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Understanding critical sustainability trends and what they mean for the future of your business
The big eight for UK real estate
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The worldwide volume of urban construction over the next 40 years could be as great as the entire volume of urban construction from the beginning of civilisation to the
present day
Our world is changing at a rapid pace. Trends which we are already experiencing today will gain much greater momentum in the next 15-20 years. For businesses, governments and other organisations that take a long-term view to investment and planning, unpicking existing and potential trends is becoming increasingly imperative. With technological innovation, climate change, resource constraints and changing demographics spelling disruption or even revolution across a range of sectors, this is about more than risk management. It is about innovating ahead of anticipated changes and adapting your organisation so that it is at least resilient, and at best thriving, in the long-term.
In the context of real estate, many investors, occupiers and developers such as Grainger, Hammerson, TIAA Henderson Real Estate, Google and The Crown Estate are already exploring the mega-trends that are likely to impact on their business and are using the findings of these studies to help inform their strategic planning.
At JLL, we have undertaken extensive research on a total of 40 themes that we view as significant for the future of UK real estate, identifying implications for the different players and property types associated with each one. Through a process of analysis and consultation, we have pinpointed our ‘big eight for UK real estate’ – eight interconnected sustainability trends which are the most critical for the sector. In this research paper, we introduce each of the big eight, and outline the practical steps that should be considered by property investors, developers and managers who want to future-proof their business.
For the property industry, these trends present opportunities as well as risks. Forward-thinking companies which are able to unpick and manage climate change and extreme weather risk, build resilient supply chains, exploit the latest developments in technology, and anticipate the needs of the modern office worker or consumer are set to succeed. Examples of opportunity – both tapped and untapped – abound.
Executive Summary
1 http://www.metoffice.gov.uk/media/pdf/n/i/Recent_Storms_Briefing_Final_07023.pdf2 Cambridge Econometrics, ‘The Economics of Climate Change Policy in the UK’ (September 2014) 3 The Cambridge Natural Capital Leaders Platform, ‘The Best Use of UK Agricultural Land’ (University of
Cambridge, June 2014)4 The King’s Fund, kingsfund.org.uk/time-to-think-differently/trends/disease-and-disability/care-demands-
dementia
The speed of change...It took 50 years after the telephone was invented for just half of American households to own one. By contrast, Facebook attracted 6 million users in its first year and that number multiplied 100 times over the next five years.
By 2030, an estimated 660 million people worldwide are expected to be severely affected by the impacts of climate change. In the UK, one in six properties is currently at risk from flooding to some degree, and we can expect a further 11-16 cm of sea level rise by the end of the next decade1.
The transition to a low-carbon economy could create around 190,000 new jobs, increase GDP by 1.1%, contribute to mitigating climate change impacts and eventually bring down energy prices.2
In the UK up to 7 million hectares of additional land will be required by 2030 to meet growing demand for space, food and energy needs - that’s more than 35% of our existing agricultural land.3
Changing demographics pose another challenge; by 2030, the number of older people with care needs in the UK is predicted to rise to 4.1 million (compared with 2.5 million in 2010), and over a million people will suffer from dementia, compared to around 570,000 today.4
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The big eight for real estate
WORKFORCE TRANSFORMATION
LAND & RESOURCE SCARCITY
TRANSPARENCY & SOCIAL VALUE
CHANGING DEMOGRAPHICS
THE LOW-CARBON ECONOMY
URBANISATION
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TECHNOLOGICAL INNOVATION
HEALTH & WELLNESS IMPERATIVE
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Interconnected sustainability trends which are the most critical for the real estate sector
• Developing new assets to meet low or zero carbon standards and retrofitting existing assets to deliver better environmental performance
• Moving to building-integrated renewable energy solutions or partnering to deliver community-based energy generation
• Adapting buildings to climatic extremes and putting effective drought and flood management strategies in place
THE LOW-CARBON ECONOMY1
• Designing new office space for knowledge workers in ways which significantly advance collaborative working and creative thinking
• Integrating technologies, modular spaces and furniture solutions which allow for personal control of the work environment
• Designing out obsolescence by ensuring cost effective flexibility to accommodate for potential changes in overall demand for commercial office space as well as specific tenant requirements
WORKFORCE TRANSFORMATION 5
• Ensuring flexibility within building design to accommodate the installation and use of new technologies (e.g. intelligent monitoring and metering systems)
• Putting infrastructure in place to accommodate advancing modes of transport (e.g. driverless and electric vehicles, drones)
• Harnessing big data to track market trends, customer behaviour and asset performance
• Using social media and digital technology to connect better with customers
TECHNOLOGICAL INNOVATION2
• Ensuring that assets are flexible enough in terms of management, tenant mix and leasing strategies, to enable them to quickly and effectively respond to changes in customer base and preferences
• Adapting design and ensuring that assets are accessible and user-friendly for an aging population
• Developing new business models that deliver genuinely affordable homes for rent or purchase among the younger generation
CHANGING DEMOGRAPHICS 6
• Repurposing assets to meet competing demands (e.g. residential) in response to growing obsolescence in some sectors/locations (e.g. hypermarkets)
• Developing mixed-use ‘live work’ campuses
• Adapting design to suit modern lifestyles and needs including home-working, community facilities, connectivity, small-scale local production of goods, food, etc.
