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What is happening in Real Estate?
146 Plays1 year ago
Tero Lehtonen, CEO of JLL Finland, shares his view on the tricky situation of the real estate industry in 2023. How to make the most of this challenging time? What’s the forecast for upcoming years? Who will survive?
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Transcript
Introduction to Unraveling Cities Podcast
00:00:19
Speaker
All right, so thank you again and welcome to Unraveling Cities with Faloma and me Natalia, both co-founders at Chaos. Today we have a very, very interesting topic, but I hope that you enjoy it. Welcome.
Impact of Global Issues on Real Estate
00:00:40
Speaker
And the topic that we are discussing today, it has to do with how the real estate situation is currently looking and how much we are reading in the news, for example, about these megatrends, war, inflation, energy crisis, bank sector, relativity.
00:00:59
Speaker
and economic recession
Guest Introduction: Tero Lehtinen
00:01:01
Speaker
and such. But we have a very, very interesting guest right now. And please, I don't delay this anymore. So he is the CEO, a member of the executive board in JLL in Finland. He has an extensive experience in the real estate industry and board experience from both corporate and nonprofit boards. And if you have not guessed by now who this person is, he is Tero Lehtinen. So welcome, Tero, to be here with us today.
00:01:30
Speaker
Thank you, it's great to be here and hopefully we will have an interesting discussion. So shortly about my background, as a parliament center, I'm CEO of CEL of Finland and also a board member of different companies, for example, Finnish construction company Yatke, and also advisory board member of Propeteik Finland and RAC Liberty Institute Association of
00:02:00
Speaker
Finnish release that investors have been in business over 20 years, so have quite a long, long history with real estate markets. Nice to be here today. Thank you, Tero. And on top of that, you're also a regular speaker in real estate seminars. I think that the last time that we met was in business arena, if I'm not mistaken. So you have a lot to say probably in this kind of hot topics that Natalia is mentioning.
Inflation's Impact on Real Estate
00:02:28
Speaker
Yeah, yeah.
00:02:31
Speaker
Yeah, so we have seen actually quite a significant change in real estate markets during past year. And that goes back to inflation. And as a result, we have seen central banks to increase their policy rates. And still a year ago, we were
00:02:54
Speaker
in an environment where interest rates were around zero. Now we have seen a significant increase in interest rates, which has means to property investors that their financing costs have been increasing and at the same time as banks have been trying to keep interest coverage rates pretty much on same levels.
00:03:15
Speaker
Lot of values have been coming down, which means that you can get financing but the money is more expensive and you will get less debt than a year ago, for example.
00:03:31
Speaker
So that's one of the biggest impacts of inflation for real estate markets. In addition, inflation has, of course, had an increasing impact on operating expenses. So costs have been going up almost everywhere.
00:03:51
Speaker
On the other side, of course, we have seen also rents do increase in line with inflation, because most of these agreements are having CPI-linked indexation. But then the question mark is that if market rents will also follow inflation and the indexation, in some markets and some sectors, most probably,
00:04:18
Speaker
But for example, in residential, where universities actually haven't been able even to get all the indexes in rents, in residential, we are also interested that market rents won't increase in line with the inflation, which means that rents are actually decreasing at the moment, particularly when it comes to real rents.
00:04:47
Speaker
And then inflation is also impacting development and construction costs, which has mean that we have seen particular and residential development day.
Hybrid Work and Office Space Evolution
00:05:03
Speaker
huge slowdown and there's still quite a lot of residents of buildings under construction but the number of new projects to be launched has been on extremely low levels this year.
00:05:19
Speaker
So that's about inflation. It's having quite a lot of impact on the market and maybe the other theme which I would like to mention at the beginning of this discussion is future of offices because we all know that hyperworking is here to stay, which means that
00:05:39
Speaker
office market is seeing quite a big structural change and that's having impact on both on occupiers and landlords and what kind of premises will be needed in the future. So that's actually, you have a very good gift of explaining very complicated things in a very simple way. So thank you for that, I really enjoy it.
