As the world adjusts to life with COVID-19, there will be many lessons learnt about the pandemic. How did we adapt? How well did we respond? What did we get right? What did we get wrong? Which systems and technology did we turn to that helped us to continue to perform life’s various tasks in a COVID world?

One thing is certain. The adoption of cloud-based IT systems enabled many to continue working remotely in a way that would have been unimaginable as little as ten years ago. The pandemic is pushing everyone to adapt to new circumstances and forcing even the most stalwart office workers to change the habits of a lifetime.

Whether remote working becomes the new normal or not is almost irrelevant. The exponential growth of data created by social media, mobile devices, video streaming and cloud computing has been with us for some time and this has driven an unprecedented demand for data and data centres. This demand has only been accelerated by COVID-19 as it pushes even more of modern life and business online.

Of course, behind every online and cloud-based technology, there is something physical – an asset sitting on a strategically-chosen plot of land somewhere in the world. These data centres are the engines that power the modern data-driven world.

With more than $100 billion invested in data centres over the past decade by a broad cross section of institutional investors including pension funds, private equity, infrastructure funds and sovereign wealth funds, the growth potential of the sector is well-established. With strong real estate asset backing and long-term leases against world class Hyperscale and Cloud operators, investors have realised data centre properties provide stable income, downside protection and strong potential upside.

The challenge investors face is how to find the right investment opportunity capable of providing these attractive returns over the long term. As much an infrastructure asset as a straight real estate investment, a thorough understanding of data centre fundamentals and demand drivers is essential.

Among these, the ability to assess the suitability of the land, where it sits in the ecosystem of data centres and the level of political and regulatory support is crucial.

For example, in Singapore, where land availability is a major constraint, multi-level facilities are being constructed, whereas in other jurisdictions proximity of a data centre site to power facilities and fibre connectivity are defining considerations.

From an environmental, social and governance (ESG) perspective, and in a world where businesses including the major cloud storage providers like Google, Microsoft and Amazon have set themselves ambitious targets to become carbon neutral by 2050, availability of renewable power sources is a major consideration.

Different jurisdictions can also offer a broad variety of incentives, particularly where competition between countries or states is high. These come predominantly in the form of sales or property tax incentives and can have significant influence on a project’s overall viability. These incentives are mainly offered in the USA, with competing states and counties courting data centre users.

Latency is a key issue

Roughly speaking, latency is linked to the amount of time it takes data to travel from user to data centre and then back to user. Perhaps surprisingly, in an era of super-fast fibre communications, the physical distance of the data centre from the user or customer is a still a key factor in determining latency.

As technology advances and applications based on the Internet of Things (IoT) pervade our everyday lives, latency is one of the key considerations for end users. After all, would you trust a driverless car if you knew it was prone to glitches caused by connectivity issues and latency?

To address the latency issue, organisations have developed smaller data centres, so-called EDGE data centres, which are located closer to the end user. They typically connect to a larger primary data centres. By processing data and services as close to the end user as possible, edge computing allows organisations to reduce latency, thus enabling the adoption of services and applications linked to the IoT.

Alex Dunn, Research Manager, Cromwell Property Group

Identifying the key trends that will impact the office in the coming years

Over the last 50 years, the style of the modern office has changed considerably. Initially, offices were populated by personal cellular spaces, which encouraged both privacy and a quiet working environment with limited interaction with colleagues apart from perhaps around the coffee machine. Working patterns gradually moved away from this, with recent designs favouring an open plan environment which encourages collaboration, creativity and team-based working.

Now, further change is afoot. Cromwell has interviewed an international network of contacts on their views about the office sector, overlaid its findings with analysis of changes in recent working practices and concluded that the office space of the future will look and operate differently. This transformation is being driven by four key trends: flexibility, technology, sustainability and wellbeing.

Flexibility in today’s world means offering employees choice over when, where and how they work. As companies compete to attract and retain talent, they are having to rethink traditional approaches to work and offer employees more flexibility. The benefits of doing so include a more engaged, productive and loyal workforce with employees themselves claiming a better work-life balance, more suitable working hours, often a reduction in time spent commuting, as well as reduced stress levels and mental health benefits.