• Exploring the potential need for office hubs for virtual/home workers outside urban centres
URBANISATION3• Collaborating with tenants/landlords to analyse the impact of office
buildings on occupier health and productivity
• Focusing on employee well-being to attract and retain staff
HEALTH & WELLNESS IMPERATIVE 7
• Adapting supply chains in the context of an increasingly resource-constrained world, with possible price hikes in key natural resources and construction materials
• Utilising derelict brownfield land in urban areas
LAND & RESOURCE SCARCITY4
• Understanding and enhancing the social contribution of businesses and major assets
TRANSPARENCY & SOCIAL VALUE 8
What is truly extraordinary is the speed of change; the interaction between
different disruptive forces – such as accelerating
consumerism and resource shortages – and the shifts in mindset that can be born out of them
Urbanisation, technological innovation, demographic change and greater globalisation are set to spell global economic change on an unprecedented scale, at ten times the pace of the industrial revolution 200 years ago, and with 3,000 times the impact.5
It took 50 years after the telephone was invented for just half of American households to own one, and it took the radio 38 years to attract 50 million listeners. By contrast, Facebook attracted 6 million users in its first year and that number multiplied 100 times over the next five years.6 Since the beginning of this century, the speed of change in the field of technology has been exponential, and has had ramifications across many aspects of life for a significant proportion of the world’s population.
Many business leaders across the globe already know which trends spell the greatest disruption for their industry and are preparing to adapt to a new reality. But when it comes to thinking through the tangible implications of anticipated future events, and working out how to adjust the business model and investment strategy accordingly, we can sometimes reach a stumbling block.
How will 3D printing and customisation of consumer goods affect shopping centres? To what extent will virtual working and automation reduce demand for offices? Will half of UK workers really have chronic health conditions by 2030, or will advances in medical screening and treatments decelerate the trend? Will strengthening regulation on climate change leave high carbon assets stranded?
These are just some of the questions our clients are asking. Finding answers is challenging; successful decision making today no longer depends upon extrapolating past experiences. It depends on connecting the dots between trends and thinking across a range of disciplines – science, technology and behavioural psychology among them.
Untangling the trends
Many organisations – among them real estate developers and investors – are already exploring the ‘megatrends’ that are likely to impact their sector. They are factoring the outcomes of these studies into their strategic planning. At JLL we have already engaged the support of futurologists in developing cutting-edge research outputs in order to give greater insights into the trends affecting our industry and deliver the best advice to our clients. Our research papers include, our ‘World Winning Cities’, ‘Retail 2020’, ‘Redefining Retail Places’ and ‘Offices 2020’ projects. And behind the scenes we have been developing our thinking further.
With close to two decades of experience striving to promote sustainability in the UK real estate sector, we know that thinking long-term across a broad range of trends encompassing economic,
social and environmental aspects can be complex and challenging. Furthermore, it is in the confluence between the different trends – for example the impact of the digital revolution on carbon emissions and, conversely, the impact of more frequent and severe natural disasters on digital IT infrastructure – that we need to look to find potential disruptions and ‘tipping points’.
We used the ‘six capitals’ model10 and extensive desktop research to identify an initial list of 40 trends with implications for the real estate sector. Then, through a workshop with UK-based sustainability experts and interviews with senior managers and executives across the global firm (reaching some 50 stakeholders in total), we distilled these down to 20 trends which were subject to additional analysis, allowing us to arrive at the top eight interconnected trends which we believe are most critical for UK real estate; those which have significant impacts for all client and property types. We have further tested these through interaction with external stakeholders via Building Magazine, Estates Gazette and Ecobuild, receiving useful feedback which has allowed us to refine our thinking.
This publication represents a synthesis of our futures thinking over the last two years. It seeks not just to set out our ‘big eight’ sustainability trends for real estate but also to explore what they might mean for your business. Further thought-leading papers and articles planned for 2015 and 2016, will expand on several of the trends identified in this first paper.
Preparing for dramatic change
5 McKinsey Global Institute6 Richard Dobbs, James Manyika, and Jonathan Woetzel, ‘No Ordinary Disruption: The Four Global Forces
Breaking All The Trends’ (McKinsey Global Institute, 2015) 7 Office for National Statistics8 Rabobank, ‘Food Processors Challenged by Online Growth Dynamics’ (2014)9 The Cambridge Natural Capital Leaders Platform, ‘The Best Use of UK Agricultural Land’ (University of
Cambridge, June 2014)10 The ‘six capitals’ model refers to the financial, social, human, intellectual, manufactured & natural ‘capitals’. It is
advocated by the International Integrated Reporting Council (IIRC) to help organisations to identify their inputs, outputs, risks and opportunities (etc.) across a range of economic, environmental and social aspects
By 2030…...Around 11 million people in the UK are expected to be living on their own, accounting for more than 40% of all households, compared with 29% (7.6 million) in 2012.7
...A quarter of groceries could be sold online, and total store numbers could fall by 22% before the end of this decade as the overall share of online retail sales continues to rise.8
...The UK will have a population of 70.1 million - and will need a further 7 million hectares of land to support it - driving intense competition for space between different sectors and interests.9
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Decarbonisation, and the clean technology revolution which will make it feasible, is one of the first megatrends which will affect UK real estate. Back in 2008, the UK government committed to reduce the country’s greenhouse gas emissions by 80% by 2050, and identified property as the sector where this could be achieved with greatest expediency and cost effectiveness. Seven years later, we are already seeing major signals of change. By 2030, wind power is projected to account for 37% of the UK electrical energy mix; nuclear for 31% and other renewable fuels – such as biomass, tidal and wave power – for 13%.
We are also seeing a fossil fuel divestment movement amongst long-term investors, with big names such as the Rockefeller Brothers and Harvard University leading the charge. Driving this movement are mounting concerns over the potential for “stranded assets” or the over-valuation of oil, coal and gas reserves, a proportion of which will be required to be left in the ground to meet the challenge of limiting global warming to 2 degrees centigrade above pre-industrial levels.
