Generational shift to drive future office requirements

October 30th, 2014 by Jenny Dong

What will the office of 2025 look like? Planning for the future is always challenging. To ensure that we make the right decisions to fulfil the future requirements of office workers, we need to better understand the demographic cohort who will make up the majority of the labour force in the next ten years.

Terms commonly identified with the Millennial Generation include ‘motivated’, ‘well-educated’ and ‘highly mobile’. Roughly speaking, millennials are the generation of people born after 1980 to around 2000. As they advance in their careers, the impact that this group has on society is increasingly becoming more significant. Think, entrepreneurs like Mark Zuckerberg of social networking platform, Facebook; and Elizabeth Holmes, founder of health care and medical technology company, Theranos. Millennials have been behind some of the major, paradigm-shifting ideas and technological advances over the past decade.

By 2025, millennials are expected to make up 75% of the total workforce globally (Deloitte Millennial Survey January 2014), by which time, the Baby Boomer generation will be well into their retirement. Thanks to the internet and an accelerating rate of globalisation, millennials are developing in a highly connected and fast-paced environment. The constant transfer of new information and communication is what this demographic group have become accustomed to. These technological changes will have major implications for the way we work and the property needs of major corporations.

Dealing with issues such as global recessions and financial crises, gender and economic inequality, terrorism, climate change, and a growing scarcity of natural resources, millennials have generally become more informed, more technologically-proficient, and more socially and environmentally conscious than previous generations. This will instigate a major shift towards energy efficient construction and building operation.

As millennials progress and step into senior, decision-making positions within business, further technological innovations will emerge. Technology is a major enabler and disrupter for businesses. Will there still be a need for the traditional office or will alternative methods of working become more prevalent? Collaborative work will require face-to-face time in the future – information is sticky and a face-to-face medium is still required for information transfer. However, advancements in hologram technology may break down some of these barriers. Commercial building owners and developers need to take into account the changing preferences of the millennial generation and the impact of technology when undertaking redevelopment projects to future-proof their assets, and in turn, their future income stream.

About the author
Jenny Dong is the Senior Research Analyst for JLL in Australia, based in Sydney.

Retail in India at a crossroads

October 28th, 2014 by Ashutosh Limaye

Come the weekend, I find myself with my family at one of the malls in Mumbai. Not long ago parents used to take their children to a high-street, visit two or three stores and shopping would be over usually in an hour!

Retail in India has changed a lot, and quickly too. Earlier, vendors carried their goods to our neighbourhood; now we visit stores, and there are increasing virtual e-retailing visits. The goods had a long life and it was acceptable to use pre-owned or inherited stuff. Today’s generation follows the “use and throw” concept, and being in vogue matters.

Be it lifestyle, innovations and inventions, or the socio-economic fabric, India’s youth are living one of the fastest and most diverse transformations, and retail is no exception. Retail properties are testimony to the change in retailing. Shopping centres in at least the big cities are constructed and managed to give convenience with experience, leading to a celebration beyond just a transaction. We now have more than 50 international luxury brands, and people and properties are equally pampered with the best in class customer care and facilities management.

India moved from one mall to more than 300 malls spread over 7 million sqm in just 14 years; by 2030, more than 1,000 malls will cover close to 25 million sqm. This looks possible, as India has moved from 34 cities with at least a million people in 2001 to the current number of 53 “million plus” cities[1], and by 2030, the number will cross 100[2]! India’s retail market has grown from USD 80 billion in 1998 to USD 440 billion[3] today, and will reach USD 2 trillion in 2030.

Figure.1: Growing footprint of retail real estate in India

Source: JLL Research, Oct 2014
Numbers above bars refer to number of malls

The share of organised retail in overall retail stands at 7% today, and with 3 sq ft per capita of organised retail space[4], India is moving steadily towards a bigger, mature, organised retail sector. The bigger malls under construction (average size per mall of 600,000 sq ft compared to the current 300,000 sq ft)[5] are taking us closer to mature markets sooner than some of us might imagine.

