Blurring sectors accommodate shifts in preferences

COVID-19 has taken a mental, physical and emotional toll on people across the world and forced many to rethink their priorities. As a result, the consumer mindset has evolved to focus on health and wellness, with a desire for safer more convenient experiences enabled by technology. To meet the demands of the consumer in a post-COVID-19 era, real estate sectors including Office, Retail, Industrial and Multifamily are creatively transforming their traditional product of space by entering an “amenity-arms race” to offer a set of hospitality-like amenities that enhance their wellness and digital offerings.

Contributed by Geraldine Guichardo, global head of research, Hotels, and Ophelia Makis, senior analyst Americas research, Hotels, JLL

By adopting a consumer-first mindset, these sectors are accelerating an already growing trend of “hotelization” in real estate and blurring of sectors, effectively shifting focus to how individuals experience physical spaces.

In London’s Canary Wharf, one of the world’s most sought-after office and retail spaces, build-to-rent Vertus apartments provide core amenities, including a self-service bar, private dining room, screening room, health club, as well as a gym and spa for a resident lifestyle that epitomizes comfort and convenience. In Google’s California headquarters, employees enjoy office wellness from quiet immersive spaces for mediation and inspiration. And Future X Smart Stores in Japan, China and Singapore provide consumers a self-service experience for luxury skin products that also features a contactless skin analysis machine.

Real estate owners who are successfully embracing this trend are maximizing the use of their spaces and income potential, as every part of the physical real estate serves a purpose that generates revenue or allows the owner to charge a rent premium. As an example, Whole Foods-anchored multi-housing properties across high growth markets in the U.S. commanded a rent premium of nearly 6% in 2021 over comparable product in the market lacking a Whole Foods.

A bedroom at a Sonder property

“Hotelization” of real estate

The success of operational real estate, which has accelerated with increasingly blurred lines between real estate sectors, has led to the alternative accommodation sector’s rapid growth.

The recent popularity in alternative accommodations is due to the changing needs of today’s traveler. Alternative accommodations tend to provide a functional lodging space, where the traveler can easily workout, rest, eat and work with the upmost privacy. Moreover, because of the tech-forward features many alternative accommodation platforms boast, this lodging product seemingly provides an additional layer of safety and convenience during the current environment given the limited human interaction necessary to check-in/check-out. As such, investment in the sector has hastened over the past year, with market cap ballooning to US$8.2 billion globally in 2021.

Across Asia Pacific and Europe, Middle East and Africa, the co-living sector is observing notable growth and is emerging as a popular alternative accommodation type. This use of space is prevalent across many vibrant urban cities, where younger, cash-strapped travelers can enjoy lodging that features a place to eat, sleep, work and socialize for as long as one day, a month or longer.

In the Americas region, alternative accommodation disruptors such as Sonder, Blueground and WhyHotel are rapidly emerging with innovative digitalization and specialized stays for business or group travelers. In fact, in New York City, Silverstein Properties acquired its first residential building in New York for US$247.5 million with Sonder as one of the major lessees in December 2021. Sonder is framed for its tech-enabled guest experience and continues to expand its footprint in the Americas with recent openings in Montreal and Toronto.

Overall, the alternative accommodation segment provides an attractive opportunity for portfolio diversification and revenue maximization, which has made the segment attractive to investors. We expect the segment to continue growing in tandem with what many are coining as the “Diamond Age of Travel.”