With approximately 80% of the built environment forecasted to remain in use through 2050, JLL’s second article in its Opportunity through Obsolescence research series, “Repositioning and redevelopment strategies for at risk assets and portfolios,” shows how comprehensive, scaled interventions to sustain and create value for existing assets is critical.
With nearly $600 billion in dry powder available globally – early adopters to these interventions will gain a competitive advantage. Key findings from the report include:
- Holistic assessment is critical to the success of building- and portfolio-level strategies.
- Obsolescence drivers exist across three dimensions – functional needs (i.e. age and design), locational parameters, and regulatory requirements. Each of these dimensions is influenced by principles, such as mechanical, electric and plumbing (MEP) components, zoning frameworks, or development and pricing changes.
- To generate and retain asset value and assess the best retrofitting approach, owners must also balance these factors with dynamics such as life span, and supply-and-demand.
- Strategies differ by asset type. While the office sector faces intense locational sensitives in the face of obsolescence, other sectors such as data centers face challenges that come with steep demand and competition for land and power requirements, without the same focus on placemaking.
- CRE investment is diversifying, calling for portfolio optimization alignment. Office and retail global investment has dropped to 34% (from an annual average of 54% between 2013-2019), whereas industrial/logistics and living sales are 98% and 25% above previous averages, respectively.
- Portfolio optimization strategies should seek to ensure that capital expenditure aligns with creating a more robust inventory of properties to meet demand, upgrading quality and use cases for properties as needed.
- Medium to deep retrofitting strategies yield increased savings for owners
- The ROI for retrofitting approaches varies by asset and market, however, a medium retrofit (5-8% capex) can range from $300 per square meter for logistics with a 25% reduction in energy consumption to well over $3,500 per square meter for a deep retrofit (12% capex) of CBD office product saving upwards of 60% on energy costs.
- Retaining much of existing asset structures in the retrofitting process can save owners between 30-40% compared to demolition and rebuilding.
Read the full report here.
