Disruption in Real Estate

Jon Neale, Head of UK Research

AP

2005 2013

Why is ‘conventional’ business under threat?

• The internet allows companies to gain scale and market share very quickly

• This is increasing the competitive pressures in many sectors….

• …. and reducing the advantages of incumbents

• Technology is producing new, more efficient business models

… and will automate many tasks

• ‘Big data’ will change the way business, government and cities function….

…. and autonomous vehicles will change the way we move around

4

Exponential advances in computational power

Exponentially faster processing speeds and new forms of computer

architecture are powering technologies previously written off as impossible

The digital ecosystem

Ubiquitous connectivityFaster and near ubiquitous connectivity is connecting more devices and people to the Internet

The data revolutionData production is expanding at an exponential pace, giving businesses new insights into their customers and their operations

Internet of thingsBillions of smartphones, wearables and

Internet of Things sensors that are transforming business models and

ways of working

Vertical stacksThe industries of the future

Contingent workforceFlexible project-by-project resource

The rise of the machinesAutonomous workers

The organisation re-organised

Digital demographicsMigrants, natives, dependents

A leaner futureSmall core teams scaled-up when needed

AL18

Slide 6

AL18 Not sure I get the leaner future icon?Avery, Lois, 05/09/2016

Vertical stacks

Bottom of stackA small number of firms provide the critical layers such as operating systems and enabling infrastructure. E.g. Apple or Amazon

Higher up the stackA plethora of othercompanies leveragethe layers beneath them

Reorganisation into stacks will shake up what many industries look like today.

At the base of the stack, a small number of firms will capture the majority of profits in their sector.

Higher up the stack, a mix of asset-light companies leveraging other companies’ platforms to build and market new products

What does this all mean?

• Greater drive towards flexibility (shorter lease lengths)

• Polarisation between core, in-demand locations and others

• Corresponding divergence between ‘core’ investment assets (long income, low yields) and the rest

• New investment models which involve closer management of tenants and more business engagement

• Greater use of data to understand buildings, neighbourhoods and markets

• Reduced quantum of ‘conventional’ investible assets – alternatives become more important

• A new ‘science’ of real estate

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Retail

• The first property sector to be ‘disrupted’

• Cynicism over early-2000s wave of online retailers replaced by certainties

• Polarisation between convenience and destination

• Emphasis on customer experience and F&B

• Rise of click and collect, ‘omni-channel’ shopping

• Greater use of customer data

• Reduction in national portfolios

• High-profile retail failures

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Online RetailSales '14

Retail Sales Europe 2008 vs 2014Structural change driven by e-commerce and multi-speed economic recovery…

Source: Oxford Economics, Ecommerce Europe, Centre for Retail Research, 2015

Index 2008 = 100

Excluding daily goods spend, real retail sales in high street, shopping centres and retail warehouse locations have fallen over 25%.

Excluding daily goods spend, real retail sales in high street, shopping centres and retail warehouse locations have fallen over 25%.

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Online Retailers Taking Physical Space

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Technology and physical stores to drive sales and raise brand awareness…

Source: JLL, 2016

Changing Role Physical Space

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Role of the physical store is changing…

Source: Pragma Multichannel Survey, June 2016

UK Retail Channels for Different Stages of Purchase 2016

Role of the physical retail space is changing.Role of the physical retail space is changing.

Enabling diners to share the location, the food and the theatre is just as important as the experience itself.

Pop-up restaurants, whether simple or ultra-high end, they all have in common is the element of exclusivity.

Food halls have proven to act as a successful anchor for shopping centres or to breathe new life into derelict but architecturally exciting space.

Consumers’ expectation is now to eat what they want, when they want, regardless of the time of day or traditional meal times.

Digitalised dining

Exclusively random

Local and artisan food

Dining Diversity

Eating out today is more than just a way to refuel; at its best, it is now an experience to be savoured and enjoyed.

The world is a stage

DiningFood service industry is going through a period of rapid change…

Time is becoming a more precious commodity than money. Places need to be destinations in their own right and offer an experience beyond pure retailing to compete for our precious time.

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E-commerce and the digitisation of retail

Disruptive technologies

Big data

The Internet of Things

‘Uberisation’ and the sharing economy

3D printing

Automation and robotics

Augmented reality

Autonomous vehicles

Drones

Upstream supply chain

Downstream supply chain CHAIN

SUPPLY

Suppliers Manufacturers Warehouses Retail stores End customers

Strong investor demand and performance

0

20

40

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4

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3 yr 5 yr 10 yr

Logistics

Industrial

Retail

Offices

Pan-Europe total returns, % p.a. to end-2014

Source: IPD

02468

10

Forecasts of gross total returns, % p.a. 2016-2020

Source: JLLSource: JLL

European logistics & industrial investment

%€bn %

Warehouses remain critical parts of supply

chains.