00:06:08
Speaker
I mentioned the four things you're saying now. One is that financing costs are higher for the real estate investors. Operating costs have gone up. Inflation has also affected the construction costs, and then the future of offices is changing.
Investor Strategies in Challenging Times
00:06:31
Speaker
If it would depend only on you, what would you do differently, like to correct the situation? Or where do you think that the silver lining is? Well, somehow, yeah, the situation is challenging. But on the other hand, I would say that the interest rates were around zero or even below zero. That wasn't healthy situation. So one can say that we are just coming back to normal.
00:07:01
Speaker
But at the same time, typically when the cycle is going down, we are also getting kind of back to basics. So as a property investor, I would actually put much more focus on asset management and make sure that I'm giving good care of my current tenants and I'm having enough resources on
00:07:29
Speaker
on leasing of potential vacant spaces and also I'm considering future of my properties. If there are some which are clearly outdated, start immediately to make plans how to
00:07:45
Speaker
how to make them attractive also in the future. It might be just about repositioning, but it might be really development and already turning. So actually this part of cycle is the one where you should start doing plans and also executing those plans to make sure that you are having stable cash flows also in the future and you are competitive in the market in the future as well.
00:08:16
Speaker
I really like that, like back to basics. I think we are hearing that slogan everywhere. It's perhaps related to the very good times that we have been living in a lot of different industries. And now we have to rethink why are we doing the things and do it in a more sustainable way. It seems that you're describing when you're telling a little bit about asset management,
00:08:45
Speaker
about making a building or the zone of a building more livable by making tenants happy. Can you elaborate a little bit for someone that doesn't know what hazard management is like?
00:09:01
Speaker
How are the things done today and what will be great here? We're really focusing on that in the future. What will be these key success factors that are going to influence that you have, that you're great as an asset manager? Yeah. Well, I will take office market as an example, because as I mentioned earlier,
00:09:26
Speaker
that's the sector in really that market which is going going or what's going on the kind of biggest structural chains and if I think the situation from office asset management point of view yeah of course you should focus on on cost and operating expenses but what you really
00:09:52
Speaker
is to make sure that you are offering premises which tenants are looking for and which kind of premises tenants are nowadays looking for. Well, we are seeing a
00:10:07
Speaker
clear polarization of office market. That has been actually happening for the last 15 years, but since Covid, the pace of that change has been increasing. And it means that tenants would like to have a nice and attractive premises, but those premises should be in building, which is technically in good condition. It has nice common areas, lobbies and things like that. And it's also, yes,
00:10:37
Speaker
T compliant building and then it of course goes also back to locations. So they don't want to be located in locations where you have also something else than just offices. So you would like to have a different kind of services amenities, restaurants and that's of course something for which you as an asset manager only can't
00:11:03
Speaker
impact, but of course you should make sure that in your building, if you can, you are offering us as white serves, serves offering us as possible. So it goes back to the quality of Tenant's own premises, but also quality of building and quality of, of location. And we are quite often speaking about flag to quality, what comes to Tenant's preferences, particularly
Importance of ESG in Real Estate
00:11:30
Speaker
nowadays.
00:11:33
Speaker
I hear how there's this sweet spot that between what you are saying and what Natalia is saying is this triangle between, of course, profit, but then also purpose and people, most importantly. And now you're speaking a lot about people in the form of tenants. And you also mentioned ESG now when you were speaking.
00:11:55
Speaker
And that's one of the very hot topics. And I actually wanted to ask you about that because we hear a lot about the environmental goals, but I feel like the S in ESG, which is the social part, what we are speaking about now, has overall been a bit less prominent, especially from 2020 when like the pandemic and we have seen the importance of understanding and measuring this social value.
00:12:20
Speaker
In this case, like with buildings or city development. What are the implications for the real estate industry? You can also speak from the point of view of JLL in this matter. What is the short and long term value that you create for communities? How do you consider that?
00:12:41
Speaker
If starting on big picture and EST overall, that's nowadays on top of the attend of almost every investor. We have seen actually quite a big change during the last three to five years.
