“The stable income for offices is over” – investors in Madrid debate the dynamic sector | News

James MacNamara, director of real estate operations strategies at Schroders Capital, kicked off a panel session on real estate repurposing at the IPE Real Estate Global Conference & Awards 2024 in Madrid by highlighting the growing importance of repurposing existing buildings.

MacNamara told delegates that rather than focusing solely on building new properties, the industry must adapt to changing tenant demands and look for ways to optimize the use of existing facilities. He stressed that instead of simply building new ones, the industry should “work with the structures we have.”

MacNamara pointed to the environmental benefits of extending the life of buildings and the challenges of adapting them to constantly “changing demands.”

Traditionally, real estate has focused on the physical aspects, but now a “more holistic approach” is needed, he added. This includes considering user experience and intangible elements that foster collaboration.

He gave the example of a struggling second-rate office building. Improvements such as solar-powered glass and recycled paper insulation were incorporated to create a more sustainable and inviting space. Importantly, they also focused on “amenities, creating daily changing menus” and offering flexible leasing options.

MacNamara said these strategies don’t just apply to prime locations. Owners must adopt a similar approach to all their buildings, which requires a new set of skills that go beyond the physical structure and include the operational aspects of building management, “much more like a hotel-type operation.”

MacNamara’s presentation initiated a panel discussion titled RE-cel: Adapting space to the requirements of tomorrow. Panelists included Audrey Camus, vice president of development and asset management at Ivanhoé Cambridge; Annette Kröger, CEO of PIMCO Prime Real Estate for Europe; Javier Rodriguez Heredia, senior partner and head of real estate and development at Azora; and Coen van Oostrom, founder and CEO of EDGE.

“The stable income for offices has ended”

According to van Oostrom, the days of treating offices like fixed-income investments – acquiring assets and passively collecting income – are over. The greater operational intensity of today’s modern offices, the rise of artificial intelligence (AI) and the demand for data to manage building energy efficiency are changing business in this sector, he said. “The steady income for offices is over,” he told delegates. “You have to have data – if you don’t have it, you’re lost.”

Van Oostrom also said closer dialogue between tenants and landlords is of the utmost importance, but some companies continue to mobilize funds, acquire assets, outsource property management and “forget about the job” of keeping tenants happy.

Oostrom said he always tries to meet with the CEO of the tenant company in the building he acquires and often discovers he has never met with the previous owners. This is a fundamental issue that requires change, he said.

A key aspect of the discussion was cultivating a holistic approach to property management. MacNamara specifically asked about PIMCO Prime Real Estate’s strategy to achieve this goal across its broad global portfolio. Kröger admitted that achieving uniform energy efficiency is a challenge: “That’s why the approach has to be different. We need to find a framework and a strategy and clarity for all our people about where we want to go, and that includes sustainability. This is about how we want our assets to be. And it’s true that when we actually develop assets, we want to think more holistically.”

PIMCO Prime Real Estate invests in a variety of sectors, including direct and indirect equity in Europe, the US and Asia-Pacific, as well as lending companies in Europe and the US. Kröger said the company has embarked on strategic enhancements and long-term portfolio improvement strategies to ensure sustainability within the portfolio.

She explained that in the face of tenant turnover, the company prioritizes the modernization and modernization of specific facilities in order to achieve high energy efficiency. “We can upgrade and upgrade to the level of energy efficiency we need and create the product we want to see, perhaps spending 10% of the extra cost to do so.”

For the remaining portfolio, the focus is on exploring alternative solutions, she added. These solutions may include installing solar panels, implementing artificial intelligence for smarter building management, and other innovative approaches.

Kröger emphasized a long-term evolutionary approach. Modernization where possible remains a priority, but PIMCO Prime is also actively seeking solutions to improve the overall sustainability of the portfolio. This ensures that you are ready for more extensive upgrades as opportunities arise.

Discussing Ivanhoé Cambridge’s approach to holistic property management, Camus stated that “we are very hands-on in the office market.”

With C$77 billion (€52 billion) in real estate assets, Ivanhoé Cambridge invests internationally with strategic partners and major real estate funds. Through subsidiaries and partnerships, the company has interests in 1,500 buildings, mainly in the industrial and logistics, office, residential and commercial sectors.

Camus said Ivanhoé Cambridge has committed to achieving net zero carbon emissions by 2040 and has already started implementing the plan for every asset within the portfolio. “This goal will, of course, be achieved thanks to new investments and existing portfolios, to which we need to allocate large capital expenditures,” Camus said.

Recognizing the intensity of capital expenditure, Camus stated that it is necessary to “bring assets to the market to retain value and for us as long-term investors, because it is also important for us.”

Explaining how Azora is implementing its repurposing and reusability strategy, Heredia said the company has multi-asset skills with “specialized investment and asset management teams across residential, senior living, logistics, office , commercial and hotel industries.

Heredia emphasized Azora’s focus on creating value by controlling the full asset value chain. This includes an “internal conceptualization and development team” that has invested over €1.7 billion in asset modernization over the past five years.

He explained Azora’s approach to asset repurposing: “First and foremost, we have a thorough understanding of all zoning, planning and local standards. When we see a resource, the first thing is to see its full potential and the alternative uses it could have.

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