We recently attended a European Real Estate trade fair, and some of the seminars we attended there set us to thinking about how our buildings look now – and how they may look in the future. The rest of the world tend to divide their commercial real estate into a greater variety of classes than we do.
The rest of the world tend to divide their commercial real estate into a greater variety of classes than we do. With much larger populations it becomes necessary to specialise to a far greater extent. Internationally, retail, multi-family housing, hotels, offices, infrastructure etc are all seen as specific real estate sectors, with very specific trends and sector changes.
In the specific sector of warehousing that Expedio works in, if we follow international trends then some of the changes coming may be:
- Making more of the space, functional space. In New Zealand terms this has been coming for some time, with the 1980’s practise of making 25% of new builds as office space a thing of the past. But we still have to deal with the legacy of those buildings which have excessive office (and therefore less functional ) space, and what to do with that space. Most businesses now just do not need the amount of office they had in the past. Technology has seen to that. The advent of cloud based , and on-line computer systems and accounting packages means that much of the administrative work associated with a business can be done with fewer people, and often not even on site.
Which means that many of those buildings with excessive office space need to be re-converted so that their ratios make contemporary sense. Which will have an impact on their value. And , further , tenants won’t want to pay a higher rate per square metre for office space they don’t need or want. So perhaps that will encourage valuers to start to view space as space, rather than office space as having a higher value when part of a mix, even if it is not needed or wanted.
- Proximity to transport links and labour will have a value. Whether logistics or manufacturing, warehouses need workers. For a number of reasons, including in a number of countries declining birth rates and the resultant aging of the population, labour is becoming increasingly scarce. For this reason locating buildings which are potentially labour heavy close to labour pools is just common sense. Similarly, and particularly with regard to logistics, the proximity to transport links takes on significance when deciding on location.
- Power will be an essential. We are regularly made aware in our daily operations how many buildings are not equipped for industries which are heavy users of power. But what is happening in Europe is that many business types that we would not currently think of as big power users will be in the future. Things such as increasing robotics (they need power), the move from gas and diesel forklifts to electric for environmental reasons (they need charging) and employee cars that need charging, as manufacturers start to phase out fossil fuel cars, are just some of reasons more power is needed. Already many warehouses are being built with photovoltaic arrays to assist to meet this demand. And the progress Tesla and others are making with batteries will just accelerate this.
- Buildings will need to be made more employee friendly. Just as buildings need to be located close to sources of labour, it is becoming apparent that the design and facilities incorporated into buildings are important aspects in retaining labour. We hear of Silicon Valley tech companies , and the free gourmet meals, free massages, and free exercise facilities they provide for employees. Increasingly in the future buildings, and their design , will play a part in creating a pleasant place to work and therefore assist in retaining labour. We see adequate car parking as being a part of this, but also having lighting standards and kitchen, lunchroom and toilet facilities in warehouses and factories which are of a standard that employees would expect in their homes.
And a couple of the trends we do not see coming to New Zealand in the near future:
- Vertically stacked warehouses. These have been common in some Asian ports for years – where land is constrained. Now there are some European cities considering these for the same reasons – lack of available land. The engineering challenges, plus vastly increased costs, mean we won’t see these here in the near future.
- Short leases. We heard from the Japanese market, where logistics and warehouse leases are typically only 2 years. And in the office space the WeWork model by default encourages short term, flexible terms. If anything we see longer leases becoming more usual in this market – particularly where premises are in any way customised for the tenant.