00:12:59
Speaker
So a couple of years ago, it was on the strategy of several investors, but it wasn't a top priority. So there has been a huge sense in mindset of investors as well as occupiers. And as you mentioned, quite often we are speaking about the environmental. And that of course makes sense because, for example, if you think carbon emissions, some 40% of
00:13:28
Speaker
carbon emissions globally are coming from real estate so that's that's the sector which really have or can have impact on climate change and that's where the focus has been but at the same time as I mentioned S is coming more and more important and but at the same time it's much more difficult to measure and
00:13:58
Speaker
That's a good question how you can impact society, but I think that the real estate sector overall has also a big impact there. As an example about offices, we need to make sure that
00:14:15
Speaker
offices are places where people want to come and they are healthy places and they are places where they won't meet other people and at the same time if we think similarly different sub-markets, it goes back of course to reach ability but also
00:14:42
Speaker
the overall feeling of the area, which is of course impacted by the buildings and also what kind of service offering the buildings have. So from that point of view, yeah, real estate has a big impact also from social point of view and yeah.
00:15:07
Speaker
Yeah. I think that's, those are very good points. And I think in everybody's head ESG still, even if we've been speaking about it for some years, it's still quite a fluffy concept and it's always hard to see very concretely. Okay. What should we do? And you're mentioning some of those points now, like that are important for the S part, the reachability.
00:15:30
Speaker
the office spaces or like people second home in a way, especially now that the way of working has changed, like adapting those, the service provision in an area. So in all those ways, the real estate's main agents can help to shape a better city for everybody. Yeah, absolutely, absolutely.
00:16:01
Speaker
So, what do you see moving on? That's next, like in real estate. If ESG, of course, we all know that it's a topic that is in everybody's agenda, like you said, but moving on from there, can we get a forecast for the upcoming years in real
Long-term Outlook and Market Stability
00:16:19
Speaker
estate? What do you see happening in your crystal ball?
00:16:23
Speaker
Yeah, well, my crystal ball has been broken lately, but we started the discussion about the reality that.
00:16:32
Speaker
At the moment, market situation is quite challenging, but if looking forward, I think that real estate is still in quite a positive outlook in mid and long term, because if we think what has happened in real estate markets during the last 15 to 20 years, at the beginning of
00:16:58
Speaker
this century we were in situation where the markets were real local and there was limited amount of investors investing to real estate. Since then we have seen globalization of real estate investment market and also clear increase in professionalism
00:17:18
Speaker
of different players in the market and at the same time we have seen a huge growth in investment volumes for example and I think that now we are an institution that is more like a maturing market so we won't see such a growth what we have seen but I said the outlook is still positive really that has stabilized its its position
00:17:43
Speaker
on portfolio allocations of huge institutional investors. So the money will stay here and we will see also new money to flow to market. So the big picture looks still promising. Good to hear.
00:18:01
Speaker
urbanization is still here so we need to build new buildings and also new new sub-markets and from that point of view really that has a quite a key role on developing of cities then looking in in shorter term starting from transactional market well this year will be challenging most probably we are
00:18:30
Speaker
the moment close to the top cycle of interest rates. So interest rates will start to stabilize and that will most probably also impact positively transactional markets. So starting from next year we will most probably see increasing activity there and I would assume that 2025 if we would assume that GDP growth will
00:18:55
Speaker
start to increase, we should actually see much more active market on transactional side. What comes to leasing markets, they have been actually quite stable, but of course, they are particularly efficient retail market are impacted by the economical development. And at the same time, there's some market has been.
00:19:19
Speaker
suffering of a huge amount of new supply coming to market. But again, if we are assuming that GDP will start to grow again starting from next year, we should see also increasing activity on leasing market.
00:19:36
Speaker
and the particular in offices this hybrid working and changing requirements for spaces will need that or will mean that companies will need to move and look for new premises on coming years and it doesn't matter if the economy is growing or
00:19:57
Speaker
or not, so some recovery also inside on leasing market. Residence and development is actually a bit a question mark because we have seen a huge increase in construction costs and at the same time consumers' purchasing power has been going down, interest rates have been going up.
