A structural change is occurring within global real estate markets.  The relationship between the occupier and the workplace is altering fundamentally and irreversibly.  Property has become more strategically important to business.  Consequently, that property must present the occupier with increased flexibility and greater emphasis on workplace service and experience.  There are no half-measures.  This is the new world of corporate real estate.  This is the new world of business.  Constant change.  Constant reinvention.  A constant battle to retain relevance in a world of disruption and disruptors. 

Against this backdrop, many market commentators have been pessimistic about demand prospects within global real estate markets.  Yet market demand has held firm, and in many cases, global markets are witnessing new benchmarks in terms of leasing volumes.  The disruption facing occupiers is bringing demand to the market.  It is demand that is structurally different from what went before.  Evidence points towards a slight reduction in the quantum of space let deal by deal, but an increased flight to quality as the workplace becomes the locus for innovation, collaboration and creativity.  This will not change.  Continued corporate transformation will create market churn.  New market entrants – many of whom will grow at incredible pace – will inject new demand into markets.  Yet there are two additional dynamics, which further justify a guarded optimism in respect of future market demand. 

First, a new cycle of global M&A activity is commencing, fuelled by unprecedented corporate war chests.  As corporates seek to maintain relevance and create resilience in changing market conditions, we will see attempts at both horizontal and vertical integration.  In the former, occupiers will strategically buy market share or niche activities in order to bolster existing operations.  In the latter, occupiers will seek to diversity activities into new but complimentary sectors.  In a recent survey of Global CEOs, a quarter of respondents pointed towards this sector convergence being a near-term reality.  This will be particularly evident as the tech titans, such as Amazon and Google, seek to enter into new market segments that can be revolutionised through the application of technology. A current focus is the healthcare sector.  As M&A activity increases, a real estate dimension invariably emerges down the line. Duplicitous portfolios are streamlined but, moreover, post-merger cultural change and reorganisation often has a physical manifestation.  Merger activity occurring today will have resonance in global real estate markets three years from now.  What is more, the emergence of a tech titan into a new industry sector has huge ramifications for traditional players in that sector – and forces them to change their approach.  There will be a shock-wave effect from mergers, whereby new real estate market demands will emerge from those facing new disruptive pressures.

Second, a new era of occupier mobility is upon us.  Our (Y)OUR SPACE report investigates six drivers of this mobility as outlined in the infographic below.  As occupiers seek new talent pools, they gravitate towards markets or submarkets that were once terra incognita.  They move towards buildings that are proximate to these talent pools (hence a move often to new transport nodes) but which also have the amenity, service and infrastructure to retain that talent. This dynamic is driving some large corporate entities to move from sub-urban America into urban centres.  This dynamic is also driving the breakdown of businesses into distinct functional groups that are located in markets with an appropriate talent provision and cost profile to support efficiency and productivity.  It is a dynamic which is increasingly being politicised.  Hence, so much of the Brexit debate in the UK has focused on whether international investment banks will seek to relocate activities away from the City of London towards Continental Europe, while in the US, Amazon instigated and actively formalised a bidding war amongst city authorities to secure their second HQ operations. 

For more insights into the dynamics shaping occupier decision making and the implications for global real estate markets, take a closer look at (Y)OUR SPACE