The global economy might be heading for a slowdown, but one segment of the real estate market — prime office space — is booming.
That was one of the takeaways from the 4th annual Cayman Islands Property & Construction Conference presented by the local chapter of the Royal Institution of Chartered Surveyors — better known as RICS — on March 15 at the Grand Cayman Marriott Beach Resort. The theme of the conference, “Boom or Bust: Navigating the Cayman Islands Real Estate and Construction Market,” focused on local, regional and global factors impacting the industry.
Keynote speaker John Hughes, the former global president of RICS, said the market for office buildings continues to expand.
“Today, offices are really the factories of the modern economy,” he said. “Where the money is being made these days is in the office.” Hughes said that central business district office properties in North America have outperformed other types of commercial real estate. The Millennial generation is one reason for that because of their desire to live a “24/7 lifestyle” in urban areas. This desire has created a migration back to the city in places like Toronto, where Hughes lives.
Here in the Cayman Islands, Dart Real Estate President Jackie Doak said Class A commercial office space continues to be in high demand at Camana Bay, from both local and international businesses looking to relocate or expand, including some of the existing tenants in Camana Bay. She noted that the 18 Forum Lane building is now 98 per cent occupied and that a lease was being prepared for the last available space. Its sister building, One Nexus Way, is also receiving a lot of interest.
“We expect One Nexus Way to be fully leased or under contract by the end of the year, including the retail and restaurant spaces on the ground floor,” said Doak. “To ensure we continue to meet demand for commercial leasing, we have begun design and due diligence on our next office building, which will be located on Nexus Way.”
Another major trend in the commercial sector involves shared office spaces like the ones offered by the American company WeWork, Hughes said. Shared working spaces are also popping up in hotel lobbies, taking the place of business centres in some cases, he said.
Hughes’ observations are supported by a recent report issued by Cushman & Wakefield titled, “What’s shaping the office market: 2019 occupier trends.” One statement in the report suggests that the booming office sector in North America in not overbuilding, but under-demolishing old office spaces, because two-thirds of the total office space inventory in the United States is lower quality due to the fact that it’s more than 20 years old.
“The U.S. office sector has too much older product, not enough new space and too few amenities,” stated one of the report’s takeaway points, noting that office occupiers use this point as leverage.
“The war for talent is on. Where you locate and how you build your space has never been more important in recruiting talent.”
The report states that the workplace strategy is moving towards employee experience, work-life integration and flexibility, creating a demand for “cutting-edge space marked by technology,
multi-purpose usage and hospitality features.”
The report also confirmed the increase in co-working spaces, showing that in just three years between 2015 and 2018, the number of co-working members worldwide more than tripled from a little more than 500,000 to about 1.6 million people. And while the majority of co-workers were freelancers in 2012, by 2017 the majority occupying these co-working spaces was made up of employers/employees.
Doak said Dart is considering converting some of the office space at Regatta Office Park into co-working space.
“We are also seeing an increase in demand for shared offices, in part due to economic substance legislation that came into effect in January of this year and in part due to a need for smaller and more flexible work space solutions,” she said.
“We are proposing options at Regatta Office Park, where the existing floor plans, ample parking and location on the Seven Mile Beach Corridor make it well-suited for this type of product.”
THE REST OF THE MARKET
Hughes also spoke about the wider real estate market.
Although the retail real estate sector continues to decline in response to increased online shopping, industrial space for warehouses and distribution centres continues to increase to support the online retailers.
“Amazon now occupies more than 250 million square feet of space globally,” he said, adding that space in city centres is also in high demand to address the so-called “last mile” distribution of online deliveries.
While customers used to accept that online shopping deliveries took some time, Hughes said retailers are finding that their customers are saying three or four days is too long to wait anymore, hence the need for distribution centres closer to delivery points.
As for the economy, which usually drives the real estate market, Hughes highlighted a number of concerns that could have negative impacts in the future. Some of those concerns included the rise of protectionism, particularly in the United States; a “hard landing” economic downturn in China; high sovereign debt levels; the rise of populism; a crash of asset prices; the possible disruption
as a result of Brexit, including the possibility of a break-up of the European Union; and various other geopolitical conflicts.
Hughes noted the United States Federal Reserve was putting interest rate increases on hold because of the slowing economy, something it confirmed less than a week later in an official announcement.
“It’s looking like a slowdown, but it’s not looking like we’re going to fall off a cliff like in 2008,” he said.
The Cushman & Wakefield report concluded the same thing. “Yes, the expansion is getting long in the tooth,” the report stated.
“Yes, there will be another downturn at some point in the not so distant future. No, it will not be like the 2007-08 financial crisis.”
The report said the financial system is sound and that central banks will be aggressive in responding to the next economic downturn.