00:20:17
Speaker
which means that consumers can't pay us as high prices for residential as they use it and that same story for investors because of increasing interest rates. So there we have a kind of challenging situation and that's actually quite a big question mark how we can build also in future residential buildings with prices which are affordable enough for
00:20:42
Speaker
consumers as well as for investors because that's actually super important from development of or from point of view of development of cities. The office has been suffering because of this hybrid situation when that was originated after Corona. And then you mentioned also that Resi has been suffering because there's a huge supply coming to the market
00:21:08
Speaker
I remember that in Helsinki we have had this situation where we have an oversupply of offices. So these just leads that offices and dressing market are with an oversupply right now in the market. So if I connect this to the ESG and what you were saying before, that seems that investing and creating more supply, which is not meeting the demand or vice versa, like the supplies, there's not enough demand for this.
00:21:38
Speaker
What you mentioned about focusing in asset management makes more sense, since for two reasons, I think. One, because we have oversupply, so now it's competing, like who's the best now? And second, because ES is also forcing the real estate players to revamp their buildings. So instead of creating new supplies, how do we transform what there is?
00:22:05
Speaker
So I find this very interesting. What do you think of that then? Yeah, exactly. That's the case that investors need to need to redevelop their properties. And we actually have, nowadays, several investors on the market who have a strategy, which is called brown to green. So they buy buildings with our
00:22:27
Speaker
clearly outdated from ESC point of view and then they invest and develop the property. The ESC compliant and that's one phenomenon what we have seen happening in this market during actually past the year or two and then going back to oversupply in offices and residential units through the both markets are
00:22:51
Speaker
suffering at the moment, at least a little about oversupply, but the fundaments are totally different. So in residential, that's not any kind of issue in the long run, because as mentioned earlier, urbanization is still here, and for example, has a metropolitan area is growing strongly, so we will need
00:23:14
Speaker
Actually, a lot of new residential apartments and buildings also in future and the situation is now that the development activities is slowing down and at the same time demand is increasing, so the demand supplies it so it's going to balance in
00:23:33
Speaker
residential markets most probably during next two years or something like that. In offices it's totally different because, as you mentioned, we have actually had a relatively high vacancy in Helsinki metropolitan area for the last 15 years. And if we
00:23:55
Speaker
I think what's happening in the office market at the moment, as mentioned, companies are looking for new modern premises. But at the same time, they are finding out that they don't need as much, typically as much premises as they use it to need. And quite often they are scaling down the size of their premises.
00:24:16
Speaker
some 30 percent or something like that, which means that the table really is even more vacant space to market, which means that, as I mentioned at the beginning of this discussion, polarization of market will increase clearly.
Office Market Polarization
00:24:31
Speaker
So we will quite surely see increasing vacancy in office market also going forward, but the vacancy isn't going to be the same in different areas or
00:24:43
Speaker
different buildings. So if you have a prime quality building in prime location you will most probably see really low vacancy also going forward and even increasing rents. But if you are in secondary location with this outdated office building you will most probably have a lot of problems with leasing and most probably end up
00:25:05
Speaker
at some point to consider how to redevelopment the building for some other use. So the story is a little bit different in or totally different in residence and office sectors overall.
00:25:20
Speaker
Yeah, one point. Going back to what you said, well, you're discussing demand and supply now, but about the demand, I think it's important to make emphasis also in what you said before that it has to be affordable. The supply has to be affordable for the demand that there is. So it's not only that, yes, people need to leave somewhere for sure, but can they afford to pay for that place? And the phenomena that we have been seeing worldwide now is that a lot of people that
00:25:49
Speaker
purchased at home are not able to, with inflation now, continue paying their loans. So they have to sell and all these properties end up being purchased by the people that are wealthier and they're maybe less affected by the situation. So I think that's also something that's really crucial for real estate players to consider to avoid that also kind of segregation.