Remote working is a large component of this flexibility. A sizeable proportion of the office-based workforce no longer needs to go to an office and can largely work anywhere. This is, in part, due to technological advancements over the last 20 years, but also due to the changing nature of work itself, the rise of the ‘knowledge worker’, as well as changes to workplace culture and employee expectations.

Despite this, before COVID-19, the statistics show only a relatively small proportion of employees actually worked remotely. In 2019, only 5.4% of employees in the European Union (EU) usually worked from home according to Eurostat, and this figure has remained relatively constant over the last decade. Over the same period, the proportion of those who sometimes worked from home rose from 6% in 2009 to 9% in 2019.

The increasing number of millennials in the workforce and their expectations and desire for a generally healthier work-life balance will likely see a rise in the percentage of these workers spending more time out of the office environment, whilst working. Prior to the pandemic, in a survey of over 7,300 of its employees, JLL reported that 47% of workers under the age of 35 worked away from the office at least once a month, compared to 27% of over 35-year olds.

The importance of going to a dedicated place of work should not be underestimated however. The office remains a place where employees can gather to collaborate, feel that they are part of a team and be creative in ways that are not possible remotely. The office also provides a social element to working life and is important for creating and maintaining the culture of a company, a critical element to overall performance. It will come as no surprise that, driven by an increase in remote working due to COVID-19, more companies are examining ways to retain social cohesion and culture amongst an increasingly distributed workforce.

Companies will assess their long-term needs for office space with these structural changes in mind. With a higher proportion of staff not needing to be in the office at the same time, some businesses will take the opportunity to review their real estate portfolio.

It remains to be seen whether this means businesses will reduce requirements or potentially elect to decentralise or redistribute operations by creating mini-hubs closer to where people live. Reductions due to flexible working patterns have the potential to be offset by any unwinding of densification trends of the last 20 years as requirements increase to cater for social distancing and the myriad of spaces now needed for meetings, breakouts, collaboration and quiet work.

Improved efficiency and reduced costs have historically been the main drivers of the adoption of new building technology but other drivers are now emerging. In particular, the current uncertainty around when and to what extent traditional business travel will resume, combined with a potentially larger portion of employees working remotely has meant that businesses must rethink their traditional large conference boardroom table formats, and consider the number of personal ‘quiet’ spaces now required for the increase in virtual meetings.

In the short term, the use of video conferencing apps to facilitate remote meetings will continue and the COVID-19 crisis could accelerate the development of new technologies such as virtual reality (VR) and augmented reality (AR) in order to enhance remote meetings further and help capture some human qualities in these virtual interactions. Fitouts will also need to adopt to this new technology as it arrives and come companies have already started to experiment with VR and AR using 3D avatars which can shake hands and interact with people in a meeting room, for example.

Technology is also being deployed to building management systems (BMS) to manage all aspects of a building’s operations from HVAC systems to smart lighting and smart elevators, with occupiers also beginning to turn to sensor technology to optimise space utilisation, air quality and workplace safety and adjust settings, where necessary, to maintain the optimal working environment. The ability of technology to monitor and measure emissions and the general performance of real estate is an ongoing and increasingly important imperative.

As more tech-native generations enter the workplace the shift towards technology integration, which requires a fast and stable internet connection, will only continue. Connectivity, both fibre optic and 5G, will become increasingly important from an occupier perspective, and as new technologies are introduced will likely increase both construction and fitout costs. In the long term, smart offices will be the norm, driving both human performance and also contributing to sustainability and wellness.

Real estate accounts for approximately 36% of global energy consumption and 40% of total direct and indirect CO2 emissions, according to JLL. With the global trend towards urbanisation and the ever-increasing demand for new building stock, these numbers are only set to rise.

It’s not all bad news however as The United Nations Environment Programme (UNEP) estimates that the real estate sector has the greatest opportunity to reduce greenhouse gas emissions when compared to other industries, with potential energy savings estimated to be as much as 50% or more by 2050.