We are inclined to see this trend towards a low-carbon economy as very good news; improving energy efficiency provides financial benefits from efficient operations and more stable service charge costs, and investments in rooftop solar (by the likes of IKEA, Sainsburys and SEGRO) can provide an additional income stream. But more fundamentally, in the near future we will see global capital seeking “carbon-light” investments; at least some of this investment could well flow to zero carbon real estate.
Here are the key trends affecting the sector up to 2030
The big eight for real esate
THE LOW-CARBON ECONOMY1
Did you know...• IKEA aims to produce as much renewable energy as the
company consumes by 2020. It has installed more than 300,000 solar panels on its buildings around the world and committed €1.5 billion to invest in wind and solar power to reach its goal of energy independence.
• Sainsburys has installed 135,500 PV panels across stores nationwide, making it the largest multi-roof solar panel operator in Europe. Sainsburys has reported that the panels have helped to bring down energy costs and are adding value to their business.
and one to watch...
• Tesla’s Powerwall – a wall-mounted energy storage unit launched in 2015 – offers the potential to revolutionise renewable energy use by making small-scale renewable energy generation much more competitive. With the promise of taking homes and businesses off the grid, the product is already sold out until mid-2016.
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By 2030 the difference between how a building operates compared to its anticipated design performance will have all but disappeared. Buildings will be digitally optimised such that resource efficiency, building materials recycling, and energy profiling can be delivered through the ‘Internet of Things’. In itself this will offer growing networks of low-cost sensors and actuators for data collection and monitoring in buildings, supporting smarter decision making and asset management.
The growing population of urbanites buying their varied goods online is already leading to a drastic rethink of retailers’ logistics networks. Look out for ‘urban logistics’ units or small thin parcel hubs with extensive loading facilities embedded in cities, enabling rapid response and delivery times. The ‘Internet of Things’ will help address the out-of-stock challenge in retail sales, whilst the latest advances in analytics will track real-time consumer behaviour and exploit personalised marketing linked through to personal digital services.
Smart city applications could result in reduced traffic congestion, more efficient water and waste management systems and less crime, as these technologies reduce costs and improve quality of service. Moreover, by 2030, the ‘Internet of Things’ could boost the UK economy by $531 billion (£341 billion) through improving productivity, reducing operating costs and enhancing worker safety.11
Nonetheless, increasing reliance on cyberspace brings risks as well as opportunities. As the internet becomes increasingly central to our economy and society, adversaries are increasingly using cyberspace to steal, compromise or destroy critical data. In 2013 over 800 million digital records, such as credit and debit-card details, were reported to be stolen or lost (more than three times as many as in 2012), and security researchers have already found ways of hacking into some kinds of medical devices and into cars.12 The need to maintain high security standards could end up inhibiting the seamless and straightforward use of the ‘Internet of Things’ and web-connected gadgets.
TECHNOLOGICAL INNOVATION2
Did you know...• One of the world’s first 3D printed houses has been created
in Amsterdam. The technology promises to eliminate waste, reduce transport costs, streamline construction and enable obsolete buildings to be shredded or moved to another location.
• MK:Smart, a new initiative by Milton Keynes Council is developing new kinds of sensor systems. One system currently being tested pings ultrasound waves across the top of public rubbish bins. When the waves are interrupted, the bin knows it is full and alerts local rubbish trucks.
• JLL/Pacific Control’s smart building solution, IntelliCommand, provides continual commissioning via remote monitoring and control systems that analyse energy usage data and automatically adjust settings to prevent buildings from drifting out of calibration. Within twelve buildings across four campuses owned by Procter & Gamble in the U.S., JLL tapped existing building automation and installed wireless sensors throughout the buildings; these were then connected to a cloud-based monitoring and control system that analyses millions of data points per minute and detects anomalies requiring adjustment. IntelliCommand reduced energy use at the 12 test P&G buildings by 8-16% within 11 months, with overall pilot programme savings of 10%, paying back implementation costs within three months.
and one to watch...
• Presence Orb is a start-up that uses wifi analytics to help retailers and landlords learn how their customers engage with their premises. By tracking people’s smartphones, it can monitor dwell time or the effect a new window display has on visitor numbers, for instance.
11 Accenture, ‘Winning with the Industrial Internet of Things’ (2015) 12 The Economist
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By 2030, over 82% of the UK’s population will live in urban areas and household numbers are projected to rise to 31.2 million, up from 27.5 million in 2015.13 This trend potentially presents the greatest investment opportunity of all. Strong population growth and densification will undeniably put big pressures on infrastructure, which will drive massive public and private investment into high-speed, low-carbon railway systems, such as Crossrail 2, HS2 and Chancellor Osborne‘s ‘Transnorth’. Real estate opportunities for multi-modal logistics hubs through to commuter villages will abound as these infrastructure projects materialise.
Urbanisation will also drive up demand - and rents - for central office, retail and residential space. Residential affordability in city centres will be key, unlocking further private rented sector opportunities - Legal & General predicts that almost one third of households could be living in rented accommodation by 2030.14
The shortage of residential housing supply in London is already threatening the city’s economic success; 2014 saw a net outflow of 22,000 adults in their thirties.15 Expensive, poor quality housing does not draw in talent, and it’s likely that affordability will continue to drive working professionals away and further out of the city centre if the housing crisis is not aggressively tackled. Commercial solutions include creating neighbourhoods for mixed demographic groups and income bands – an approach pursued by Grosvenor Britain & Ireland
URBANISATION3
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– as well as the development of a new group of satellite towns around major UK cities, generating significant opportunities for residential developers.
The development of smart city applications (e.g. parking apps, Pay As You Throw waste management systems) will make cities more efficient and improve quality of life for their inhabitants in the future, as described under . They might also impact on the shape and size of settlements, and the ways in which they develop, with the growth of home-working and on-line shopping affecting traditional retailing and the office sector in secondary urban areas. The UK government has already invested around £95 million into researching smart cities, funded by Research Councils UK.