00:26:15
Speaker
Yeah, yeah. That's absolutely true. And it is true that prices have been increasing quite significantly also in Finland during past years, what comes to residents. So now when we are seeing interest rates going up and also the cost of living over or going up, it will end or we will end up the situation. There will be challenging situations for some people and residents and prices needs to adjust.
00:26:45
Speaker
down was that's that's quite quite clear and particular in Finland where we have most of mortgages or interest rates of mortgages based on on fluctuating rates like year for 12 months this impact will be seen quite quite quickly in some other countries where they have fixed the interest rates it's going to take some some more time but yeah
00:27:10
Speaker
We are already in a situation that people are struggling with, with increasing interest rates and overall cost of living. I think it's very concrete to say that let's focus in asset management. That's something like a key takeaway, I think. And I'm going back to that, like,
00:27:37
Speaker
Why has real estate not considered this before? I mean, absolutely, you must have, you know, there's the whole profession out of it. But now when we are thinking more of services and all these things, I think the real estate hasn't been very proactive in encouraging good services and good living. It has always been perhaps meeting the needs. So now we are going more into that.
00:28:05
Speaker
And I found it really good that we are speaking more and more about affordability. This is one of the UN SDGs where you take a look at like everyone who's buying a house. That's the biggest investment we make in life, I think, if you don't own yet another cottage or something else. But I think that's one of the biggest
Affordability and Zoning Flexibility
00:28:29
Speaker
ones. It's a human right. And we want to keep the economy moving. I mean,
00:28:35
Speaker
We all benefit when everything is rented or the occupancy levels are high. So I think we look into that. It's something that I would want to see more. But I also know that it doesn't depend only to be fair in this economy on the private side. So you mentioned that there's the real estate in general industry. He's focusing more on these things.
00:29:02
Speaker
From the side of the government, the public side, what is the need that you have? I mean, what would you like to see also happening for you, you know, for the private sector? Is there something that the public side can do now to alleviate the situation?
00:29:19
Speaker
Yeah, that's a good question. Well, I think that the real estate industry has almost always been speaking about toning and making toning processes faster and more flexible. And I
00:29:36
Speaker
think that that's still relevant because for example as I mentioned that we are seeing increasing amount of office buildings to become totally outdated and the best solution for those buildings would be convert them to some other use quite often it's residential and also from both society and the environmental point of view it doesn't make sense that we have a
00:30:04
Speaker
huge amount of vacant buildings in quite good locations. So that's something where I think we still should be able to improve the processes and be at least a little bit more flexible going forward.
00:30:25
Speaker
Yeah, that's a good point. I've heard at least from the private side that it's very difficult to convince the cities that some rezoning has to be made. I think if I put myself in the position of the public side, of course, you need all the arguments, you know, that this is not motivated by private interests only, but that you need to take a look at what's happening in the area.
00:30:50
Speaker
Yeah, exactly. And I think that the public sector should be following more what has been happening in the market. Again, the office market is quite a good example. Let's say that going back to 1980s,
00:31:06
Speaker
companies were typically fine to locate in an office building, which was, let's say, in the middle of a residential area, such as single office buildings somewhere. But nowadays, I would say, almost every company wants to be close to other companies and in established office areas, which means that we are still seeing zoning of new areas based on the assumption that there should be also
00:31:32
Speaker
Also, some office supply in addition to residential and retail supply and the taxidery ends the result that those plots which have been shown at the offices will never be built for that use. At some point, maybe 15 or 20 years later, the bill will be re-shown for residential or some other use.
00:31:56
Speaker
So, we have seen clear change in mindset of companies where they would like to have their offices. And I don't think that that's totally reflected on our zoning at this point. So, you're saying that the recipe that the public side used to have, like, you need these elements, it's not working anymore.
