When you travel around the business districts of Europe, even on the Riviera where many of us are this week (yes, MIPIM!), you get struck by all the giant buildings and huge constructions, housing thousands and thousands of workplaces for millions of people. From the outside it all appear square and immobile – and very impersonal. And you come to wonder: maybe it’s time to change focus?

This is especially true for businesses. It is easy to remain too focused on property and less on what actually drives the values – the people inside. In our recent report “A New Dawn for Workplace Strategy” we are changing perspectives. The main issue is not a matter of space anymore, it’s about people.

Workplace Strategy is high up the corporate agenda due to economic uncertainty, balancing cost savings and growth agendas, the increasingly competitive landscape and maybe most of all: talent shortages. Companies have to consider the requirements of the new generation that is on-the-go 24/7, and change the way we think about workplaces. Even the word itself signals inflexibility. Maybe it’s time to talk about work life instead of workplaces?

At our new JLL head office in Stockholm we are applying these new workplace theories in real life. These ideas are packaged under the new concept WorkSmart, and we invite all of you interested in how new workplace strategies can yield results way beyond traditional cost savings, to have a look in our new office!

These issues are so exciting, not only because of its impact on corporate cultures, values and future earnings, but also because it concerns every corporation around the globe.

The French Prime Minister has confirmed that €27 billion is planned over the next 15 years to upgrade Paris infrastructure. The impressive presence of Grand Paris at MIPIM confirms the large global ambitions of the city and with this upgrade now confirmed, we have an exciting opportunity to address the real estate obsolescence challenge.

With an office stock of more than 50 million square meters, the Paris Region is the biggest European market and has doubled in size over the past forty years. Office architecture, as with geological layers, reveals the DNA of each societal period. It embodies the aspirations and events that profoundly shape our environment.The digital revolution, driven by the younger generations, is transforming our society at a speed never seen until now. Today, new technologies are changing the way we work, and tomorrow they will trigger new physical spaces where we collaborate together.

This fundamental shift accelerates a building’s obsolescence in all its dimensions, far beyond the single issue of energy: material life cycle, quality of use, scalability and reversibility of buildings, alternative location, urban integration, mixability of functions within buildings, neighbourhoods and cities.

By staying attentive to these changes via its Corporate Solutions activities, Jones Lang LaSalle helps clients to renovate and to build real estate that respects the environment, promotes the quality of work and comfort of employees, that promotes corporate social responsibility and matches the economic reality in order to make a sustainable real estate asset. As Project Manager, Jones Lang LaSalle advises and manages the development of projects through the three dimensions of Sustainable Real Estate, with an objective to optimize both financial and sustainable asset qualities.

MIPIM offers a great opportunity to confirm we have reached the tipping point, both for Paris and real estate obsolescence.

It’s not without a sense of pride I’m enjoying  MIPIM in beautiful Cannes this week. The bi-annual report from the Nordic office market, the Jones Lang LaSalle Nordic City Report, has just left the printing machines – and it shows clearer than ever before that the Swedish cities (along with the Norwegian to be honest…) remain in the top of the European league when it comes to resilience against the euro crisis.

Of course we’re not unaffected by the impact from the financial turmoil in the euro zone, and the report shows that 2013 is likely to be a challenging year even for us up in the north. But it’s hard to be downhearted with transaction volumes exceeding a hundred billion SEK only in Sweden last year, of which almost half occurred during the last quarter.

I’m also proud of our research by which the reports are underpinned. Not only we ourselves find our property research the most thorough and comprehensive in the market, but also the Euromoney magazine has once again recognized it as the best in Sweden. For the fifth consecutive year.

I feel almost embarrassed to admit that this is the first time I have visited MIPIM. My excitement and interest in being here – and my enjoyment of the distinctly sunny, spring-like weather – is tempered by a slight sense of guilt. Apparently in below-zero Sussex, schools are closed and my wife is trapped inside with two under-5s.

The exhibition halls at Cannes provide ample evidence for a central argument made by Jones Lang LaSalle’s research teams: the property market is increasingly about competition between cities rather than countries. It is like an EasyJet itinerary of European cities: Gothenburg. Dusseldorf. Toulouse. Edinburgh. Poznan. Milan.

The hierarchies of European city-regions are also apparent. London and Paris have large tents outside the main hall – although admittedly the largest such structure belongs to the Russians. The fact that Turkey is the ‘country of honour’ – and that there are many conversations about the growing appeal of Istanbul – further demonstrates how the economic power of Europe’s eastern fringe is growing.