There have been challenges, and learnings too. Developers rightly stopped strata selling. They, alongside retailers have been sensitive to the requirements of local people, shown resilience and collaborated with each other better. Revenue share is as common as fixed rent, newer smaller stores in high footfall areas have made good sales, formats are evolving constantly and logistics are improving, but a few concerns remain. India’s retail space is costly, growth in retail is not matched by supply of quality space, and there is a degree of uncertainty about policies.

More global retailers are entering India with a “global + local” approach. Retailers are employing multi-channel sales, experimenting with size and format, e-retailing and penetrating newer territories. I see further changes in the way India will shop, and I am ready to continue this interesting journey, which is at a crossroads.

About the author
Ashutosh Limaye is the Head of Research and Real Estate Intelligence Service for Jones Lang LaSalle in India, based in Mumbai.

[1] Census of India, 2011

[2] Various forecasts by government agencies, academia, statistical organisations

[3] Yes Bank – Associated Chambers of Commerce and Industries of India (ASSOCHAM) Report, 2013

[4] ASSOCHAM Report, 2013

[5] JLL REIS, 2014


Are hoteliers finally taking notice of Airbnb?

October 27th, 2014 by Frank Sorgiovanni

As an analyst working in the hotels and hospitality space, I’m frequently asked about Airbnb’s impact on traditional hotels. Airbnb, the online community marketplace connecting guests with a private host, has revolutionised the way leisure-seeking tourists are choosing their accommodation needs. Before writing this blog, I asked some of my colleagues who have used Airbnb for their thoughts.

As well the cost saving over opting for a more “expensive hotel room”, it was the “live like a local” that drove their booking decisions. Staying in a private apartment is a better way to experience a city I was told. It doesn’t get much more authentic than shopping in a local market and preparing meals in your own kitchen was also explained. Location was another compelling argument. It seems many Airbnb hosts ensure their guests get the best dining recommendations, tourist attractions and public transportation options. I can see how this works in a city like New York, London or Paris.

Airbnb has made solid development in reinforcing its acceptability over recent years. The online room provider no longer offers just cheaper accommodation options but also upscale selections that could rival those of many luxury hotels.

However, there are some clear risks associated with using Airbnb. Travellers need to base their decisions on reviews provided by previous guests of a host’s property, as opposed to relying on the familiarity offered by the leading hotel brands like InterContinental, Hilton, Marriott or Starwood. Typically, a hotel guest is well aware of a brand’s reputation and is more than happy to complain should their stay not live up to brand standards and individual expectations. In most cases, wrongs can be rectified quickly at a hotel. Airbnb is simpler and less defined, and it takes a confident traveller to be convinced over using it.

Nevertheless, hoteliers can’t afford to ignore Airbnb as a growing competitor, particularly as the company continues to attract new properties with the intention of providing travellers with an alternative, affordable and “more” local experience. Hoteliers are also conscious of the growing corporate market for Airbnb. Close observance of Airbnb’s listings in an hotelier’s market is important. It is essential that hotels continue to position themselves by offering the necessary creature comforts and loyalty programs.

Airbnb has succeeded in providing accommodation options globally without building any new hotels, motels or resorts. Does Airbnb’s rapid rise have potential to impact the livelihood of the hotel industry? What can hoteliers learn from the service in terms of maintaining demand for their brands? These are some of the questions to be addressed. What we know is leisure tourists are seeking unique travel experiences that hoteliers must deliver if they want to limit the impact of companies like Airbnb. The hotel industry must continue to relay the message to travellers that it can offer more.

About the author
Frank Sorgiovanni is Head of Research at JLL’s Hotels & Hospitality Group in Asia, based in Singapore.

Jobs and housing demand in Sydney – a relationship to watch

October 23rd, 2014 by Rupa Ganguli

Strong housing price growth over the past three years in Sydney has been the hot topic of discussion amongst economists, property commentators and the media locally and offshore. In the year to Q2/2014, real price growth of 12.5% has been well above the five year annual average of 4.5%. September quarter data from RPData-Rismark indicated relatively solid dwelling price growth in Sydney over the quarter, in relation to the other capital cities. However, the consensus seems to be that housing price growth will start moderating in Sydney over 2015.