TECHNOLOGICAL INNOVATION2
13 Research carried out by insurer Legal & General with the Centre for Economics and Business and reported by the Financial Times
14 Idem15 The Office for National Statistics
LAND & RESOURCE SCARCITY4
TECHNOLOGICAL INNOVATION2
In response to rapid urbanisation and a growing population, the UK will need to free up more space over the next 15 years. It will potentially take up to 7 million hectares of additional agricultural land to support demands for housing, agricultural production and renewable energy (among other needs), leaving a shortfall of 2 million hectares of agricultural land and driving intense competition between different sectors and interests. To tackle the challenge, urbanisation will intensify (see ), agricultural land will have to become more multi-functional (and various forms of urban agriculture like rooftop horticulture, beekeeping and hydroponics16 will need to be scaled up), whilst technological innovation (see will need to be harnessed to increase efficiencies.
The UK is already experiencing warmer, drier summers and warmer, wetter winters as the impacts of climate change unfold. Droughts and water stress are already particularly acute in the South East. Extreme weather events and severe flooding are also becoming more frequent, with the West/North West bearing the brunt of stronger storms. Infrastructure investment has the potential to mitigate climate-related disruptions, and the transition to a low-carbon economy (see ) should support energy security, particularly if and where it is linked to decentralised energy supply systems. Nonetheless, with sea levels projected to rise by a further 11-16cm by 2030, the increase in the amount of land at risk from flooding will
URBANISATION3
LOW-CARBON ECONOMY1
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exacerbate the shortage of space, and global and local water scarcity could drive up food prices as agricultural output stalls.
Within the construction industry, volatility in commodity pricing and severe shortages of certain resources (e.g. water and rare earth metals) will propel dramatic changes in operational practices. Prefabrication, on-site assembly, natural methods of construction, and biomimicry will all feed into a more circular economy, as construction and demolition waste is eliminated and materials-exchange schemes become the norm for companies operating across a wide range of industry sectors.
17 A method of growing plants using mineral nutrient solutions, in water, without soil. This method can facilitate rooftop cultivation in urban greenhouses
By 2030, the UK workforce will be older, more multi-generational, more international and will include a higher proportion of women. Technology (see ) will continue to transform the workplace – virtual, flexible and part-time working practices will become commonplace, and the use of social media will accentuate the culture of collaborative working, forging better connections within and between people and organisations. These practices may lead to a disruption of traditional hierarchies and working hours, as people collaborate laterally to come up with solutions that enable them to be connected at all hours. Telecommunication infrastructures will be critical, whilst the value of physical office space may decline relative to virtual space.
It has been suggested that robotics, smart algorithms and artificial intelligence could automate more than 40% of jobs in the U.S. alone within two decades. Across the globe, automation tools and systems have the potential to take on tasks that would be equal to the output of 110-140 million knowledge workers by 202517, possibly eliminating the need for a significant number of these roles.
All in all, these changes are likely to have impacts in terms of both demand for, and utilisation of, commercial office space. This in turn has implications for building design, fit-out, and facilities management. Tomorrow’s office will be akin to the ‘campuses’ of today’s technology companies, and facilities management will become increasingly
WORKFORCE TRANSFORMATION5
Did you know...• To stimulate the sharing of intellectual capital and generate
‘chance ideas’, vast outdoor areas are sandwiched between floors at one of Samsung’s new offices. “The most creative ideas aren’t going to come while sitting in front of your monitor,” says Scott Birnbaum, a vice president of Samsung Semiconductor.
• Plantronics, a global electronics company, has embraced a ‘smarter working’ philosophy to enable staff to work when and where they prefer. They have reconfigured their offices to support this approach, creating dedicated areas for communication, collaboration, concentration and contemplation. Post-occupancy data at the Swindon-based UK office showed that absenteeism fell from 12.7 to 3.5 percent and workspace satisfaction increased from 61 to 85 percent as a result.
high-tech as a result. As in other spheres of life, there will be a drive towards individual customisation of the workplace and even mood-enhancing design, with sensory stimulation and light projection “themes” – like Google’s digital wallpaper - becoming the norm.
17 McKinsey & Company, ‘Disruptive technologies: Advances that will transform life, business, and the global economy’, May 2013
TECHNOLOGICAL INNOVATION2
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In 2030, the UK population will reach 70.1 million, with 82.7% living in urban areas. High levels of positive net migration will account for over half of the population growth for this period which, combined with relatively high birth rates, will mean that the UK’s population growth will be higher than average among Western European countries. High population density will add pressure on land and resources, as highlighted under, and will drive up demand for property (see
By 2030, there will be 50% more people aged 65 or over in the UK than there were in 2010. Consequently, there will be an ever increasing commercial opportunity for the development and management of retirement complexes, assisted living homes and healthcare facilities. It will also mean a significant redistribution of the working age population (see ), and will impact the retail sector, with two-thirds of retail spending growth expected to come from those aged 55 and over during the next decade. Retailers will need to be prepared for greater segmentation among consumer groups, and the possibility that sales of products geared towards the younger market could decline. It has been estimated that single working-age adults will experience the greatest drop in the amount of money available to spend for discretionary purposes between now and 2030.18
CHANGING DEMOGRAPHICS6
URBANISATION3
WORKFORCE TRANSFORMATION5
LAND & RESOURCE SCARCITY4
18 Forum for the Future & Consumer Insight, ‘Consumers in 2030’, January 2013
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By 2030 almost half of the UK’s workforce is likely to face at least one long-term health problem.19 A recent report by the World Health Organisation (WHO) has warned that the growing obesity crisis will result in almost three-quarters of men and two-thirds of women in the UK being overweight within the next 15 years, increasing the occurrence of diabetes, cancers (which are expected to affect at least half of the population), and cardiovascular diseases. With regards to mental health, the WHO predicts that by 2030 depression will be the number one global health problem, affecting young people most acutely. Furthermore, the number of people suffering from dementia worldwide is set to double by 2030 and is predicted to reach over 1 million in the UK. The cost of skills and experience lost from the workforce due to dementia is expected to rise from £628 million to £1.16 billion over the same period.