00:32:21
Speaker
these assumptions have changed with all this yeah yeah partly partly
00:32:27
Speaker
And it's actually funny because now there's a lot of speaking about 15 minute city. It's a huge topic. And the concept actually is about exactly being able to have everything that you need around you in a 15 minute walk, which includes also a mix of residential, of leisure, all the retail services, but also of spaces. So now more than ever, this should be
00:32:55
Speaker
also in the agenda of the public sector, like you're mentioning. Yeah, yeah. The reconsideration of those zoning plans that do not meet these criteria and this need of a population. Yeah, and, well, this 15-minute city concept is, of course, interesting. And I think that it's clear when the cities are growing bigger and bigger, they will have several separate centers, of course, depending a little bit
00:33:22
Speaker
where the city is based, so we have quite a lot of differences between US-based cities and cities in Europe, and what we are actually seeing in Helsinki metropolitan area.
15-minute City Concept
00:33:33
Speaker
It is still actually quite a small metropolitan area in global comparison, but
00:33:39
Speaker
this coming to sites where we are seeing the situation where we will have instead of one city centre, we will have several different centres which are kind of related to this 15-minute concept. But at the same time, Helsinki Metropolitan Area is still so small that
00:34:01
Speaker
that it's quite easy to reach almost every part of this area or quite quickly by public transportation or by your car, so it's still quite different.
00:34:14
Speaker
discuss them when it goes to really big cities like London and New York and once again, if we're speaking about office market, they'll be seeing situation in companies might have their headquarters, for example, in some prime office location, city center or something like that. And then they have hubs in other parts of cities, which makes it a little bit easier for or
00:34:39
Speaker
faster for people to get to offices. But having a metropolitan area is so small that I don't think that we will need that kind of hubs because you are still typically at maximum some 30 minutes out of your office. Of course, it's not a walking distance, but still. And the same goes actually back to logistics. We are speaking a lot of last mile logistics needed for distributing
00:35:07
Speaker
stuff to home or something like that. And again, if you think Helsinki metropolitan area, if you have a logistics building next to airport, you can actually deliver to almost every part of Helsinki metropolitan area in one hour, which is enough so we don't need that kind of network of distribution units as we need in bigger cities like London and New York.
00:35:31
Speaker
That's actually a very good comment. Now, when you're speaking about the trend, about this change in logistics and smile delivery, at least like people that I have been asking when I ask, like, how much do you buy online? And all these things. And I've been very surprised that everybody seems to buy everything all the time online.
00:35:59
Speaker
And constantly, so it's not maybe once a month, but it's much more. And I was thinking that, how do you know if you don't have to return something? And they said, it doesn't matter. The shipping is always free. So you buy it, you try it, and then you just return it.
00:36:15
Speaker
And I think this is like a paradox as well when tenants are looking for more sustainable buildings that have access or these like fast delivery access in a way. And at the same time, as tenants, we were expecting that everything is on demand all the time, always on. And then not thinking of the carbon emissions, for example, of returning an item. Yeah. So that's also maybe a paradox there.
00:36:45
Speaker
as well. We have to be more conscious in that. Yeah, I fully agree and I think that the retailers, or they have already started and will slowly start to have some calls on returns, for example, because if it's free, as you mentioned, it's too easy for people to test the order and then return, so you might order
00:37:09
Speaker
five items and return two or three of them, which is not sustainable at all. So e-commerce has actually quite a lot of challenges also from ESG point of view, even though it's making life of people easier, but it's not so straightforward.
00:37:40
Speaker
I ask you something more personal that is not so serious. How would you describe the perfect location for you to live in? What do you enjoy when you go to home? What are the elements that are there that make you happy? What are you looking for when you go home or to the office maybe?
00:38:01
Speaker
I'm a city person, so perfect location for me is actually in the immediate vicinity of city centre, so I want to be close to everything in working this dance, and I like to be also close to sea, so I would say that for me the perfect location is in city centre of Helsinki next to sea. That's easy life for me.
00:38:33
Speaker
Yeah, then we are very similar. I feel the same. It's funny that now we consider this an easy life, you know, for some other people. So like, easy life is just being in the forest or in the field, you know, and that's easy. What is the perfect office for you? Are you this kind of guy that just wants like a normal desk, an own office, or do you like this flexible environment?
