The office market remains in flux, with Covid-19 lockdowns preventing many sellers from putting buildings on the market, buyers from committing their hard-earned cash and occupiers from making a call on leasing space.
Such challenges have posed problems for the agency sector too. This week JLL posted fourth-quarter and full-year figures that shone a light on the impact of the pandemic across its business. However, chief executive Christian Ulbrich said he expects an upturn at the top end of the office sector as the year progresses.
In a call with analysts to discuss the results, Ulbrich offered his insights into the trends dominating office investment and leasing, as well as his predictions for 2021. Here are the key takeaways.
A divided sector
Discussing JLL’s capital markets business and the office sector, Ulbrich said that the gap in demand between trophy offices and the rest of the market is becoming more pronounced, driven largely by the pandemic.
The office sector has been harder hit by the pandemic than residential or logistics, he added, and although the most desirable spaces are still attracting high rents and strong interest from potential investors, sites which do not satisfy occupiers’ increasingly demanding needs lag significantly.
“We still see a very strong demand for the best buildings in the best locations,” Ulbrich said. But for lower-quality, worse-located sites, there are “more question mark[s] around their rent flow”.
“That obviously is then reflected sometimes in a gap between what buyers and sellers would like to see around pricing,” he said, adding: “There will continue to be hesitancy in the office sector going into 2021.”
Losing out to industrial
Despite signs of resilience at the top end of the office market, the sector as a whole made up a far smaller part of JLL’s revenue than in previous years.
That is despite the fact it has traditionally been “by far our largest sector”, said Ulbrich, noting that office accounted for about 30% of capital markets revenue in 2020. “The same is true for retail, whereas the industrial sector has increased by about 30% within our own business.”
He added: “Residential was about flat for us year-over-year, and we have now a situation in JLL [where] our residential revenues are higher than our office revenues, and industrial has come very close to offices.
“Over the course of 2021, you will see that the office sector will show a stronger rebound again, so that it will become a very strong follower to our residential revenues.”
Leaning on technology
Just as office workers have turned to video calling during the pandemic, so too have office owners and tenants increasingly leaned on technology to keep business flowing.
Ulbrich said JLL has been running a number of “virtual tools for leasing space” for some time, but that Covid had accelerated their use as standard among clients.
“We have seen through the pandemic clients have been getting used to running those virtual tools and feeling pretty comfortable with it,” he said. “This is something where the market will adjust hopefully much more quickly than without the pandemic.”
New ways of working
While experts predict a long-term future of hybrid working – where staff come into the office some days each week but have more flexibility to work remotely – the way companies will use their offices more immediately remains unclear.
Ulbrich said that among JLL’s global clients he had seen the “full spectrum”.
“We have clients where there is a significant push back into the office – their focus is to really improve the health and wellbeing of the employees, [to ensure] that they all feel very comfortable there.
“And we have the complete other spectrum of clients who don’t want their employees back in the office. And they ask us to help them to make sure that the health and wellbeing of their employees is met when they work from home.”
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