The household debt to disposable income ratio has been rising in Australia, especially in cities such as Sydney, with growing leverage as households jump into the property market, upgrade their property or buy an investment property or two. This is unlikely to continue if interest rates rise and wages growth does not keep pace.

The net shortage of supply in relation to demand, the low interest rate environment and a pickup in foreign buyer interest have been the most common reasons used to explain the dwelling price appreciation. What is surprising is that the recent strong home buyer activity occurred during a period of weak employment and wages growth, which could be partly explained by an investor led recovery. Housing finance commitments by investors in the state of New South Wales rose by 42% in the year to FY2014 to AUD $52 billion, while loans to owner-occupiers (excluding re-financing) increased by 20% during this period, to AUD $64 billion.

Interest rates were a more important factor driving the last two house price cycles rather than employment conditions, with the Federal Government’s doubling of the First Home Buyer grants also having an impact during the 2009 peak in housing price growth. Since 2008, it appears that house price fluctuations in Sydney have been a lead indicator of office demand and subsequent rental growth movements, rather than being a laggard.

Demand conditions in the major Sydney office markets are starting to improve in 2014 as the housing market moves into a contractionary phase. The two different property sectors may be at turning points of the demand cycle so one must keep watch.

House price movements: an important indicator of office demand in Sydney

About the author
Rupa Ganguli is focused on analyzing the Australian residential market for JLL, based in Sydney, Australia.

Next Generation of Retail Outlets in China

October 21st, 2014 by Chen Lou

On a recent trip, I had the chance to visit Gotemba Premium Outlets, one of the most famous outlet malls in Japan. Sitting at the foot of Mount Fuji, and only a two-hour drive from Tokyo, Gotemba attracts millions of shoppers and tourists each year. Opened 14 years ago, with a mix of high-end and mass market brands, the property is frequently studied as a successful example of outlet mall execution. At 48,000 sqm NLA, this project is an average size by Japanese standards and was a JV between the then-largest outlet developer in the world, Chelsea Property Group (now part of Simon Property Group after a 2004 merger) and Mitsubishi Estate of Japan.

What makes Gotemba successful? Although the architecture is that of a typical American-style outlet, i.e. outdoor, one-storey and with a large land footprint, the view of Mount Fuji gives the property strong tourist appeal. Second, the outlet can be accessed by multiple modes of transportation, including free shuttle buses from the nearest train station and various buses directly from Tokyo. The outlet also appears prominently on free tourist maps. Finally, the outlet operator pays great attention to detail in marketing and customer service, including the following strategies:

  • The centre’s website can be viewed in six different languages,
  • All areas are handicapped-accessible,
  • There are strollers and wheelchairs available for rent; and
  • The directory not only lists shops, but also points out a Ferris wheel and the best spot to see Mount Fuji.
  • During my visit, besides loads of shoppers being dropped off by bus, I also saw local residents walking their dogs and children having a great time in the playground. It seems the centre is not simply an outlet, but also a friendly community gathering point.

    Is there a Gotemba in China?

    I think the answer is “coming soon”. In my view, China has experienced two generations of outlets. The first generation is represented by projects such as Yansha Outlet in Beijing: big box, simple construction, indoor format, and locally developed and operated. As China’s top outlet by sales, its success lies in its price advantage. Projects such as Tianjin Florentia Village represent the second generation: foreign developer, international style, outdoor and suburban location.

    The third generation, in my opinion, will be projects similar to Gotemba Premium Outlets that offer more than just shopping. The outlet landscape is becoming more and more competitive. Suzhou Village, a recently opened outlet developed by Value Retail Group, has many of the advantages of the Gotemba outlet. It combines a relaxing environment with a view of Yangcheng Lake, lakeside dining, art galleries, and a playground. If Suzhou Village succeeds, other new Chinese outlets will follow suit and offer a more sophisticated shopping environment.

