Covid-19 has led to many changes in how we use and view real estate, but many sectors were already evolving significantly in response to ongoing market, technological, social and environmental trends. Themed “evolve”, the fourth edition of Impacts – Savills global cross-sector thought leadership programme – puts these changes in historic context to consider what comes next.

Looking to 2022 for the key ESG, investment and leasing trends, Savills predicts that, globally, tech occupiers are set to dominate leasing activity, offices will be the most popular investment sector, and prime real estate yields are set to remain largely static.

• Most Savills research heads expect prime yields to remain static over the 12 months to Q2 2022, but the exception are the industrial and residential sectors, where more expect yields to move in than to remain static or rise, reflecting increased investor interest in these sectors. Offices are set to be largely resilient, with 97% of Savills researchers anticipating yields to remain static or fall.
• Office leasing should return to pre-pandemic levels by 2022 – but there are variations: emerging markets such as China, Indonesia and Vietnam are the most bullish on leasing activity. Tech occupiers are expected to lead demand across the board, with 79% of Savills researchers anticipating higher leasing activity in their markets than in 2019.
• Offices are expected to be 2022’s dominant asset class: in Shenzhen, Beijing, Guangzhou and Seoul, 60% of all investment is expected to flow into this sector. Logistics and residential are the next top picks as investors pivot to ‘beds and sheds’ strategies.
• 75% of Savills research heads indicated that sustainability is an important part of investors’ strategies. However, researchers in several major cities in Asia-Pacific said it is not yet deemed important by buyers, including Hong Kong, Tokyo, Jakarta, and Seoul. This is likely to change soon, given the global focus on the ESG agenda.
• Investment is predicted to become more international as travel restrictions ease. In 2022, research heads expect, on average, 47% of all investment to come from international investors (of which just under half from neighbouring countries).

The flagship report also highlights some other trends from the perspective of wealth, the ongoing green environment agenda, emerging industries and their implications on real estate.

Private Wealth and Real Estate

Private wealth has always played a significant role in real estate markets around the world.

Residential property has been both an important store and source of wealth among the 1% of the world’s population with net assets of over $1 million; the high-net-worth individuals (HNWIs) who account for 43% of all global wealth. Such a store of private wealth reflects decades of inflation-busting house price growth since the mid-20th century.

In China, where the total population is four times the size of the US, there are less than a quarter of the number of HNWIs according to Credit Suisse. However, their numbers have grown by a staggering 277% over the five years to 2019. This has supported strong growth in rapidly maturing prime housing markets. In the past five years, prime property prices in Beijing have risen by 39%. In Hangzhou, a vibrant tech environment has contributed to even higher price appreciation of 60% during that period.

“The expansion of mortgage finance combined with the pace of growth in the economy have meant the Chinese property market has been a very strong wealth generator in its own right over the past two decades,” says James Macdonald, Head of Research, Savills China.

The Greener Agenda

For occupiers, green credentials are moving swiftly up the agenda. Corporates around the world are increasingly mindful of their environmental impact. It’s partly reputation – not only to ensure they’re a company with ‘licence to operate’ in line with expected current moral and ethical business practices, but also that they can still attract and retain the best talent, for whom the environmental agenda has become a major priority.

While it is difficult to understand if occupiers are willing to pay more for top-class environmental buildings, there are studies that show buildings with green certificates command more rent and achieve higher occupancy levels.

Many investors are getting ahead now to futureproof their assets by upgrading them, changing their use or selling, so as to avoid owning stranded assets — properties that will be at risk of early economic obsolescence.

The Growth of Life Science

Innovation in healthcare, coupled with an increased focus on wellbeing following Covid-19, has brought life sciences to the forefront of people’s lives. This has heightened the investment appeal of major life sciences centres – Boston and San Francisco in the US, Oxford and Cambridge in the UK. However, rising demand is also seeing capital flow to a tier of locations emerging beyond the established markets.

Despite Shanghai and Beijing being two of the largest bases for life sciences research and development in China it was the Chinese city of Wuxi that took the top spot for venture capital investment growth, seeing investment of $341 million – seven times more than 2019. However, it is the more established Chinese tech location of Shenzhen that saw the highest volume. Off an already strong base, it attracted $1.4 billion of investment in 2020, four times the level of 2019.

Growth in China is partly driven by the opportunity for international companies in a huge market. In 2020, AstraZeneca joined forces with the Wuxi government and the Wuxi Hi-tech Zone to open the Wuxi International Life Science Innovation Campus. This 300,000 sq m space is dedicated to pharma and medical device research and development, with the aim to be the preferred choice for domestic and overseas life science companies to flourish in China. Wuxi’s location west of more-expensive cities Shanghai and Suzhou – both established life sciences cities – is part of the appeal, extending a life sciences corridor.