Government policies regulating the energy performance of new buildings are a powerful way of reducing emissions to meet this challenge and are being introduced by an increasing number of countries. Leading cities are also introducing city-level regulation at a fast rate. Paris, for example, has a net zero carbon goal for 2050 and Amsterdam plans on being fully electric by the same time.

The ‘Green Deal’ has also been established in order to make the EU climate neutral by 2050. The deal looks to mobilise €100 billion of investment between 2021 and 2027 and one of the key programmes includes construction sustainability and increasing the renovation rate of old buildings.

Increasing regulation, as well as social and tenant pressures, are making sustainability increasingly critical for investors in terms of office construction, renovation and fitout. For those companies wishing to stay ahead of the curve, incorporating sustainability innovations into core business and asset management strategies is the only way to ensure the buildings of today do not become rapidly obsolete tomorrow.

Historically, many offices have been classed as ‘unwell’ spaces, with business leaders generally expressing cynicism when it came to the relationship between wellbeing and employee and business performance. There is an increasing level of research, however, that suggests office environments that do not contribute to wellbeing can impair performance and are ultimately at risk of heightened vacancy levels and loss of income.

According to Cushman & Wakefield, 77% of CEOs globally see accessing and retaining skilled labour as the biggest threat to their businesses. Attracting and retaining talent is not easy, and losing it is expensive, with anywhere from 50% to 200% of a lost employee’s salary spent on recruiting and onboarding new employees, not to mention integrating them into a new culture.

Businesses are therefore increasingly investing in their office space as part of their talent ‘attraction and retention package’, attempting to lure health-conscious employees with modern office designs, fresh air, ample daylight, green walls as well as other amenity options and break-out and recreation spaces. All these efforts will support positive mental health and general levels of productivity..

The inclusion of bike storage and end-of-trip facilities has also become critical with cycling to work and opportunity for physical activity throughout the day of increasing importance to many. The future workplace will look different as employers increasingly focus on these, and other wellbeing options.

Joanna Tano

Activity, from both occupiers and investors, in the UK’s office sector recorded a relatively positive Q2 amidst the continued Brexit haze. While political uncertainty has tempered market activity, deals are being done, prime yields are at, or close to, historic lows, supply-strapped markets are seeing an uptick in headline rents and the resilience of the UK office market is evident.

Almost three decades removed from communist rule, Poland has emerged as the growth engine of the Central European economy. From its inclusion in the EU, to its strong future growth forecast, there are numerous reasons that highlight Poland as a potential investment destination.

History

Poland’s long, often dark history has been wrought with hardship. The formal beginning of World War II was marked through the invasion of Poland on 1 September, 1939. By the end of the war, Poland had lost over 6 million people, more than 20% of its prewar population.

44 years of communism followed, prior to its collapse in 1989 after Poland’s first partially free and democratic elections since the end of the war. The early 1990s saw significant reforms that allowed the country to transition from its socialist-style planned economy into a market economy.

The two-and-a-half decades since has seen Gross Domestic Product (GDP) rise from USD$1,731 per capita in 1990 to USD$12,399 per capita in 2016. This was the fastest growth amongst all OECD nations. GDP per capita is still only just over a third (34.8%) of the European Union (EU) average, leaving strong upside for future growth to occur.

From humble beginnings as a colonial outpost, Singapore is fast emerging as a premiere hub for investment and wealth management. With government initiatives such as ‘Smart Nation’ reflecting its go-ahead attitude, global investors are increasingly looking to Singapore for its capital raising potential and connectivity to other Asian markets.

Business and financial attractiveness

The latest international rankings demonstrate Singapore’s attractiveness as a regional headquarters for multinationals and other businesses, as well as its financial prowess.

The World Bank’s 2018 ‘Doing Business’ survey gave Singapore the second-highest rating among the 190 economies surveyed (Australia placed 14th by comparison).

Singapore also ranked highly in Z/Yen’s September 2017 ‘Global Financial Centres Index’ report, which placed the Lion City fourth globally, trailing only Hong Kong, New York and London among the 108 centres surveyed. Australia’s highest place was earned by Sydney, which ranked eighth.

