Poppink Says US Behind Rest of the World on RTO

Just set the scene for us. What do you do over at JLL and who do your clients look like? Hi, Katie, Thank you so much for inviting me to join. And so at JLL, we advise both occupiers and investors on their strategy and ultimately the implementation of that real estate strategy. So that is some of the largest corporate occupiers of office, industrial, retail space. And then on the investor side, it is a lot of those names that you just saw in the chart and it has been a tumultuous few years in the real estate sector. Yeah, definitely. And I mean, to that point, what are you telling clients right now when they’re asking for advice? What are you actually saying? Yeah, but there’s there are two really big factors that have had an impact over the course of the last few years, both of which were touched on a few minutes ago. The 1st is the pandemic. That was a shock to the system and we had to immediately rethink the way we utilize our real estate. It also elevated commercial real estate in the minds of many corporate executives where it used to be something that was of interest, but now it was of primary interest and a key talking point for them. The 2nd is then the swift increase in interest rates, which had an impact on the investor side as well as the CapEx spend on the occupier side. It’s we’re on a journey still in both of those factors on the return to office side, which the tenant demand is really what drives the value proposition in the real estate life cycle. the US is a little bit behind globally where Asia Pacific and Europe, Middle East, Africa are in their journey on return to office. But we continue to see increased interest in getting people back into their office spaces. At this moment in time, I think we’ve got 90% of the Fortune 100 have either remote or fully back in office programs in place and less than 2% of those are fully remote. Yeah, there’s probably mixed feelings about that among the American workforce, but of course if you are involved in CRE, you’re probably happy about that. But it’s interesting the conversation on office because I was actually speaking to a CRE investor yesterday and he made the point to me that, OK, actually the trends look really good for office right now, but the thing that could upset the apple cart would be an interest rate hike. Of course, that conversation is ongoing as the data continues to come in hot. That investor yesterday said it would be cataclysmic for office. Would you go as far? Well, first, let’s ground it in in some statistics of what we’ve seen. Now with the first quarter coming to a close, we had 70% of the markets in the US saw 1/4 on quarter increase in tenant requirements. So a positive trend, not of a substantial increase, but at least an increase and about 14% more of a transaction activity year over year in Q1, so 2004 to 2003 and large transactions we’ve seen about a just over a 10% increase year over year. So we are seeing some positive trends we have when you look at trying to get people back into offices and you have a lot of people come on your program who talk about what their ideal scenario is. The average for the Fortune 100 is about 3.13.08 days in the office as an attendance requirement. The challenge for a lot of them has been how do we enforce those requirements because we remain in a very tight labor market across the US. Yeah, big time. And no signs of that cracking if you take a look at the recent data. But let’s go specific here and let’s talk about different areas within the country where you are seeing that office market come back and actually get a bit hot. I’m looking at your 25 most expensive streets and probably no surprise, I see Sandhill Rd. up at the top. Yes, indeed. It’s fascinating. So I spent the majority of my career in Silicon Valley and what you see in it, it’s hard to appreciate because San Francisco is probably the furthest behind San Francisco Bay Area, furthest behind in its return to office journey. But in my experience there, the innovation cycles are so swift and become so compressed that if you miss a cycle of innovation, you risk really dire consequences to in particular tech companies who are focused on singular products. So we’ve seen to your point, significant increase in AI companies seeking space in San Francisco. San Francisco is not all the way back, but it’s a lot of positive trends and a lot of the funding still comes from those roads who are from those companies, investors who hang a shingle on Sandhill Road amongst the venture capital community. Interesting. So when it comes to San Fran, obviously there is a lot of doom and gloom about San Fran. But I mean, taking a look at some of your data, it seems like at least now some of that is misplaced. So Oh well, some of it is misplaced. I think there are signs of hope. There are there are rays of hope for San Francisco. But this is not just a real estate challenge. This is a community challenge. We need to bring together both the occupiers, the investors, the community, as well as the municipalities to come up with plans that help regain the strength of those streets. And when you don’t have people in offices, it damages the foot traffic, which impacts retail, which then impacts the who’s on the street and, and how we’re taking care of our streets in a place like San Francisco. So I’m hopeful a lot of discussion about the future of cities and bringing work, live, play environments closer together that we will bring those constituents together to rebuild cities like San Francisco in a better fashion than they may have been in in their previous iteration. Interesting. So it sounds like what you’re saying that when you think about the Daisy chain from workers to retail, etcetera, and everything that comes, it really starts with three people returning to the office in San Francisco. But let’s actually go to the other end of the country and let’s talk about what’s going on in Florida, specifically West Palm Beach, because that’s been one of the big narratives coming out of the pandemic that everyone is relocating to Florida, A lot of companies. And it seems like there’s data to back that up. There is some data to back that up. We are seeing a fair number of corporate relocations and then also personal relocations. And it it takes time because it does take time to build the ecosystem of companies and entrepreneurs, investors to plant the seeds that become the next companies that enter into growth cycles and have a real impact on the environment. The other thing that becomes a challenge in a place like Miami, and this is a challenge more broadly. There’s some really interesting kind of factors at play here that might not be obvious that we’re in a tight capital constrained environment. So the amount of new development has slowed significantly. That’s one key factor. While you also have demand that is more focused on the highest quality assets. So those things that provide amenities and newer buildings. And so we’re actually seeing in some markets where you have a very unique set of circumstances where vacancy rates might be increasing while the rental rates for which the spaces that are being leased are increasing at the same time. And that is a unique trend for us over the last two years across markets.