00:39:00
Speaker
Well, again, starting from location, I think the office should be located in city center or location, which is like city center. So a lot of different kinds of restaurant services amenities available, if not in your office building next to your building. But otherwise, I think that maybe the most important thing is, of course, the feeling of office, but also
00:39:31
Speaker
having different kinds of problems and areas for different kinds of needs.
00:39:39
Speaker
nice working cafe where you can meet your colleagues and then desk which have a good technical solutions if you need to work, some quiet space and then space to easily organize a team's meeting or something like that and also nice meeting room to meet your clients or your colleagues.
00:40:03
Speaker
That's a very nice way to describe, you're like Paloma, like she's the best customer of Espresso House. And does your ideal of an office not include a popcorn machine? Because that's what we have here. Other priorities. Like that, I think for me it's the most important to have a coffee machine. That we also have, yeah.
00:40:30
Speaker
Yeah, but this one's nice. I mean, it seems that you're still meeting the needs, you know, but in a more Danish people would say hygge environment. Yeah, that's actually a good description. So it's like still you need some quiet place and then you have to have a nice meeting room to receive guests.
00:40:53
Speaker
I think we all feel very nice when we are into, when we visit, you know, someone in the working life and you're treated very well and the office is nice and everything. I don't think that these very sterilized rooms work very good to enable conversation. I think it's always, the best conversations is always in a very random environment. Yeah.
00:41:21
Speaker
And also, well, in our own case, actually, we were changing office in the middle of the pandemic. So we asked the team, actually, very directly, like, hey, since everybody's working remote now, it's a global way of doing things. How do you feel about that? Is something that would make you more comfortable? And everybody was like, no, please. We went both. So the hybrid is what we ended up going for.
00:41:50
Speaker
We have quite a nice office, quite cozy, but then it's also very flexible. But I do not see the world just fully transitioning to fully remote. All the social engagement will be missing from there. And that's what actually creates innovation and discussion. And so, yeah, I'm actually grateful that we have a place to meet each other face to face.
00:42:19
Speaker
Yeah, yeah, yeah, I fully agree that I don't think that we will be or actually to go with proof to us that there is a need for office spaces. So yeah, we can work remotely, but we still
00:42:36
Speaker
need to meet meet our colleagues and sometimes it's for some people like to work just in the office some people might like to work mainly at home or somewhere somewhere else but anyways the office is needed needed to give up culture of company and for innovation and give up the good spirit so it's really required
00:42:58
Speaker
to run the company and you also got a good point Paloma about asking from your people and that's something what I recommend for every company when they are considering what kind of office premises they
Designing Customer-driven Real Estate
00:43:14
Speaker
need. They should be asking from their people because if you are just copying ideas of what you have seen or what your competitors or clients are doing that might not be a good solution for you. So ask
00:43:28
Speaker
ask your people what kind of premises they would like to have and in which location and build your own office concept based on opinions of your people, of gospel. You should use professional advisors to help to build the concept but really listen, listen to your people and make sure that you are building premises for your people, not just premises which you
00:43:56
Speaker
as a leader, for example, think would be nice or which would be similar to your clients or companies.
00:44:04
Speaker
100% agree on this, touches back to the initial points of the tenants again, and it applies to everything, I think, in urban development as such. It's not only the tenants of an office, but the citizens of a city. All of us get a bigger say, have a bigger impact in how our cities end up looking like.
00:44:27
Speaker
And that's actually the whole point of us also being here. I think this is a very nice kind of wrap up and getting back to the beginning. It makes a lot of sense.
00:44:40
Speaker
Yeah, absolutely. I really like this. I was so natural because we're coming this that you have to ask your employees. Yeah. That we have to all contribute also to having living rooms in the city, you know? So I love this, but yeah, like you're right. Like it's always super nice to speak to you. And then we have a lot of similarities and no wonder we are also closed, but.
00:45:04
Speaker
yeah like you're welcome also to come to the office and have like a coffee with us and popcorn yes i also like popcorn
00:45:19
Speaker
But if I just like summarize the key points that we have been discussing is that today where we are, where the situation is, you mentioned four very important things. Financing costs are higher. The operating costs are higher. Inflation is impacting also construction costs. And there's something about the future of office. So there's four points of today.