    Today’s consumer is increasingly price-savvy as a result of rising international travel and extensive online shopping exposure. Also, as rents in full-price malls continue to rise, many retailers find outlet locations appealing. Specially-produced “made for outlet” product lines can be offered for the price-conscious consumer. With rising car ownership rates, the idea of a “day trip” outside the city is catching on.

    About the author
    Chen Lou is a Manager in JLL’s research team in China, based in Shanghai.

    Are community malls still an opportunity for new players in Bangkok?

    October 20th, 2014 by Krit Pimhataivoot

    One of the major retail trends in Bangkok that has interested me over the past few years is the growing number of community malls. Therefore, with many new players entering the market recently, I have started to ask myself, “Are community malls still a good opportunity for new-to-market investors?”

    What is a community mall? There is no single definition of a community mall in Bangkok. Basically, it is a mall situated in a residential area. However, in Bangkok, there are small community malls in suburban sub-markets that serve the need of a particular residential community until a larger-scale community mall in the Central Business District targeting white-collar workers opens. To distinguish a community mall from other shopping centres, we have to look at the size and design.

    As the lifestyle of Bangkok people has changed, centres that offer convenient dining, shopping and the chance to relax have become more popular. With high traffic congestion in the city, community malls that provide sufficient parking space and easy access have become more attractive to consumers. From a total leasable area of 530,971 sqm in 4Q07 to 988,631 sqm in 3Q14, community mall space has risen dramatically and now accounts for 18.8% of the overall retail market leasable area. This figure is expected to grow to 21.8% by end-2016.

    Since community malls generally focus on small groups of customers, many large retail developers decided not to enter this market, preferring to invest in larger-scale projects. Hence, there are a limited number of players in the community malls market: Siam Future Development, the largest with 17 malls across Bangkok; K.E. Land, a developer that made a successful breakthrough with The Crystal in 2007; and Toyota TBN, a Toyota service provider and landlord that utilised adjoining vacant land and turned it into a successful community mall, The Paseo, in 2008.

    Although many of the recent new-to-market players fail to capture demand, this does not mean that the opportunity window has closed. The success of a community mall depends on many factors. For example, some strategically located projects by new-to-market developers have been performing well, such as Seenspace 13, a small community mall with the unique selling point of turning its common space on the ground floor into tables for restaurants and bars at night; the mall had a 4.0% vacancy rate in 3Q14. Another successful project is Rain Hill, a green concept community mall with a well-planned tenant mix targeting white-collar workers in the Central Business District and a 4.3% vacancy rate. Thus, besides the basic retail factors of good location and experienced management, unique selling points are critically important, as they differentiate the malls from other shopping centres. With the widespread expansion of residential areas in the suburbs along with the upcoming subways and sky-trains, there is still room for newcomers; however, with their relatively smaller scale, new community malls will have to be more innovative in both design and tenant mix if they are to be successful.

    About the author
    Krit Pimhataivoot is the Research Analyst in JLL Thailand’s Research and Consultancy group.

    Australia’s international retail revolution

    October 17th, 2014 by Andrew Rojek

    Australia has consistently had a strong business environment, an enviable economic position and exceptionally robust consumer spending trends. But in more recent times, the Australian retail landscape has changed, and international retailer brands have been knocking down the door to get a foothold in the market.

    As Cameron Taudevin, JLL’s Australian lead for retail leasing, describes “The industry has always recognised the strong underlying fundamentals of the domestic economy with solid population growth and high levels of discretionary income for many Australians – this is now transitioning into a clear increase in interest and entry activity for many international groups”. As a result there has been an influx of international retailers seeking to capitalise on this opportunity through entering, or expanding their presence within, the Australian market.

    Interestingly, the level of competition in the Australian retail market in undergoing a structural change as a result of this influx, with a new model for globally competitive retailing being brought to our shores. Through sophisticated supply chain integration and well-established brands, many international retailers have a significant strategic advantage compared to domestic retailers with regard to price, retail experience, range, quality and speed of bringing new product to market. This strategic advantage and level of consumer demand for such brands is evident in the sales performance of many new international entrants, particularly in the fast fashion market segment.