In this context, the “health-promoting” workplace will increasingly become an imperative rather than a ‘nice to have’. Offices will be the first asset class where landlords feel the pressure, as tenants wake up to the productivity and employee retention benefits of greener, quieter and better ventilated workplaces. Developers of all sorts of buildings are increasingly aware of the benefits of taking a health-centric approach to their design: Land Securities’ Zig Zag Building – part of its Victoria development scheme – has been designed to promote happiness, productivity and well-being, boasting large communal outdoor terraces for office workers and 60% cleaner air than is typically found in an office building.20 Buildings in “The International Quarter”, a joint venture by Lend Lease and LCR, have been designed taking into account global best practice examples of sustainable and productive workplaces and likewise feature a higher rate of fresh supply air, natural daylight, enhanced thermal comfort and use of low toxicity materials, as well as facilities to support healthy lifestyles.21
HEALTH & WELLNESS IMPERATIVE7
Training on the WELL Building Standard®, a new performance-based system for assessing, certifying, and monitoring the features of a building known to impact human health and well-being, will be carried out for the first UK assessors this summer, with the first building certifications in the UK likely to follow soon afterwards.22
The quest for wellness will therefore continue apace, as individuals increasingly recognise the link between their physical and mental well-being and surroundings – both within and beyond the four walls of a building. Boundaries between the ‘inside’ and ‘outside’ of buildings will become increasingly blurred, as design emphasis focuses on reconnecting people to the natural world around them. This will take place through biomimicry, green spaces and parks, integrated design such as green walls, roof gardens, and even digitally enhanced video screens showing uplifting views of natural landscapes. In the workplace, productivity will also remain a key focus as businesses continue to compete for talent and brand value, so collaborative working spaces that are fit for multiple purposes and accessible to various teams will be common. In the commercial sector, property managers will need to seize opportunities not only to enhance customer well-being but also to expand the customer base by catering to the needs of visitors with physical and mental health problems.
19 Fit for Work UK 20 ‘The Zig Zag Building’, Victoria/ Land Securities 21 ‘The International Quarter’, Lend Lease/ LCR 22 For more information, see wellcertified.com/well. Macquarie Bank in Australia is an example of an occupier
which recently obtained the certification for its HQ and has pledged to roll out the standard across its offices worldwide.
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We anticipate that the combination of the forces already described will accelerate the growing need for transparency and the imperative to support ‘social value creation’ within the public and private sectors alike. By ‘social value’ we mean the creation of benefits or reductions of costs for society – through efforts to address societal needs and problems in ways that go beyond the private gains and general benefits of market activity.23 Unequal access to housing, healthcare and technology may no longer be tolerated in a resource-constrained but digitally-connected and informed society. Evidence suggests that more and more people will seek out ‘meaningful work’, or demand that their employers act according to ethical principles.
We are facing a future where inclusive capitalism is being lauded by the Governor of the Bank of England, and further clampdowns on business tax avoidance are electoral gold-dust. But what does this mean for the real estate sector specifically? It is likely to mean that listed real estate companies and their major corporate tenants will need to define their social purpose clearly and with integrity. This will be especially important to the millennial workforce these companies are seeking to attract and retain. Moreover, this trend may also flow down to the building level, especially for large retail assets, which rely heavily on community relationships and their retailers’ brands to generate strong consumer footfall.
Across all asset classes, JLL is already seeing a burgeoning interest in evaluating the socio-economic impact of buildings over the long-term. Leading companies in the real estate sector are increasingly able to quantify their positive contributions to social value, which is a very helpful innovation.
Positive stories about public (or private) realm improvements, job creation and local economic contributions are beginning to be told,
TRANSPARENCY & SOCIAL VALUE8
while negative social impacts are being benchmarked. For example, Hammerson has reported that according to research carried out in 2013 across its shopping centre portfolio, an estimated one Full Time Equivalent (FTE) job is supported for every 383 sq ft of net lettable area,24 whilst Derwent London has found that occupiers of The Buckley Building, 49 Clerkenwell Green, spend on average £2,016 per annum in the local area, with a total annual creation of £1.1 million to the local economy.25 British Land measures and reports on the company’s contribution to the UK economy, and on the local economic contribution of its largest retail schemes. This trend is still nascent, but signals that those who understand their social impact will in turn produce a better, more resilient real estate product. Furthermore, those who have a trustworthy story to tell about the social contribution of their investments will find themselves better placed to weather future economic or reputational storms, particularly around the availability, suitability and affordability of both residential and commercial building stock.
Did you know...• Almost half of the British workforce (42%) now wants to work
for an organisation that has a positive impact on the world, according to research carried out by consultancy Global Tolerance. The survey of more than 2,000 people in the UK found that 44% thought meaningful work that helped others was more important than a high salary and 36% would work harder if their company benefitted society.
23 James A. Phills Jr., Kriss Deiglmeier, and Dale T. Miller, “Rediscovering Social Innovation”, Stanford Social Innovation Review, 2008
24 Hammerson, ‘Demonstrating the True Value of Shopping Centres’, 2013 25 Derwent London, Sustainability Annual Report 2014
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Our ‘big eight’ trends present opportunities as well as risks for real estate. Forward-thinking companies which are able to unpick and manage the forces of accelerated urbanisation, natural resource scarcity, the low-carbon imperative, technological innovation and social change in ways which create value for their business and society are set to succeed.