00:45:44
Speaker
But what to do next? You mentioned back to basics. So focus on asset management or office as a second home, as we are now discussing. And then moving forward, like
00:46:03
Speaker
Well, you mentioned that there's growth in investments, institutional investments are there and there is money. Urbanization is still here, you know, and now interest, we will see that they start to decrease as well, interest rates.
00:46:19
Speaker
There has to be effort put in leasing markets from both sides, the office and the residential. And then the role of the public site that could be there also helping this transition is to have more flexibility in the zoning as well.
00:46:36
Speaker
And then this leads all to better tenants, happy tenants and happy residents as well. So more focus in these little things that make cities livable. I think it's as I'm summarizing here in your words or my own words in what your thoughts are. But I think in the future, we need to focus really in what makes a tenant happy or a resident happy.
00:47:03
Speaker
Yeah, absolutely. And I think that one of the challenges of real estate business, actually real estate and construction business history has been that both investors and developers have kind of forgotten tenants and users of premises. So it has been more like just to
00:47:24
Speaker
building buildings and owning and operating buildings but focusing that the reason why we have those buildings because if we won't have users or occupiers we won't need the buildings. Luckily I think that this mindset has been slowly changing and this business is coming slowly more and more customer driven so let's hope that this development will
00:47:50
Speaker
We'll continue. I actually started my career as a researcher over 20 years ago. One of our research themes was how to make a real estate business more customer driven. I can't say that we have seen a change, but there's still quite a long road to go.
00:48:15
Speaker
That's very nice, very nice to hear also. And Tero, just to end this very nice conversation, we want to ask you a question that we ask all our guests. And this is that if there were no limits at all, what kind of technological innovation would you invent to make your life easier in the city?
00:48:37
Speaker
And now we have painted before a very complicated picture of the city and the situation. So now here is the moment for you to solve everything. Well, that's a good and actually challenging question. As I mentioned, I'm a city person and overall I think that it's already nowadays quite easy to live in the city.
00:49:04
Speaker
But what I would like to see as a chance is kind of automated cars or something like that, because if you are living in a city center and walking distance to almost everything, and you have a good public transportation connections, you typically don't need your own car, but sometimes you need to carry something from one point to the other point, or then you
00:49:33
Speaker
might want to visit on your summer house for example and for that reason actually most of people still end up to buy their own car so if there could be a solution which is not owning a car or leasing a car but it would be kind of automated solution for for that kind of transportation is that's something what I would like to see in some point in future
00:50:01
Speaker
I'm just imagining now like this experiment that there was in Espo with the robots that were transporting the grocery to people's homes, but in a bigger scale, that they transport everything to your market. Yeah, exactly. Or from your cat to your home. That's a good one. I've been there taking the bus to IKEA full of stuff. Yeah, it's not pleasant.
00:50:26
Speaker
And it's something for the public side to think, imagine that we have public transport that comprehends also these robots that are bringing stuff to your home that's created by the public as well. That would be amazing. Yeah. Yeah. Cool. And maybe that they go underground, so we don't have to see all the cars very high up. I don't know. But yeah, like Elon Musk's like a Subteran city, like underground city.
00:50:53
Speaker
Right. But hey, it has been super good speaking to you. It's a pleasure to hear you, as always, to listen to you. You're quite inspirational and very concrete. So I don't have this feeling that I didn't learn anything. I actually learned a lot. So thank you very much for being here and being our guest here.
00:51:16
Speaker
Yeah. Thank you for inviting to your guest. And yeah, this has been a nice conversation. Yeah. Pleasure to speak with you as well. Thank you. Thank you very much. All right. So stay tuned also for our next surprise guests as well, like in our next podcast. And we will reveal this slowly for everyone, but thank you also for the listeners that are out there. Hopefully we are creating an interesting conversation for you.
00:51:46
Speaker
OK, have a nice day, everyone.