The World Economic Forum, held annually in Davos, Switzerland, is a chance for top global executives to don their best outerwear and hobnob over hot toddies. It’s also an early glimpse into how businesses and the broader economy could fare through 2024 and beyond.
Speaking with CNBC, JLL CEO Christian Ulbrich discussed the commercial real estate space, remarking on both the challenges and opportunities it faced. As one of the world’s largest brokers of commercial real estate, a healthy transactions market is paramount for its business. Ulbrich sees deals picking up—because it couldn’t be less weak than it has been in recent time. “We hope that we have seen the trough on the transactional side—transaction volumes have come down significantly more than they had during the Great Financial Crisis,” he said. “So we should have seen the bottom and getting slightly out of it.”
One of the reasons transactions could accelerate is because of the wall of debt coming due. Ulbrich noted the more than $3 trillion of debt coming due in commercial real estate over the next 24 months, “so that can impose a lot of opportunities and challenges,” he said.
Real estate owners will have to decide whether to sell assets or refinance, the latter onerous due to higher interest rates that don’t appear to be dropping rapidly anytime soon. “What we’ve seen is that interest rates have come down over the last eight weeks, but what we still see is that spreads are still pretty high, and the request for equity is very high, so refinancing that $3 trillion will be more challenging than we had seen in previous cycles,” Ulbrich said.
Repositioning assets and converting them to other uses is something Ulbrich readily admits is necessary, especially large office space that has suffered in a post-pandemic era where many companies have turned to a hybrid-work model. “Owners are trying to reposition some of those buildings,” he said, calling projects, such as Canary Wharf, in London, “a great example.” Once heavy on office space, Ulbrich said it is now much more of a mixed-use area.
But it’s not without its problems. The head of Qatar’s sovereign wealth fund told Bloomberg that though he is concerned with the commercial real estate market, it will “continue to support London’s Canary Wharf Group project as a long-term shareholder.” Last year, it invested ÂŁ400 million alongside Brookfield into developing the area.
In the U.S., Ulbrich called Manhattan “a bifurcated market,” where the top end of commercial real estate is doing “extremely well,” while noting struggles for what he called “mediocre buildings,” or class B/C buildings, due to the lag in return to the office in North America.
Climate change and sustainability continue to be strong themes at Davos and elsewhere among business elite as they try and balance progress with the caretaking of the environment. Ulbrich sees a reckoning as it relates to commercial real estate. “It may not be popular, but I strongly advocate for a much higher carbon price, which will make it easier for existing buildings to be repurposed,” he said, adding that at the moment, it’s easier and cheaper to raze an existing building and build anew, but calling that “not ideal” from a carbon footprint perspective. “We have to find a solution for all these existing buildings—and 80% of the buildings, which we will be using in 2050, are already there—and we have to make those buildings green and finance those and one way is a carbon tax.”
Survey Says
Though 2050 is well away, a pre-Davos survey of CEOs conducted by PwC warned that executives are worried about the long-term viability of their businesses and the impacts from artificial intelligence and climate change. According to the survey, some 45% of more than 4,700 global CEOs surveyed think their businesses may not actually survive without “significant” change in the next 10 years.
Generative AI was one of the top concerns voiced by survey respondents—with almost 75% predicting it would “significantly change their business in the next three years.”
On the investment front, the survey found that Britain was the top country to invest in, with nearly a third of U.S. CEOs selecting it as a top target.
Meanwhile, in a survey of economists, some 56% said they expected overall global economic conditions to weaken in 2024, with a slightly better sentiment for China and the U.S. over broader Europe.
Seventy percent of those surveyed expected financial conditions to improve, citing declining inflation and further easing in the labor markets.