In this section, we focus on a smaller number of trends for each asset type. We interpret what they might mean for property investors, developers and corporate occupiers, and challenge you to consider how your company is responding.
How are you responding?Interpretations for different asset types
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Retail
Priority & Sub Trends
• Designing out carbon during development and operations
• On and off-site renewables
• New streams of income (e.g. green bonds)
• Joint landlord-occupier actions to reduce carbon
THE LOW-CARBON ECONOMY1…adapting your retail assets to the low-carbon economy and potential climate change impacts, e.g. through on or near-site renewable energy generation and/or effective drought and flood management strategies?
…how well-located and connected your assets are, and whether they have the infrastructure to cater for advanced modes of personal and public transport?
Practical actions: Have you thought about...
• Embracing and adapting to data (e.g. big data, real time, 3D printing, security)
• Enhanced customer behaviour tracking; cloud technology (e.g. for stock control)
TECHNOLOGICAL INNOVATION2…identifying technologies you can use to connect with consumers?
…harnessing big data to track consumer behaviour effectively and customise promotions according to individual tastes?
…appointing a ‘customer experience’ professional within your team/business?
…offering services ‘beyond shopping’ that use technologies such as 3D printing to personalise the production line?
• Polarised market
• Greater focus on accessibility
CHANGING DEMOGRAPHICS6…how to design out obsolescence, given the potentially rapid and disruptive changes in terms of demographics and consumer behaviour that will unfold over the next 50 years?
…whether your assets are flexible enough in terms of management, tenant mix and leasing strategies, to enable them to quickly and effectively respond to changes in customer base and preferences?
…how accessible and appealing your assets are for older visitors, including people suffering from dementia?
• Evaluating local economic and social impacts
• Supporting local business and job creation
TRANSPARENCY & SOCIAL VALUE8…undertaking a Social Return on Investment (SROI) analysis and mapping your company’s economic and community impact data against indicators such as the local deprivation index, crime rates, education, unemployment and homelessness with a view to tracking and enhancing your positive contribution?
…the vibrancy of your shopping centres – are they able to contribute to people’s well-being by providing a venue where they find themselves stimulated and uplifted?
…supporting local culture and production and independent retailers by bringing small-scale producers into the tenant mix, for example through pop-up stores or market stalls?
…moving ‘beyond retail’ to accommodate a wider range of services, such as community centres, healthcare, childcare and small-scale production?
…prioritising mixed-use development schemes?
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UR Lab: Unibail Rodamco’s innovation incubator Launched in 2012, the UR Lab organises and accelerates innovation within the Unibail-Rodamco Group and ensures that promising ideas receive the resources they need. UR Lab works closely with internal and external stakeholders to monitor trends, identify innovations, test new concepts, and develop implementation plans to ensure the strongest ideas are successfully adopted in Unibail-Rodamco’s shopping centres across Europe.
Innovative projects which have come to fruition through the UR lab include Fresh! - a food hall that unites 21 renowned local food retailers at Les Glòries shopping centre in Barcelona. Responding to demand for local and authentic products, Fresh! hosts dedicated events such as cooking workshops, live music, tastings and more, offering a vibrant and engaging atmosphere for customers.
Another concept, Digital Dream, uses digital technology to transform bare shopping centre surfaces into a powerful multimedia tool. In conjunction with a leading LED manufacturer, Digital Dream uses large LED displays to provide an immersive visual experience which can set the mood, celebrate an occasion, share a promotion or build a brand.
Photo: Unibail Rodamco’s Digital Dream
Priority & Sub Trends Practical actions: Have you thought about...
• Cloud technology
• Building sensors
• ‘Internet of Things’
• Renewable energy/zero carbon measures
TECHNOLOGICAL INNOVATION2…developing a network of ‘smart’ spaces that allow staff to seamlessly connect to each space, their work material and each other, wherever they are physically located?
…enhancing your corporate brand and attracting/retaining millennial talent through integrating visible environmental and “well-being” measures into your buildings?
• Rising expectations around flexible workplace practices and speed of response times/output
• Personal control of indoor environment
• Blurring of work-life boundaries
WORKPLACE TRANSFORMATION5…designing new office space for knowledge workers in ways which significantly advance collaborative working and creative thinking?
…integrating technologies, modular spaces and furniture solutions which allow for personal control of the work environment? (e.g. personalised spaces including sensory stimuli such as digital walls)
…designing out obsolescence by ensuring cost-effective flexibility to accommodate for potential changes in overall demand, for commercial office space as well as specific occupier requirements?
…adapting office and team management practices to accommodate flexible working hours, host team-building social activities and offer a wider range of amenities to staff (e.g. an in-house coffee shop, dry cleaners and cycle facilities)?
…enabling and supporting effective and productive working from a range of locations rather than one centralised office building, to minimise time-wasting and tiring commutes, e.g. home, shared local office hubs, etc.?
• Indoor and outdoor air-quality
• Link between green buildings and productivity
• Health-promoting workplace practices and active design
HEALTH & WELLNESS IMPERATIVE7…analysing the impact of your office buildings on employee health and productivity?
…introducing biophilic design features to promote greater employee well-being, or marketing them to potential occupiers?
…developing a workplace health promotion strategy within your own company, and/or engaging with occupiers to help facilitate theirs?
…ensuring that you are providing workers with suitable facilities to support the ongoing trend to cycle/run to and from work?
