What can real estate investors take away from this year’s Davos?
Richard Bloxam, Global CEO of Capital Markets at JLL, reflects on the topics shaping the conversation among investors
It’s a little surreal to be here in Davos in May. The town is certainly easier to navigate without the snow and ice of January. Navigating the headwinds and tailwinds of the world economy feels a little more challenging right now.
It’s an extraordinary time for governments, businesses, NGOs and public institutions to be meeting. The backdrop of deepening geopolitical challenges and heightened economic risk, combined with the need for a global response to climate change, is creating a level of urgency in Davos that I have not witnessed before. WEF 2022 provides an opportunity to prioritize transparency, integrity and accountability to rebuild trust and create a more sustainable economic future.
The real estate industry is no different to the rest of the financial services industry in that it thrives when transparency and regulatory governance exist. Capital flows and investor confidence are tied to transparency and real estate continues to improve through greater access to information and professionalization.
Despite the economic and geopolitical challenges facing us, sustainability has featured strongly on the agenda. We know that 40% of the world’s emissions come from the built environment. In a study of 32 urban centers, JLL’s just released Decarbonizing Cities and Real Estate research has revealed that that real estate’s contribution to emissions averages 60%, and is even higher in the world’s largest business centers such as London, Tokyo, Paris and New York.
With 80% of buildings that will be standing in 2050 already constructed, we see significant opportunity to achieve city decarbonization goals with improved consistency of standards, policies and reporting of building emissions. Partnerships between the private-sector and local governments are critical to driving tangible progress in decarbonizing the economy, and the winners will be those cities that balance regulation, incentives, innovation and accelerators.
To achieve the commitment by most cities for all buildings to be net zero by 2050, retrofitting existing buildings will need to accelerate by 3% a year. This will take expertise and capital - and I expect that, in some cases, this will necessitate ownership of assets changing hands. At the same time, it’s clear from the sessions I have joined that technology is evolving quickly. The specter of inflation accelerates the need for more cost-efficient ways of constructing, managing and operating buildings. Necessity, as always, will be a key driver of innovation.
Institutional investors at Davos continue to see real estate as an important element of a well-diversified investment strategy. It is both an industry in itself, and a reflection of the industries and people who work, live and play in the spaces it provides. Investors and developers are responding to the demand for more life sciences facilities, flexible generation assets, logistics facilities and data centers, as well as housing and the reshaped return to office as the world moves from pandemic to endemic COVID-19.
There are a lot of moving parts for decision-makers to consider. What’s clear is that as leaders, we must rise to the considerable social and economic challenges we face. What’s more, we will have to do it with a level of collaboration across industries and sectors - and with a shared purpose - that we’ve never seen before.