    Fast fashion retailers such as Zara and Topshop have opened to huge receptions across Australia, and have recorded exceptionally strong performance. Zara, for instance, generated $68.0 million from its operations in its first year in 2011. By 2012, sales revenue had increased to $106.8 million with an estimated gross profit margin of 66.7 percent.

    “Several weeks ago, Zara opened its first Australian store. 80%, or $1.2 million of stock was sold on the first day of trade.”
    The Age, 2011

    “Around 250 shoppers … queued up overnight to be the first to get a piece of the Topshop action in Melbourne yesterday.”
    The Telegraph, 2011

    In addition to Zara and Topshop, retailers such as Forever 21, Uniqlo, H&M and Gap are all at various stages of executing their entry strategies for the Australian market. This week, in fact, has seen H&M and Uniqlo open stores in Sydney, and Forever 21 open its first Australian store on Brisbane’s Queen Street.

    As this market continues to gather momentum within Australia, we can expect that the wave of international retailers will continue. In turn, the on-going hunt for adequate space and floorplates in premier locations by these retailers is likely to become even more competitive. Successfully leveraging this demand provides the opportunity to enhance asset values for landlords, and drive the renewal of old and underutilised CBD space in Australia’s capital cities.

    About the author
    Andrew Rojek is the Analyst for Strategic Consulting in JLL, based in Queensland, Australia.

    What about the smaller brands in China’s malls?

    October 15th, 2014 by Steven McCord

    When visiting shopping centres in Beijing and Dalian, our team makes thorough inspections of each property to gather insight into their strengths, weaknesses, and performance potential. The key driver of retail success is ultimately strong footfall, and we are looking at not only the number of people passing the main entrance of the mall within a defined short time period, but also the number of people carrying shopping bags and for which brands. While not an indication of conversion rate (shoppers into sales) per se, these figures are an indication of how many people have purchased a physical product and what they purchased. This is interesting because of the concern around show-rooming in modern shopping centres, as consumers turn to online storefronts to buy physical products.

    Few shopping bags are typically seen in the run-of-the-mill community and regional centres today, with the number of bags typically in the range of less than 5-10% of the total footfall figure. Most visitors to malls appear to be there for the food and beverage, children’s activities, or simply window-shopping. Furthermore, any bags observed almost always are from a small set of international fast fashion mini-anchors, with surprisingly few exceptions. If a mall has an H&M, for example, almost all of the bags seen tend to be from this one brand. This suggests that people who buy a physical product in these malls tend to focus on the big brands and are not making purchases from the many other, smaller brands in the mall. Unless, of course, one were to include the take-away bags from casual dining restaurant chains.

    This pattern even extends to the biggest of the destination malls in both Beijing and Dalian; large properties clearly offer a rich assortment of brands. And yet, customers are still only purchasing from a few big names. This may be because the mini-anchors have large, attractive stores in the best locations of the mall. These tend to generate more impulse buys and offer the opportunity to observe what others in these fashionable parts of the city are buying and to follow suit. Meanwhile, the small retailers are hurt as they seem to be bypassed. Borrowing a concept heralded by the hypermarkets in decades past, fast fashion could be called a “category killer.”

    Our regular inspections also revealed an interesting trend with the lack of vertical transportation in shopping centres. Customers wishing to use the elevators to directly reach the upper floors of a property are waiting an average of 32 seconds for an elevator, and sometimes as much as 99 seconds. Every mall inspected in Dalian unanimously had lifts that were too both small and too crowded. However, this has the unintended benefit of encouraging circulation throughout the property and the ability to stimulate more impulse purchases at smaller shops. Today’s shopping centres face a challenge of getting the massive F&B crowds and families with children to make impulse purchases to support smaller brands.

    About the author
    Steven McCord is Head of Research, North China, based in Beijing. He is also the lead analyst for the retail sector in China.

    Singapore planning– moving towards a more market driven approach

    October 13th, 2014 by Ansley Toh

    In my former capacity as an urban planner with the Urban Redevelopment Authority (URA) – the national planning agency, I witnessed changes in the procedures for obtaining planning approvals that made the application process more efficient and user-friendly. In my opinion, this is a step in the right direction as Singapore strives to improve on market transparency and responsiveness to the changing needs and preferences of the market.

