenges, you know, meeting a need during a pandemic. Looking ahead long-term, you know, we don’t see the world’s desire for lower quality healthcare, or access to therapeutics, or shorter lifespans to change anytime soon.
You know, the labor shortage has created some interesting questions around how do you remain productive with capacity constraints on the labor market. We’ll continue to see innovations in that area, whether it’s automating certain tasks, creating technologies, like within warehousing and distribution centers to help the movement of goods, and probably many other areas of opportunity to integrate robotics and artificial intelligence into regular work processes.
You know, and then the last area I’ll mention, which has received a significant amount of kind of attention within the commercial real estate over the past couple of years, but it’s certainly a global challenge and one that’s becoming much more critical in a shorter period of time for us to address is sustainability and the race to net-zero carbon, decarbonizing real estate, decarbonizing homes, and the way that we live and work.
That will create a lot more innovation, more businesses, and different technologies to address that challenge and that need. So it’s certainly an area that we’re focused on as a company, but also just looking at in terms of a growth opportunity. And then, of course, there will be continued innovation within the technology sectors around cybersecurity, around cloud computing, data centers will continue to be impacted positively from that growing demand.
So those are some of the areas that I’m looking at. You know, we focus heavily on where are companies and businesses, and industries really thinking about innovating. And that generally leads to business formation and business growth which, of course, benefits the commercial real estate sector over the long term.
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