Real estate investors and landlords are missing income opportunities and cost savings as their assets age in Asia Pacific, says JLL (NYSE: JLL). Half of investment properties in prime locations in Asia Pacific are over 20 years old, leading the real estate firm to forecast that there is over USD 40 billion worth of unrealised value in aging and underperforming properties regionally.
Of the existing 642 million sq. ft. of Grade A office space in the top seven real estate markets in India, the top three -- Mumbai, Delhi NCR and Bengaluru - comprise nearly 64% of the total stock, cited the firm's latest 'Unlocking Value in Real Estate' report. 28% of these buildings are more than a decade old, sans the latest facilities that newer buildings offer. Upgrading these buildings with modern amenities, designs and building technology presents a massive investment opportunity of an estimated INR 5,500 crores.
Without asset enhancement, offices, shopping malls, hotels, residential buildings and industrial facilities will lose relevance due to evolving end-user habits and preferences.
JLL's research reveals that rental rates for aged and outdated buildings are 10% to 40% lower than up-to-date, well-managed properties in similar locations. This marked difference in rates may also increase as newer post-pandemic designed buildings enter the market.
"The current pandemic situation has brought out a key change in workers' expectations in terms of workplace safety and amenities. In this new world of work, the existing buildings might not yield the same value as before the pandemic," says Harish MV, Managing Director and Head, Project & Development Services, JLL. "In a rapidly transforming real estate landscape, asset enhancement helps buildings to perform at their best and ensures that they evolve at the same pace as human preferences. While age of the building is one of the measures for identifying the need and potential of upgradation, we will also witness a trend of newer buildings undergoing or planning for development to keep up with the evolving trends in the market," he added.
Older buildings' energy and maintenance systems are often less efficient, leading to increased operating costs, making a strong case for investors and landlords to reconsider design and asset enhancement strategies for aging properties.
Driven by the accelerated demands for health and wellness features, enhanced human experience, sustainability and technology tools following the pandemic, JLL has identified five sectors that present the most potential for asset enhancement:
Office - workplaces should be able to accommodate new modes of working such as safe and flexible spaces, wellness amenities, and new ways of charging for leases.
Retail - malls must move fast in response to the accelerated rise of e-commerce, with implications for the size and use of space. The tenant mix is also changing, with more F&B and experiential retail features coming into play.
Industrial - warehousing and logistics are evolving to cater to the demands of same day delivery and increased levels of robotics, automation and increased sustainability targets. The future deployment of electric vehicles and drones will also have a significant impact on the bricks-and-mortar element of the logistics sector.
Hotels - certain older properties are being converted and repurposed to co-living or serviced apartments, and other hotels are adopting proptech more quickly for operational efficiency.
Residential - there are opportunities to develop co-living, senior living, student housing and mixed-use developments, while incorporating work-from-home and other lifestyle trends.