Citi Global Wealth UNSToPPABLe TreNDS | | 76 Investments The workplace of the future This appetite for quality is evident in office wHAT To Do Now? markets around the world, including Sydney, Since the pandemic struck, the way we work London, Seoul, Dubai, Shanghai and Berlin. We believe suitable investors should has changed drastically. Many employers and In the US, the leasing of new-vintage offices consider adding appropriate exposure to their employees have enthusiastically embraced is unfolding alongside ongoing migration to select multifamily, industrial and office flexible, digitization-enhanced working practices, secondary markets. Companies and workers real estate to their portfolios. To do so, we with some firms going wholly remote and many are increasingly attracted to places such as favor strategies from specialist managers more choosing a hybrid model. The new patterns Austin, Texas, Raleigh, North Carolina and with deep expertise in these segments in of work – and changing priorities – are creating Phoenix, Arizona. Such places offer favorable particular geographies. Such strategies strong demand for certain types of offices. employment prospects, a potentially better may help mitigate the effects of inflation quality of life and lower costs of living. upon returns while helping to mitigate the Overall, there is a marked preference for risks of a globally diversified allocation. quality. This means offices in highly connected locations, complete with market-leading Of course, private investments in real amenities, including outdoor space and fitness estate come with various risks. These centers, and good sustainability credentials include illiquidity, with investors typically such as LEED platinum, a green certification having to make a commitment for some standard. Meanwhile, older, outdated premises years. A deeper economic contraction that do not accommodate new ways of working than we expect might also moderate rent are struggling. growth and demand in the near term. For example, since the start of the pandemic, 84% of total leasing activity in midtown 16 Manhattan has occurred in Class-A assets. Over the last two years, new Class-A offices in the US are the only office vintage with positive absorption, a metric which looks at how much space was occupied and how much was vacated. Whereas such offices saw 61.6 million square feet (18.8 million m²) net absorption, those built 17 in 2014 or before suffered negative absorption. 16 Cushman & Wakefield, Q4 2021 Office Overview, January 2022 17 JLL, “The Workplace Evolution,” June 2022