As head of UK research, though, my main interest is in how British cities try to grasp the opportunities presented by MIPIM. London, a case apart for obvious reasons, has no problems in grabbing the limelight; for what seems like several hours photographers and journalists appear to be circling Boris Johnson. Meanwhile, its tent is bursting with opportunities and initiatives, from Nine Elms and Crossrail to Hounslow High Street and Ealing. How the regional centres fare, though, will be the subject of my next blog.

As I board the much delayed plane to my first ever MIPIM, I am struck by one thing.  Property people sure don’t travel light!  Our cabin currently resembles the luggage department at Harrods (a clear statement is being made with the quality of the apparel).  Soon, I fear it will transform into a battle as all seek to fill every available crevice with their essential life supplies for the next four days.

Of course, the notion of property professionals being weighed down by baggage is apt given recent market dynamics.  For investors, the increasing polarisation of the market has been tough to navigate.  For occupiers, the need to balance increasing demands for productivity with the realities of legacy portfolios is difficult to strike.  For both, financing is tough and the uncertainty of  the last few years still blunts the decision making process.

So as I arrive and await yet more luggage at the carousel, I am looking forward to seeing whether this year’s MIPIM delegates feel able to travel light any time soon.

The office real estate market has always been global but only since 2009 has it opened up to its current extent. Before 2009, in an average year around 45% of deals were acquisitions by overseas money. In the last three years that proportion has grown to 67%. We have never seen such global diversification of investors. We do not think this will change and we do not think it is a bubble: the potential sources of investment out there, from countries both active and inactive, is vast and with a growing and maturing Asian pension fund industry, for instance, is only getting bigger.

There will be implications, the majority of them positive. While domestic investors will be increasingly priced out of the market this may encourage greater interest in areas offering higher returns such as regeneration. There will be increasing global diversification as London further separates from the UK economically. And, most important, global equity will encourage more commercial development enabling London to retain its position as the leading global financial centre.
 
There are 12 “Why London?” factors which demonstrate London’s competitive positioning. But Fadi Moussalli from our International Capital Group, summed it up better than I could. Seizing the microphone he gave an impassioned account of investors’ criteria – “London offers good investment returns, diversification, safety – and will always be first choice. There may be other markets but investors feel London in their minds and in their hearts”. I expect many agree with him.

What could be better? All in all a good week at MIPIM. Cautions optimism in the air compared to the pre-crash blind optimism that caught so many out.

From an EMEA retail perspective, UK, France, Germany and the Nordics still appear top of investor agendas. However there is no lack of appetite for other EMEA markets, including: Russia, Turkey and even recently troubled North Africa, which for some there is strong belief that once the dust settles significant opportunities still exist.

Warren Buffett said that it is only when the tide goes out that you can see who has been swimming without their trunks on. Well, the tide is now coming back and it is very much ‘back to business’. Availability of debt remains a hurdle and some may not make it back into the water, but those that do are right to remain cautious of where and when to swim.

After a good week it’s time to pack my trunks and head home.

I’m at MIPIM this year to get the view from our clients and industry contacts about the future issues affecting the office sector across EMEA.

Their answers will form the basis of the next 12 months of research in our Offices 2020 campaign. So what have I learnt?

The first, and most compelling thing, is that in 10 years’ time office sector practioners will probably still be reluctant to take part in research surveys.

But apart from that – and joking apart we have had some great responses – the following themes have quickly emerged:

The workplace and sustainability – two separate but interconnected themes. To be honest we expected these to be the most “popular” but all respondents have homed in on these as being the key issues for consideration: What will the true enablers be for sustainable real estate? And what will these mean for building life cycles and asset strategy?

What will truly enable workplace change – and what will this mean for specification and fit out?

But our industry is not just concerned with changes in sustainability and the workplace. There are other key factors on the Radar:

An inflationary environment and implications to rents and returns. Commodity prices and their impact on both development AND occupancy costs. How the landlord/occupier relationship will change and the impact on tenure and lease lengths. Where will the greatest changes to European labour catchments be…..

The list goes on. The future of this vital sector is dependant on many external forces  - but also on innovation from within. The two combined will shape the sector. And over the next 12 months we will find out exactly how and why these changes matter to our clients TODAY. To borrow the phrase from our Retail 2020 campaign: “Change is coming, are you ready?”

To take part in the survey and help shape the direction of this research (it takes no more than 5 minutes) please click here.

To view our Offices 2020 website, please click here.

In 2010, recovery in the Central London market was in full effect and transactional volumes were up by 34% on 2009, producing an annual turnover of in excess of £10 billion, and ensuring London was the world’s largest investment market by turnover despite having less investable stock than several other global markets.