Offices
• Development of commercial hubs outside urban centres
• Upward pressure on commercial and residential rents, particularly in London, yet the need to cluster with similar businesses/customers
URBANISATION3…analysing opportunities to invest in office hubs for virtual workers or those unwilling to commute longer distances, outside of urban centres?
…diversifying the type of space your company occupies away from one headquarters’ building, and co-locating with customers/suppliers/partners?
…occupying mixed-use live/work space – designed to support well-being and productivity and create a ‘campus’ feel for millennial workers?
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Google: Unleashing creativity through stimulating design and playGoogle’s CEO recently scrapped the company’s original plans for its £1 billion office building at Kings Cross on the grounds that he wants a building ‘worthy of standing for 100 years’ and one which has an exterior that equals its interior design in terms of originality. The former plans for the Kings Cross office – designed to accommodate 4,500 Google employees – featured a climbing wall, rooftop pool and indoor football pitch, and we can assume that the eventual London office will boast these, if not more enticing, facilities. They are not unique. The Google Zurich offices include various different themed gondolas and an aquarium, whilst Googleplex in California houses volleyball courts, yurt-shaped meeting rooms, a bowling alley, a mini-golf putting green and two outdoor swimming pools.
These perks are not just intended to attract and retain the highest calibre people. They aim to increase productivity, promote health and well-being and above all elicit creativity and innovation through inspirational design and play. They also encourage ‘casual collisions of the workforce’: chance meetings that morph into creative projects that ultimately yield more revenue.
Photo: Stock Image
Priority & Sub Trends
• Low or zero carbon new build• Retrofitting existing stock on-site
or introducing community-owned renewable energy
• Focus on ‘performance in use’• Climate change adaptation
THE LOW-CARBON ECONOMY1… how you will deliver zero carbon communities, not just homes?…integrating higher performing technological components to reduce carbon, such as PV cells and renewable energy storage units?…testing whether the homes you are selling meet their stated energy efficiency ratings?…how well adapted your developments are to climatic extremes and flood risk, both on-site and in the surrounding area?
Practical actions: Have you thought about...
• Intelligent metering and apps• Big data
TECHNOLOGICAL INNOVATION2…integrating intelligent metering systems?…smartphone apps that enable digital control of the indoor environment and household appliance?…harnessing big data to track residents’ behaviour and using this information to adjust products accordingly?…collaborating with other organisations and engaging with consumers to identify the latest technologies which would add value in new homes?…helping residents understand and use new technologies to facilitate well-being in the home, to reap maximum sustainability benefits and to discourage counterproductive retrofitting?
• Aging population• Diverse housing needs to suit
different groups
CHANGING DEMOGRAPHICS6… how you will exploit growing demand for retirement homes and adapt design for an aging population – such as by integrating community facilities into new or existing retirement developments? …ensuring that homes are flexible and adaptable to future changes in living patterns and household structure?…developing new business models that deliver genuinely affordable homes for rent or purchase among the younger generation?
• Affordability• Exacerbation of inequalities
TRANSPARENCY & SOCIAL VALUE8
…how your developments can deliver measurable social value, for example by providing community facilities, catalysing economic regeneration and creating long-term employment in an area?…engaging with councils, private investors and other partners to create innovative new finance and development models designed to unlock and deliver schemes for a wider range of tenures? …partnering with investors interested in privately-rented residential property and delivering affordable housing which encourages inclusivity within communities?
Residential
• Increasing importance of regional hubs
• Circular economy
...designing and locating homes to suit changing needs such as home-working, flexible working cultures, shared spaces, mobility, connectivity and sustainable lifestyles?…the implications of an increasingly resource-constrained world, such as possible price hikes in key natural resources and construction materials, and how the supply chain can adapt?…using technology (e.g. e-commerce, supplier databases and radio frequency identification) to enhance procurement, design out waste and support a closed loop approach to materials use?
LAND & RESOURCE SCARCITY4URBANISATION combined with...3
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Grosvenor Britain & Ireland: New urban neighbourhoods to support long-term economic success The housing crisis is focusing attention on the potential for a thriving new Private Rental Sector in the UK to deliver a much needed source of new supply.
Against that backdrop, Grosvenor Britain & Ireland (GBI), whose London portfolio accounts for almost £5bn of total assets and is concentrated in 300 acres of Mayfair and Belgravia, has aspirations to create a differentiated rental product for mid-market customers in inner London and elsewhere.
In 2013 it acquired two adjacent sites, totalling 12 acres, in Bermondsey, south London. This included 8.2 acres of Workspace Group’s 10.6 acre Tower Bridge Business Complex in Bermondsey, South London, which had been granted hybrid planning consent earlier that year. GBI is developing plans to create homes for private rent, affordable housing, a new secondary school, high quality open spaces and improved connections to the Tube station and local businesses.
GBI argues that the housing crisis can’t be solved by units alone and that London in particular requires new urban neighbourhoods which can provide a good and growing quality of life to young, old, families, people of different incomes; have high density with liveability; high-quality amenities and public realm; strong local retail; and community leadership. London needs to remain a global talent hub to compete internationally, and this talent will question their being there if quality of life deteriorates. High quality new neighbourhoods, delivered at scale, have a critical role to play to support the UK’s long-term economic success.
Photo: Stock Image
Priority & Sub Trends
• Renewable energy
• Energy efficiency
• Low or zero carbon buildings
THE LOW-CARBON ECONOMY1…ensuring your location allows you to provide low or zero carbon transport solutions?
…reducing costs and/or enhancing asset values through on-site renewable energy generation, e.g. rooftop solar?
…how to design and deliver low or zero carbon warehouse buildings?
Practical actions: Have you thought about...
