The short term market disruption has drawn attention to the need for developing asset resilience, says JLL
Dubai, UAE, 11 May 2020: Global property consultant, JLL, has revealed various short-to-mid and long-term strategies as well as trends likely to shape the real estate industry in their new report ‘Developing Asset Resilience’.
“While the immediate impact of COVID-19 on market performance will heavily depend on the extent to which normal activity is resumed, and the government initiatives undertaken to promote the country’s real estate market, there are a range of strategies entities can adopt to ensure business continuity. While uncertainty prevails around cash flows, planning ahead to ensure the resilience and longevity of assets and operations is key for long-term survival. Creating a differentiated experience involving various strategies, including digital tools and technologies, will help them stay ahead of the curve in a post-COVID world,” said Dana Salbak, Head of Research at JLL MENA.
According to JLL, trends and strategies likely to shape the real estate industry include:
A Digital Evolution
From a landlord’s perspective, being able to understand the building and drawing analyses as well as conclusions can aid in decision-making, whether pre-empting additional costs or understanding the overall performance and market positioning. Utilizing GIS technology, for example, to offer 3D replicas of the physical asset will reveal details of space and can even help benchmark the asset’s performance against the surrounding area or wider market. Similarly, technologies such as sensors can be deployed to understand the day-to-day performance of the asset. When accessible to potential investors, they are better able to assess the health of the property, and track metrics such as footfall, occupancy rates, and efficiency rates.
With mobility relatively restricted and impacting the physical ability of landlords and agents to conduct viewings, going virtual and offering video-based home tours and location intelligence on surrounding areas would increase potential tenant and investor engagement.
Life Cycle Asset Management (LCAM): Both Eyes Open
The asset management industry needs to refocus its attention and approach to the problem of deferred maintenance with ‘both eyes open’. This requires a broadening of the lens away from its current focus on short term cash and inventory management, to include a more rounded view recognizing the importance of longer-term strategies to protect and enhance the value of assets.
LCAM should be regarded as a critical component of this new approach. This involves adopting a more integrated tactic that optimizes the life cycle of physical assets from design to disposal. While the details of the resulting LCAM plan will be different for every building owner, the starting point will usually be the same, comprising of an asset condition survey to compile more accurate data on the cost, condition, and operation of each of the physical assets within a building.
Active Property and Facility Management Strategies
As the situation stabilizes and lockdown measures begin to ease, attention is turning to how assets can be reinstated and reoccupied as quickly, safely and efficiently as possible, with minimal capital exposure and the lowest possible risk. Beyond the overall inspection of the site, other steps include the targeted recommissioning of the asset in an energy efficient manner, the reinstatement of building management systems, undertaking enhanced diagnostics, and the establishment of processes for the monitoring & inspection of facilities that will remain dark for some time.
The long term aim of responsible owners is to improve the performance and resilience of their assets over its entire lifecycle. The extent to which owners understand and respond to these changes through the re-imagining of their office assets, will go a large way to determine which will be the most resilient and better performing assets over the longer term. Owners need to recognise what defines the preferred post pandemic workstyle and ensure that these are reflected across their portfolio.
Sustainable Real Estate
According to JLL, the current disruption is expected to fast-forward this conversation and shift the occupier and landlord focus towards incorporating sustainability in the built environment, as a way to increase asset resilience in the long-term. The most direct benefit to building owners from sustainability measures is likely to be a reduction in energy and other operating costs over the longer term. Obtaining a LEED or other sustainability rating, requires attention to be paid to not just energy costs and usage, but also factors such as the quality of facility management and maintenance contracts, processes and procedures.
Landlords and owners are also becoming increasingly responsive to the demands of existing and potential tenants, in order to ensure continuity in occupancy levels. This particularly includes incorporating wellness into their facilities. An increasing number of tenants will be willing to pay a rental premium for more sustainable space. While it is sometimes difficult to demonstrate a direct cause and effect between investment in sustainability and the financial returns of the asset in the region, there is a growing body of evidence from overseas markets that shows a premium in returns for more sustainable assets over the longer term.