Record investor demand for

logistics, 2014-2015.

Strong historic investment

performance (IPD).

Relatively good performance

outlook(JLL forecasts).

Technology implications

Less demand for warehouses to function as storage facilities - better supply chain ‘visibility’

Within the life of a distribution building - imagine a scenario where driverless goods vehicles deliver into and from warehouses full of robots

Taller buildings- more automation

More buildings used for rapid throughput

Secure broadband wireless internet access

Better asset utilisation due to sharing

City Logistics

• Growing demand

• Competition for land from higher value uses

• Congestion

• High costs

• Regulations

Challenges for city logisticsNew approaches are required

Last-milefulfilment

Consolidation centres for construction and retail

Multi-modal logistics platforms – for more sustainable solutions

Multi-storey (ramped) warehouses – to make best use of limited land

Offices - what have we already seen?

• More flexible and mobile working

• Greater employee densities

• Emphasis on informal ‘breakout space’ and café facilities

• Wireless has ‘liberated’ office design

• Division between collaboration and concentration space

• Provision of food, beverages, other amenities (internal and external)

• Workspace and location as recruitment and retention tools…

…. And brand support devices

• Cycling – no longer a niche commuter mode

Clustering

Urbanisation & efficiency

Infrastructure

Demographics

Demand | Drivers for demand

Knitted Together by Data…..

Specification | The changing face of the workplace

What are occupiers trying to do now….

• User Experience : offices, locations and cities as tools for recruitment, retention and productivity

• Engineering Collisions : collaboration and innovation, different uses

• Welness : green spaces, clean air, sports facilities, relaxation rooms

• Data and technology – a new science of real estate

• Contingent workforce – temporary workers, temporary teams

• Giants and SMEs – platform providers and the rest

• Where will our workers live? – Bournville 2.0

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… and what does it mean for requirements

Health and Well-Being: The next big thing

• “We are more focussed on family needs and duties, rather than designing space that keeps singletons in one place. We would rather provide wellbeing in terms of work/life balance, so we don’t need funky places or an on-site hairdresser.” – Tech

• “It does but more of a would like rather than must have….. we were voted best employers in the world in terms of health and wellbeing, that is an integral part of the business.” - Tech

• “We have a very strong focus on staff so health and wellbeing is very important. We would like to see access to those sorts of amenities.” – Life Sciences

• “Work-life balance is becoming more key.” – Insurance

• “The whole health agenda is massive. We are looking at an on-site doctor. This really is the next big thing in terms of recruitment and retention of staff. In Frankfurt there is a restaurant and kindergarten – we are looking at an environment where you can live and work.” – Law

• “Health and wellbeing is definitely coming up the agenda. About to kick start a project on how our approach to this will involve the whole business. It will be a requirement going forward.” – Law

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Contingent workforce

Contingency workforceSpecialists and freelancers

Smaller core teams will work with flexible project workers, contracting-in specific skills or extra resources for projects

Core workforceEmployees

Franz Brueck

AL20

AL21

A leaner future

Contingent workersFreelance and specialist providers sourced via talent platforms

EmployeesA company’s core workforce

Autonomous workersAlgorithms and robots automate and augment tasks

With the growth of outsourcing and automation, companies will become leaner and more dispersed, summoning the expertise of outsiders when required regardless of where these workers might be based

AL9AL23

Slide 23

AL20 Avery, Lois, 05/09/2016

AL21 Same as perious, take some content from slide 17 in original deck and add hereAvery, Lois, 05/09/2016

Slide 24

AL9 Avery, Lois, 05/09/2016

AL23 See slide 19 original deck for some points to add, use icons if possAvery, Lois, 05/09/2016

Workplace as a service

A hub and spoke modelA network of liquid spaces will develop around core space, serving corporates, startups, microbusinesses and freelancers

Five star-serviceThe workplaces of tomorrow will focus on user experience to attract and retain talent

Getty

AL15AL16

Central London Serviced Office take-up

Source: JLL

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12%

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1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

SO as % of totalMillion sq ft

City East London WE % of total

Slide 25

AL15 We can get this 'workplace as a service' point on to one slide. Needs an image that better says 'service'. Something like: http://www.gettyimages.co.uk/event/inside-the-ex-google-robotics-teams-mod-workspace-63489381And it needs to have some copy, see below comment for 2 x points to slide on, one after another. And can they be bulleted using an icon?Avery, Lois, 05/09/2016