Singapore was rated fourth-best for business environment, human capital, infrastructure and financial sector development, and third-best for its reputation. It also placed fourth-highest for banking, investment management and professional services.

By all accounts, Singapore’s success in the ratings demonstrates it has the capabilities and infrastructure to live up to its ever-increasing reputation as a major global financial centre.

There’s a lot going on in Europe this year. While last year was fairly tumultuous, 2017 promises much of the same, especially on the political front.

The fallout from the populist movements that have taken a grip across the Northern Hemisphere will continue. Following the charge to Brexit led by the flamboyant, if accident prone, duo of Boris Johnson and Nigel Farage, the world looked on aghast as Donald Trump was elected President of the United States, becoming the most powerful leader in the ‘free world’.

Next on the agenda are national elections in France, the Netherlands, Germany and perhaps Italy. Mainland Europe is also grappling with a colourful array of right-wing politicians hoping to ride their way to power on the back of the populist vote.

The Netherlands has Geert Wilders’ Freedom Party; France has Marine Le Pen leading the Front Nationale, or Marine as she likes to be known in an effort to distance herself from her father’s more extreme politics.

Germany, however, is predicted to be a calmer affair with the stalwart Angela Merkel running for a fourth term as Chancellor.

We believe that speculating about the outcome of this political drama and how it will change the face of the global economy is something best left to economists, a group, like the pollsters, whose predictions have come under increasingly widespread criticism in recent years.

We prefer to look at the facts and use our experience of having spent a lifetime working in real estate in the countries in which we invest to advise our clients on the best strategies to employ at any moment in time.

While the UK and the rest of the European Union work out the details of their divorce settlement, they will remain unavoidably reliant on each other for both trade and security. This is highly unlikely to change despite what some political commentators may say.

For all the hype that Brexit would destroy the UK economy, a look at the facts some six months on reveals a less apocalyptic outcome. Admittedly, we still don’t really know the details of the plan and some may argue it’s too early to tell, but the vote happened six months ago and that’s just the point: life goes on! Oxford Economics is currently predicting UK GDP growth of 1.6% in 2017, which is close to its estimate of 1.5% for the rest of Europe, while it also estimates that Q4 2016 UK growth should come in at 0.6%, which is in line with the previous two quarters.

Our team in the UK has first-hand experience of this. Following the referendum vote in June, we advised one of our clients to suspend the sale of a portfolio when the purchaser attempted a post-Brexit ‘chip’. In December, we brought the same portfolio back to market, selling it for more than the agreed pre-Brexit price. In the meantime, listed real estate share prices have bounced back, the FTSE is trading at an all time high and overseas investors continue to target real estate in the UK.

There have also been large currency fluctuations with the pound falling by 15% on a trade weighted basis since January 2016 and inflation is on the rise with the UK Consumer Prices Index forecast to average 3% for the year overall (Source: Oxford Economics).

Europe’s political environment has filled a lot of newspaper columns over the past 12 months. Elections and, in the case of Brexit, a referendum, have all generated volatility in financial markets. Of course while some investors see this volatility as a risk, others see it as an opportunity. It is the depth and diversity of Europe’s real estate market across a variety of countries, cities, regions and sectors which  makes it possible for investors to pursue a broad range of investment strategies, whatever their attitude to risk.

Focus on European cities

Following the UK’s decision to leave the EU last year, investment in German real estate overtook the UK for the first time, a trend which has continued into the first quarter of 2017. Despite this, London has seen increased levels of activity from Chinese investors, who continue to invest in the city, attracted by a combination of factors including the post-Brexit devaluation of the sterling and confidence that London will ultimately retain its position in the world order.

It is the strength of GDP growth in Europe’s major cities that is attractive to property investors. The dominant feature of the last 20 years has been the capacity of city economies to grow faster than the national average. Over the past decade, the three largest German cities have seen GDP growth 15% higher than the national average. London’s economy has expanded at an annual average rate of 2.9% compared to 1.2% for the UK and in Milan, growth is nearly double that of Italy.