Investment in offices in London’s West End reached £5.02 billion, a 77% increase on 2009 levels.  Volumes were dominated by foreign investment accounting for 62% (£3.3 billion) of the total, with UK vendors providing the real estate, which made up 59% of sales.  A similar pattern emerged in the City of London market producing annual statistics showing that, in total, 63% of Central London assets were acquired by overseas investors.

This is a story that has been well documented since the London downturn of 2008 and early 2009.  It was at this point in the market cycle that the expressions ‘safe haven’, ‘transparency’, ‘currency’, ‘value’ and ‘Sharia’ all became everyday vocabulary to those in the Central London market.  Across the City, Canary Wharf and the West End, a new (to the UK) breed of investor emerged; those with equity, predominantly from the Middle East but also Eastern Europe initially, who were prepared to gamble on the longer term fundamentals of a Global Real Estate world in crisis and a capital city offering ‘once in a generation opportunities’ due to London’s transparent correction as well as significant savings on exchange rates.  The trend grew and by the end of 2010, the market was familiar with the overseas buyer.  As many as 45 different nationalities were regularly inspecting opportunities in London’s commercial real estate.

Risk-free, long-dated income, prime location, trophy asset –  these were all familiar requirements that led to high demand, yield compression and turnover.  We estimate that the equity targeting the UK market, of which over 80% is for Central London, is in excess of £52 billion.  From Asia to the US, Sovereign Wealth Fund to High Net Worth individuals, property company to pension fund, the path through Heathrow is getting busier.

Against a backdrop now of rising rents, selective bank lending, low interest rates, overseas political unrest and continued sterling weakness, demand is increasing.  2011 will see Asian capital as the dominant overseas force in Central London.  With a desire to explore development, short income, riskier cashflows as well as long income vanilla transactions, this Asian demand will be widespread.

We generally expect overseas investors to move further up the risk curve, looking for short income and development opportunities as occupational markets improve and the development funding gap provides opportunity.  As 2011 progresses, demand will grow and London will witness capital sources from mainland China, Indonesia, Thailand and Taiwan, in addition to the Hong Kong, Singapore, Malaysian and Korean investors already prevalent.

London will continue to be the dominant destination for overseas capital, especially as the underlying market fundamentals strengthen and Government cut-backs feed into regional cities leaving London relatively sheltered.  We expect prime real estate to capture the majority of overseas capital, Middle East investors to expand their portfolios and new entrants to emerge from countries displaying political instability and those benefitting from this instability by increased oil prices.

London as a financial centre continues to play a major role in the global economy and as a magnet for offshore investors will lead the global capital markets once again in 2011.  The major difference from 2010 will see Asia Pacific investors overtake the Middle East as largest investor base as they diversity from their local markets.

Currency will remain a factor as will the ability to purchase quality real estate at pricing, which on a global scale, represents value to overseas capital. Although interest rates will increase from their historic low strengthening Sterling, currency savings will remain compelling.

As the days get warmer and the first spring blooms begin to show, the real estate industry thoughts turn to MIPIM. Or if you’re a central banker, to raising rates.

There aren’t many central bankers at Cannes this week of course. But if they were, they’d recognise from the buzz around the Palais and the client meetings that the European real estate market is picking up steam again. London, Paris, Stockholm and the major German cities have already seen large investment volumes. Now that those markets are getting closer to their long-term fair value, investor interest is widening to other markets.

But as real estate markets and wider economies recover, they bring with them the prospect of higher interest rates.

Official interest rates across most of Europe (with some notable exceptions such as Russia, Poland and Romania) have been at or near record lows for the last two years. It was good while it lasted, but those lows are unlikely to be around for much longer.

We now expect both the European Central Bank and the Bank of England to start raising official rates this spring – the European Central Bank on April 7 and the Bank of England on 5 May.

In part this is simply taking back some of the ‘crisis premium’, reflecting the gradual normalisation of financial markets. But it also reflects central banker’s concerns about inflationary pressures, and in particular the risk that higher energy and commodity prices might boost inflationary expectations or lead to second round effects, such as higher wages. That was certainly the explanation from ECB President Trichet when he signalled an April rate increase.

How concerned should real estate industry be about higher interest rates? For now, at least, not that much. The greatest impact will be seen at the short end of the yield curve, so a gradual tightening should not raise the medium-term hurdle rate by much. And while we may see some impact on cost of refinancing loan books, there is no currently lack of global capital in search of prime real estate assets. The gradual pace of tightening we expect to see this year will give markets time to adjust to a more normal interest rate regime.

Next year could be a very different story, however – particularly if the Federal Reserve steps in with aggressive tightening. So we should all enjoy the relatively benign regime of low European rates while we can. They won’t last forever.