• Rise of manufacturing and automation technologies
• ‘Internet of Things’
• Changes in retail spurred by the digital revolution
TECHNOLOGICAL INNOVATION2…more extensive opportunities to partner with retailers to convert retail to distribution facilities as e-commerce and ‘click and collect’ formats increase? (the eBay and Argos ‘click and collect’ partnership is one example)
…whether your assets are flexible enough to adapt to the use of different technologies within warehouses? (e.g. 3D printing, which could mean that warehouses no longer need to keep physical stock of all products)
…whether your assets would be able to accommodate new modes of delivery, such as electric and/or driverless vehicles?
Industrial & Logistics
• Pressure on land and transportation modes
…how well located your assets are, bearing in mind that distributors will increasingly favour facilities close to their customers?
…adapting to greater intensification of industrial land use in some cities (including London), with the need for multi-storey warehouses replacing old industrial units where plot densities have been reduced?
…opportunities to dispose or adapt facilities for repurposing in locations with high underlying land value and an acute shortage of residential supply?
…opportunities to create shared-user retail warehouse schemes to consolidate deliveries and reduce traffic congestion in urban areas? (one example is the Clipper Logistics consolidation centre which services London’s Regent Street)
…opportunities for mixed-use schemes – e.g. developing retail with a light industrial component to accommodate for local, small-scale manufacturing (as 3D printing takes off) or combining retail and distribution to accommodate different consumer preferences?
LAND & RESOURCE SCARCITY4URBANISATION combined with...3
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Marks & Spencer used solar technologies to deliver a high-efficiency, low-carbon distribution centreWith a strong commitment to reduce operational carbon emissions as part of its “Plan A” sustainability strategy, Marks & Spencer set out requirements for its new 80,000 m2 distribution centre in Castle Donington to reach the highest standards in energy efficiency and incorporate the use of renewable energy.
The facility featured a large south facing elevation, making it ideally positioned to make use of the SolarWall®, Transpired Solar Collector (TSC) technology from building envelope specialist, CA Group Limited. Designed for the specific purpose of heating large spaces, active solar technologies such as the TSC can transform the fabric of a building’s southerly elevation into a giant solar collector by capturing the sun’s energy which is then used to pre-heat fresh, outside air before it is drawn into the building’s heating system.
The SolarWall® installed at the Castle Donington centre is the largest system of its kind on a single building in the world, and it is expected to reduce the building’s heating requirement by around 30% by generating more than 1,135,000kWh. This equates to a saving of over 256 tonnes of CO2 emissions per year. The estimated payback period for the technology – which has been identified as one of the most efficient solar technologies available – could be as low as three years.
The new distribution centre, now one of the UK’s largest dedicated e-commerce warehouses, has been rated BREEAM Excellent and achieved an EPC rating of ‘A’.
Photo: Stock Image
Take Action. Time is ticking.Integrate futures thinking in your organisation
Our goal with this paper is to make a thoughtful contribution to the industry dialogue regarding the implications of key sustainability trends for UK real estate as we seek to help our clients to anticipate future opportunities and challenges.
The trends we have presented here are not new, but the speed at which they are evolving is unparalleled. Major real estate players are now taking advantage of recent periods of economic growth and are exploring long-term risks and opportunities with a view to strengthen the resilience of their core real estate product. Others are considering more fundamental shifts in capital allocations, seeking out structural changes that may make them more immune to the next real estate downturn. Finally, there are new funds on the horizon which will seek to generate a commercial return from solving the environmental and social challenges discussed.
How we can help
At JLL, we are working on some exciting approaches to long-term thinking with our clients. From facilitating futures workshops and playing ‘critical friend’ in the business planning process to carrying out detailed assessments of value at risk, we can help you to identify the most significant trends for your business and turn them into practical recommendations to minimise risk and optimise your business model and portfolio.
If you would like to provide feedback or discuss anything covered within this report please do get in touch. A full list of contacts is provided on the back page.
Building for Tomorrow is JLL’s sustainability agenda in the UK. We believe that property can make an important contribution to the economy, society and the environment. In our capacity as both advisor and employer, we want to help clients, staff, communities and the industry to succeed long into the future. Everything we do as a business should ultimately be about Building for Tomorrow.
For more information visit jll.co.uk/buildingfortomorrow
JLL houses the largest and most experienced sustainability consultancy team in the UK property industry, Upstream Sustainability Services. Our 35 dedicated sustainability experts work alongside colleagues from across our global firm to develop commercially relevant and realistic sustainable solutions for property owners, developers, and occupiers.
We operate with integrity, earning the trust and mutual respect of our clients, many of which have worked with us for over a decade.
To find out more about what we do, please visit our website jll.co.uk/sustainability
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COPYRIGHT© JONES LANG LASALLE IP, INC. 2015.This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior written consent of Jones Lang LaSalle IP, Inc.The information contained in this publication has been obtained from sources generally regarded to be reliable. However, no representation is made, or warranty given, in respect of the accuracy of this information. We would like to be informed of any inaccuracies so that we may correct them.Jones Lang LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.
Alex EddsHead of UK Sustainability
London+44 (0)20 7399 [email protected]
jll.co.uk
Rosemary FeenanHead of Global Research ProgrammesLondon+44 (0)20 3147 [email protected]
Beth AmbroseLead - Sustainability Strategy & Communications ServicesLondon+44 (0)20 7399 [email protected]
Contacts
AuthorsSophie WalkerDirectorUpstream Sustainability Services
Beth AmbroseAssociate DirectorUpstream Sustainability Services
Miriam AbbottSenior ConsultantUpstream Sustainability Services
Elisabeth Filkin Senior ConsultantUpstream Sustainability Services
Emma HollingsheadSenior Public Relations Executive
London+44 (0)20 7399 [email protected]
