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Commercial Real Estate Lens: Need to Know

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·        University of Michigan sentiment rises; expectations index up to 7-month high.

·        Industrial production up, but only because of mining and utilities; July manufacturing’s output fell by -0.1% on the back a continued slump in auto production (-3.6% om July). 

·        Dodd-Frank is still here but banks have reasons to cheer Trump

·        Efficiency eludes the construction industry

·        Hippie amenities with a high-end twist for the multi-family market

·        The costs of workplace rudeness

·        The downside of too much flexibility in the workplace

·        Trapped in tech’s "Unicorn Land"

1) How Often is That Banker at Her Desk?(Bloomberg)

Barclays Puts in Sensors

The Bottom Line: Don’t fear, workers; it’s not about your productivity, but about how productive your office space is (or isn’t).  Tracking devices called OccupEye are part of the trend of investment banks using technology to minimize expenses and re-allocate resources.

Barclays Plc has installed devices that track how often bankers are at their desks. Managers were peppered with queries when investment bank staff in London discovered black boxes stuck to the underside of their desks in recent months, according to several Barclays employees who asked not to be identified speaking about their workplace. They turned out to be tracking devices called OccupEye, which use heat and motion sensors to record how long employees are spending at their posts.

There was a “phased roll-out” of the devices, and Barclays staff and the Unite union were notified before they were installed, although the bank did not send out a specific memo about them, according to spokesman Tom Hoskin. The Barclays employees said they don’t remember being informed about the boxes, but spokespeople for the bank said there have been no official human-resources complaints. The devices, made by Blackburn, U.K.-based Cad-Capture, are pitched as a way for companies to find out how they can reduce office space, providing a multicolored dashboard to show managers which workstations are unoccupied and analyze usage trends.  “The sensors aren’t monitoring people or their productivity; they are assessing office space usage,” the bank said in an emailed statement. “This sort of analysis helps us to reduce costs, for example, managing energy consumption, or identifying opportunities to further adopt flexible work environments.”

Hot-desking may appeal as a cost-cutting strategy to Barclays Chief Executive Officer Jes Staley, who has said there are “tremendous savings” to be made by reducing the bank’s real- estate footprint. In December, Barclays sublet office space in London’s Canary Wharf district to the government, saving about 35 million pounds ($45 million) a year. Investment banks are increasingly using technology to keep tabs on how their staff spend their time. Barclays has introduced a computer system to track how much is earned from every client, allowing bosses to determine how much time traders, analysts and salespeople should spend with each customer.   “We were given assurances that the boxes did not monitor individuals or their performance,” Unite national officer Dominic Hook said in a statement. The union “will keep a close eye on the situation to make sure that the sensors are never used to spy on staff or as a means to measure productivity.”

Inquiries to ten other banks with operations in London found that Lloyds Banking Group Plc uses similar motion-tracking devices. OccupEye boxes have caused controversy elsewhere: the Daily Telegraph newspaper removed the devices the same day they installed them after complaints from staff and a journalists’ union about “Big Brother-style surveillance.” Investment banks JPMorgan Chase & Co., Goldman Sachs Group Inc., Citigroup Inc. and Credit Suisse Group AG do not currently use any kind of desk monitoring in London, according to people with knowledge of the banks’ practices, who asked not to be identified speaking about personnel matters. Spokespeople for the four firms declined to comment. U.K. peers HSBC Holdings Plc and Royal Bank of Scotland Group Plc also have no similar desk monitoring system, spokespeople for the lenders said. Standard Chartered Plc, Deutsche Bank AG and Morgan Stanley didn’t immediately respond to requests for comment. Lloyds, like Barclays, has been trimming its London space, aiming to save 100 million pounds a year. “It’s important to keep office and working space under regular review,” Lloyds spokesman Ross Keany said in an email. “While we use motion sensors in some of our sites, we also make sure to engage colleagues and seek their feedback on what would work best.”


2) What Does the Chinese Pullback Mean for CRE Prices? (Bloomberg, The Telegraph)

Don’t fear a slowdown in Asia; capital is aplenty says one REIT head; others not so sure, especially in the UK

The Bottom Line: With announcements that Beijing will limit deals in property, hotels, entertainment, sports clubs, and the film industry (the "irrational” acquisitions of foreign assets) some worry that support for CRE will diminish.

(Bloomberg) Commercial real estate prices, hovering at record highs in the U.S. following a six-year boom, are sustainable even as Chinese regulators tighten restrictions on overseas investment, according to Brookfield Property Partners LP. There is enough capital pouring into real estate from multiple regions -- including Europe and the Middle East -- to counter any potential slowdown in Chinese investment, Brookfield Property Chief Executive Officer Brian Kingston said in a Bloomberg Television interview. While Asian buyers are often part of the equation, a global shift from low-yield fixed-income holdings to real estate will drive property values for the foreseeable future, he said.  “There was a lot of headlines around how much capital was coming out of Asia,” said Kingston, a senior managing partner at Brookfield Asset Management Inc., the parent company of Brookfield Property. “The reality is it’s broad-based. It comes from a lot of places.”