AL16 1) Five star-service: the workplaces of tomorrow will focus on user experience to attract and retain talent 2) A hub and spoke model: a network of liquid space will develop around core space, serving corprates, startups, microbusinesses and freelancersAvery, Lois, 05/09/2016

Coworking for corporatesCorporate clients are embracing coworking to drive innovation and growth and meet CRE strategic plans (reducing footprint + increasing employees satisfaction and growth)

27Copyright © JLL 2016 - Corporate

Solutions

Source: JLL

The number of coworking spaces worldwide grew to 7,800 in 2015 compared to3,400 in 2013

The number of members using coworking space is predicted to reach 1 million by 2018

Key expectations from coworking members: Sharing Knowledge (68%), Brainstorming or sharing new ideas (60%), Sharing opportunities for new jobs or projects (55%)

Source: DeskMag,The Global Coworking Survey 2015

InternalCollaboration

Internal coworking for employees only

CoworkingMembership

External coworking membership for employees only

ExternalCoworking SpaceCollaboration space for employees shared with external organisations/individuals in an external coworking environment

InternalCoworking Space

Internal coworking space open to organisations/individuals

The great corporate fear – Disruption….

… The solutions:

- Greater collaboration with SMEs – requires new approaches to office design (and cultural change)- Bring start-ups into the organisation through incubators- Bring them into the building or nearby – and encourage ‘collisions’- Can be achieved within towers – ‘vertical cities’

“Keep Your Friends Close and Your Enemies Closer….”

Challenge of Campus Developments…

29

Innovation districts constitute the ultimate mash up of entrepreneurs and educational institutions, start-ups and schools, mixed-use development and medical investments — all connected by transit, powered by clean energy, wired for digital technology, and fueled by caffeine.

Katz, B. and Wagner, J. (2014)

Some Examples | The Edge, Amsterdam

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Some Examples | Soundcloud HQ, Berlin

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Some Examples | HafenCity, Hamburg

Innovation Districts….

33

Innovation districts constitute the ultimate mash up of entrepreneurs and educational institutions, start-ups and schools, mixed-use development and medical investments — all connected by transit, powered by clean energy, wired for digital technology, and fueled by caffeine.

Katz, B. and Wagner, J. (2014)

And financial services, too…

of C-suite banking professionals believe specific aspects of their business are at risk to fintech disruption..(PWC, 2016)

95%

“In our view, blockchaintechnology may result in a radically different competitive future in the [financial services] industry, where current profit pools are disrupted and redistributed toward the owners of new, highly efficient blockchainplatforms.“(PWC, 2016)

Other trends | The bottom line still matters…

• “Portfolio Optimisation”

- Back and mid offices moving to regional locations

• Impact of rising rents and business rates on Total Occupancy Cost

• Lease Accounting changes

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Nearshoring…..

What does this mean for Offices?

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Amenities

Innovative developers

Flexibility

Authentic, vibrant,

amenity-rich

Hyper-connectedData-rich

Promotes health & well-being

Continued Polarisation

Urbanisation

Geo-political, Regulatory and Economic Pressures

Source: JLL, Oxford Economics

U.S.• Fed’s decision to raise interest rates, spurring

dollar’s rise against other currencies.• Dodd Frank and Basel III – financial regulation• Affordable Care Act – rising health insurance

costs• Immigration – access to talent• 2016 Presidential election uncertainty

Europe• Brexit’s potential for decade of

uncertainty• Euro area slow growth• European monetary policy easing

to fight deflation• Competitiveness reforms in France

and other countries, especially around labor market rigidity

• Bank regulation

Japan• Abenomics -

adoption of negative rates

• Tax policy

China• Slowing economy and stock market

volatility• Policy easing to reverse economic

slowdown• Government push to shift economy

from exports and investment to consumer spending

• Continued migration from rural to urban

India• Now fastest growing large economy• Government has enacted reforms to ease

business operations• Structural reforms still pending including land

acquisition, GST, labor, power sector • Foreign direct investment, productivity and

growth left in doubt

Global• Equity market correction• Depressed oil prices, weak demand commodities• Divergent monetary policy

• Currency manipulations and fluctuations• Large-scale involuntary migration• Escalated geopolitical tensions

Risks to the global economy are on the rise…

COPYRIGHT © JONES LANG LASALLE IP, INC. 2015

Thank you

Jon NealeHead of UK Research+44 (0)20 7087 5508jon.neale@eu.jll.com