Article | Creating Resilience
What’s Driving Occupiers’ Thinking in Commercial Real Estate?
August 1, 2022 5 Minute Read
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Occupiers of commercial property face intricate challenges at the best of times, but never more so than now. The huge disruption caused by the COVID-19 pandemic and associated lockdowns exacerbated a number of pre-existing structural changes to raise the level of complexity across all sectors.
How are occupiers approaching these challenges, and what market changes might result? CBRE surveyed occupiers through three sector-specific, market-leading surveys, to understand the trends underpinning portfolio strategy and leasing demand. While sector drivers differ, some common themes surfaced as occupiers emerge from the pandemic era. Here are five key occupier trends across European offices, retail, and logistics:
Flexibility is king
The pandemic affected occupiers from all three sectors in varying ways, but for all sectors emphasised the need to secure more flexible real estate solutions. Office occupiers made clear their decreased appetite to commit to long-term real estate transactions and signalled their intentions to keep increasing their flex-office portfolios. Similarly, logistics occupiers believe that COVID has highlighted the need for on-demand warehousing that can accommodate seasonality. Finally, retail occupiers will keep looking to renegotiate existing leases to reflect market adjustments and increase the turnover rent element in their leases.
Expansion is still on the agenda
Occupiers remain positive in terms of their future real estate needs and portfolio expansion. Over the next three years, 75% of logistics occupiers and 41% of office occupiers plan to expand their footprint. The former is driven by increasing expectations of delivery service level, the latter by heightened expected business growth. Retail occupiers express the same desire, with over half reporting that they wish to expand their store portfolio throughout 2022. For retail occupiers, the focus is on prioritising expansion in prime areas.
Technology will be the glue
Continued investment into technology is a key priority for occupiers. The capacity to implement automated technology in warehouses is an increasingly important building feature for logistics occupiers. Office occupiers increasingly accept that a hybrid workplace is the new norm and are investing heavily in better video conferencing solutions to support this transition. Following disruption to supply chains throughout the pandemic, retailers report that investing in software solutions, for example to improve inventory management, is the number one supply chain improvement they plan to make within the next five years. Occupiers recognise that investment into technology in their real estate assets drives productivity and business revenue.
The labour market challenge
Occupiers across all three sectors face labour-related challenges. Some of this relates to labour market capacity and access to skills, and some of it to guiding and establishing new working patterns. Logistics and retail occupiers both place labour skills and shortages within their top three concerns. Office occupiers increasingly report a shift towards acceptance of hybrid working patterns, but only 56% say that they have defined or are developing a formal policy to guide employee behaviour in this regard. Whilst the logistics and retail sectors face challenges with a tight labour market, office occupiers are doing their best to navigate changing working patterns.
ESG: A growing influence on decision-making
Environmental, Social, and Governance (ESG) issues are high on occupiers’ agendas, but not necessarily in a uniform way. Regionally, environmental concerns are front and centre in Europe, whilst social issues remain key in the Americas. Logistics occupiers share an overwhelming consensus to have a net zero carbon target, with some occupiers expressing a willingness to pay a green premium above the market rent. Similarly, the majority of office occupier respondents revealed that reducing greenhouse gas emissions is a key sustainability priority. Almost half of retail respondents either agree or strongly agree that green leases will be included in lease negotiations in the next three years, with a similar amount agreeing that moving forwards, brands will place a greater emphasis on the ESG credentials of a property when considering expansion. This group of issues will have a growing influence on occupiers’ decision-making in the future.
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Contacts
Alex Ozga
Associate Director, European Industrial & Logistics and Retail Research
Richard Holberton
Head of Office Occupier Research, Europe