Price growth for U.S. commercial buildings such as office towers and apartment buildings has leveled off over the past year, according to research firm Green Street Advisors LLC, and a growing disconnect between buyers and sellers is putting a damper on new deals. In Manhattan, one of the biggest beneficiaries of a foreign-capital influx in recent years, transaction volume plunged 39 percent to $18 billion in the first half from a year earlier, according to the Real Estate Board of New York, a trade organization.

Still, there have been a handful of blockbuster transactions. In March, Chinese conglomerate HNA Group Co. agreed to buy 245 Park Ave. for $2.21 billion, one of the highest prices ever paid for a New York skyscraper, from Brookfield Property and its 49 percent partner in the building, the New York State Teachers’ Retirement System.  “We have been over the last couple of years selling in most major markets and we’ve been buying in those same markets,” Kingston said. “That really defines how we invest in real estate, which is we buy these assets, we reposition them, we increase the income. And then ultimately, we sell them and we redeploy that capital into the next opportunity.”

(Telegraph) Falling Chinese investment in UK real estate could pose a serious risk to commercial property prices as demand softens, analysts have warned. China’s cabinet on Friday issued guidelines to regulate overseas activity in a change that could signal the end of the country’s frenzied M&A activity in recent years. Beijing will limit deals in property, hotels, entertainment, sports clubs, and the film industry, stepping up its campaign against what the state planner described as the "irrational” acquisitions of foreign assets.

But some property experts have indicated that this might have an effect on prices for property in the UK because demand has been driven by Chinese buyers in recent years. Mike Prew, analyst at Jefferies, said: "We believe commercial real estate prices are factoring in unrealistic income growth as the influx of Chinese money tails off. "The next foreign buyers in the queue will pay a lower entry premium as headline rents fall, so the REIT majors risk another de-rating." Eric Pang, head of JLL’s China desk, said he expected the same volume of investment form Chinese companies, but it would be “more regulated, more targeted, and from more mature, experienced investors”.

Recent years have seen a huge range of Chinese investors in UK real estate, many of which are investing outside of their home market for the first time. These sorts of investors could be limited in future. Chinese companies account for a huge number of deals across a number of UK sectors. Earlier this week, Chinese businessman Gao Jisheng bought a controlling stake in Southampton Football Club, and Chinese billionaire Tianqiao Chen’s Shanda group of companies reportedly agreed a deal to increase its stake in US hospital company CHS. In recent months, Chinese investors have bought both the iconic Cheesegrater skyscraper in the City of London for £1bn and the nearby Walkie Talkie for £1.28bn, as well as investing heavily in other properties in the Square Mile. Anthony Duggan, head of capital markets research at Knight Frank, said that companies could look to raise money through Hong Kong or Singapore-based entities in order to get round the restrictions.

The Chinese authorities have set out three categories - banned, restricted and encouraged - outlawing investments in gambling and sex industries, while encouraging companies to support the nation’s ambitious Belt and Road initiative, the State Council, China’s cabinet, said on Friday. Unveiled in 2013, the Belt and Road project aims to boost trade and investment along two routes - one along the ancient Silk Road, connecting China by land and sea through Central Asia and the Middle East to Europe, and the second linking it to Southeast Asia and Africa. "Profound changes are taking place in international and domestic situations, and Chinese enterprises face not just relatively good opportunities but also various risks and challenges in overseas investments," the State Council said.

In a separate statement, the National Development and Reform Commission (NDRC), the state economic planning body, hit out at “irrational” overseas investment in some sectors. However, it said it would encourage investment that would enhance China’s technical standards, research and development, oil and mining exploration, agriculture and fishing. The NDRC also cited unspecified security risks for Chinese companies investing abroad. China has been keen to curb rapid outflows of capital, which could damage the value of its currency, as well as reducing its leverage in financial markets in order to limit risks ahead of a leadership transition later this year. Overseas deals by Chinese companies hit a record $170bn (£132bn) in 2016, prompting the Chinese government to scrutinise some companies.

In June, authorities in Beijing began gathering financial intelligence on big-spending conglomerates, sparking fears of a clampdown on foreign purchases. The China Banking Regulatory Commission (CBRC) requested information on exposure to Dalian Wanda, which owns Odeon Cinemas and the yacht builder Sunseeker, and Fosun, which last year acquired Wolverhampton Wanderers, among others. At the time, the CBRC said it was interested in “systematic risks” to the financial system. Outbound investment by Chinese companies in the first five months of the year was less than half last year’s figure, according to China’s commerce ministry, indicating that the clampdown is already beginning to have an effect.

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