Mike Walsh, Managing Director, Investor Solutions, Asia Pacific, JLL
The global economy has undergone unprecedented changes following the Covid-19 pandemic, with the rise of hybrid working, heightened focus on workplace experience, and growing emphasis on sustainability. These shifts have directly impacted commercial real estate in economic hubs worldwide, including in Asia Pacific.
Average rents in Hong Kong have fallen more than 36 percent from their 2019 peak, according to property consultancy JLL, with leasing rates in Singapore and other key markets flattening this year in the face of slowing GDP growth both in the region and globally.
“If you look at commercial real estate, the conditions before and after COVID are very different and the demand drivers of tenants for buildings have evolved quite significantly,” says Mike Walsh, Managing Director for Investor Services in Asia Pacific at JLL. “There’s been a paradigm shift in the needs and wants of tenants today to meet their employee value proposition from the way buildings have been historically put together.”
As economies in the region change rapidly, Walsh heads a team of experts who are encountering increasing calls from investors and asset owners seeking help in evaluating the best uses for their properties and ensuring alignment with evolving market conditions.
Doing Nothing is Not an Option
Post-pandemic, commercial buildings competing for top occupiers in Asia Pacific are now expected to incorporate amenities like flex space which allows tenants to expand or contract their footprints, end-of-trip facilities, contactless access and technologies, green spaces within the building and other elements supporting wellness for employees.
“There is a new set of priorities for occupiers, much of it tied to sustainability and wellness, with new assets coming onto the market that incorporate these features,” Walsh said. “This is putting pressure on buildings of a certain vintage that risk becoming stranded and the gap is starting to widen as the rate of change accelerates, so doing nothing is not an option.”
JLL worked with Brookfield on the Equinox business park in Mumbai
Walsh, whose team of industry experts operate in Singapore, Australia, Japan, India, Hong Kong and Thailand, advises asset owners both on finding the most productive use of their properties, and on how best to enhance returns on existing buildings. He sees intensified emphasis on greener buildings from the largest occupiers.
“Every single asset repositioning, enhancement or adaptive reuse conversation we have now involves a sustainability element,” Walsh said. “Both multinational and future-focused local tenants are avoiding older buildings that have either no rating or cannot meet their aspirations towards net zero.”
Re-Evaluating Decade-Old Properties
The need to update ageing properties is not solely a product of the post-Covid era, but following the pandemic, Walsh and his team are seeing buildings and asset owners facing pressures to update their offerings more quickly than in the past.
“It depends on the nature of the stock in each city, but in the past we would start reviewing the performance of buildings that were say 20 years old or more. Now we are having these conversations about buildings that are ten years old,” Walsh said. “A decade-old building will lack some of the amenities and features that are favoured by people-centric, future-focused occupiers and we can see differences in their market appeal.”
JLL partnered with AXA on 101 Collins Street, Melbourne
The JLL team is seeing proactive investors and active managers taking steps to update buildings which are a decade old with an eye to ensuring future cash flows and market competitiveness.
Adaptive Reuse and Highest and Best Use
With rents and occupancy dropping most quickly in grade B office buildings and other segments of the market which have fallen out of favour, Walsh’s Investor Solutions team has assembled a group of development and asset specialists who work with asset owners to assess the highest and best use for their properties and plan approaches for boosting returns.
This strategy has been successfully applied to properties in Hong Kong, where JLL has converted industrial buildings into retail units and offices, maximising asset value by considering location and market demands.
With traditional office occupancy dropping – at the same time the demand for life sciences and other tech segments are on the rise in Asia Pacific – Walsh’s team has advised clients on converting commercial space to dry labs and R&D facilities, with an eye to boosting returns without committing excessive capital expenditures or incurring long development periods.
More common are cases of adapting commercial buildings into residential use or for co-living or hospitality purposes. In Sydney earlier this year, a Singapore-based investor submitted plans to adapt a vacant small office building on York Street for conversion to a hotel, leveraging its proximity to the Wynyard transport interchange as well as the thriving food & retail hubs of Barangaroo and Martin Place as Australia rides a surge in new visitors.
“For each case, you need to look at the specifics of the location, at the regulatory environment, development charges and sources of demand, and determine what is the current and future highest and best use for an asset in that location,” Walsh said.
The volume of owners and investors turning to future proofing strategies is on the rise, but different markets reflect different approaches. Where market fundamentals and outlook are positive — such as Singapore, Australia or Japan — asset enhancement or repositioning strategies are done with confidence. Where the outlook is less certain such as Hong Kong, the approach is more cautious and could be described more as asset protection.
As the commercial real estate landscape continues to evolve, partnering with experts who can navigate these changes is crucial for maximising property value and staying competitive.
Accelerate your journey to sustainable value with JLL today. Contact our team of experts to protect your real estate assets in this rapidly changing market.
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