    Since 1995, the national planning agency has given the private sector more autonomy to increase the efficiency of planning approvals. This refers to the introduction of the Plan Lodgement Scheme, which streamlines the approval process by allowing development work to be lodged without the need to apply for planning permission. This, of course, is subject to certain criteria and it works on a self-declaration system, where work is to be correctly declared by a “qualified person”, ie a registered architect or engineer. In 2001, this lodgement scheme was extended to include a change of use to facilitate the growth of business.

    With an increasingly complex planning environment, there is also more scope and opportunity for improvement. In the national planning agency’s attempt to provide more efficient services to both the public and professionals, Geographic Information System (GIS) has played quite a significant role.

    One good example is the inclusion of planning decisions onto a map-based registry known as ‘URA Maps’ in February this year. Previously, users had to pay a sum of SGD30 for a copy of the planning decision from the planning agency’s development register. Now, it is free and by utilising the GIS technology to build a map-based application, it enables easy access to planning decisions although the record is limited and only available from year 2000 onwards. The planning agency extended this map-based format in March to develop another platform called the Development Charge (DC) Sector Map service which allows users to easily pull out information on the DC Sector number and DC rates (a form of development tax) for a particular site. This move towards map-based services has made the development system more transparent and efficient.

    However, more can be done to facilitate the development approval process. Since it is difficult for the planning authority to prescribe all the allowable uses within a certain zoning given that the list of possibilities can be endless, it could consider doing an exclusionary list instead. This way, it will be easier for both the public and professionals to know what specific uses would not be allowed before any business decisions are made.

    About the author
    Ansley Toh is an Analyst for JLL Research & Consultancy, based in Singapore.

    Increasing demand for direct assets keeps transactional volumes climbing higher

    October 10th, 2014 by David Green-Morgan

    The inexorable demand for direct commercial real estate remains unabated as we head into the final few months of 2014. North America and Europe continue to set the pace while the slowdown in China means that Asia Pacific is likely to underperform the other regions in 2014.

    Q3 2014 volumes have risen by 13% compared to this time last year, to US$165 billion. All three regions are higher than last year but the Americas remain the standout performer with volumes 23% higher. On a year to date basis global volumes are even more buoyant at US$463 billion which is 23% higher than the first three quarters of 2013. The US$463 billion recorded at the end of 2013 is exactly the same amount as we recorded for the whole of 2012, a good demonstration of how quickly investment volumes and sentiment has continued to improve.

    The divergence in regional performance that we started to see earlier in the year has continued with Asia Pacific lagging behind its 2013 transactional volumes. Much of the slowdown can be attributed to the lack of transactional activity in China where Q3 2014 volumes are less than half of what they were a year ago and volumes are a third lower on a year to date basis. The environment in the other two large markets of Australia and Japan is more positive with year to date volumes in both markets higher than in 2013.

    Strongest growth in 2014 has been in the Americas, where the surging US market has been supported during the year by strong investor interest in Mexico and Brazil. The US passed the US$70 billion mark this quarter for only the second time since 2007 as transactional volumes across a range of prime and secondary cities climbed higher.

    A similar story is playing out in Europe where the peripheral markets of Southern Europe, The Nordics, Benelux and Central and Eastern Europe are all higher and lending substantial support to the big core markets of France, Germany and the United Kingdom who continue to grow. Although European volumes are only 7% higher than this time last year they remain on track to be over 25% higher than 2013 by the end of the year.

    With the positive sentiment around real estate improving we are maintaining our full year forecasts of US$700 billion for the full year. There are slight headwinds to this forecast with a resurgent US dollar meaning more deals will need to be done in Japan and the Euro Zone. Also, the final quarter of the year is traditionally the busiest, but with the number of deals looking to be executed it is possible that some may slip into the first quarter of 2015. However, we do expect the final quarter of this year to surpass Q4 2013 by some margin.

    About the author
    David Green-Morgan is Global Capital Markets Research Director in JLL, based in Singapore.