Navigating disruptions and uncertainties has become the standard in a world continuing to face economic and political challenges. From concerns about the productivity of a hybrid workforce and how to gain an edge with artificial intelligence to the ongoing dilemma of what to do with aging office buildings, investors and corporate occupiers have much on their minds, according to experts from JLL, who present the five major real estate challenges for 2024.

1. Does the hybrid truly work?

Years into the grand experiment of hybrid work, many firms worry that it simply isn't delivering the goods.

Productivity growth is one of the top three reasons employers encourage people to work in the office, according to recent JLL research. They feel it's necessary to maximize collaboration and innovation.

"Employers associate on-site work with major benefits, such as social connection and cultural ties," says Flore Pradere, Global Work Dynamics Research Director. "They see it as a significant contribution to employee performance."

But there are conflicting issues from the employees' perspective. Nearly half of the workforce believes they are more productive at home.

"Office noise and lack of privacy are significant issues, discouraging many employees from returning," says Pradere. "People say they simply can't concentrate, and it affects their work."

The answer, then, is that more work is needed to align expectations. A big part of this will be creating offices that provide what is necessary for a hybrid workforce. Pradere suggests that office usage data and human-centered design are essential to deciphering the performance code.

2. Will AI move from hype to habit?

AI and the future it has come to represent have taken the world by storm. A job boom for related skills is underway. Real estate industries, such as data centers, have expanded based on growth expectations.

But as the initial enthusiasm wanes, organizations are grappling with how to fully leverage the technology to fuel their future goals.

Conviction is not lacking from investors, developers, and occupiers, who agree that it ranks among the top three game-changing technologies for real estate in the coming years, not least for decarbonizing real estate properties.

"It's becoming the norm to use AI to work seamlessly with complex data, be it financial, contractual, or vast data generated by smart buildings," says Yao Morin, Chief Technology Officer, JLLT. "Companies across all sectors are exploring how AI can drive efficiency."

However, she warns that as AI usage becomes more commonplace, companies should consider the various AI regulations that continue to emerge worldwide, regarding data quality, IP rights, data privacy, and security.

3. Will there be enough net-zero offices?

Demand is rising for real estate properties that help organizations achieve their net-zero carbon goals (NZC). But for now, there simply isn't enough space, especially in the office sector, to accommodate everyone.

In the U.S., the supply of low-carbon workspace will be 57 million square meters by 2030, while no city in the Asia Pacific region has adequate supply. In Europe, low demand for NZC buildings exceeds supply by a factor of three to one.

"The gap between demand and supply is set to widen," says Guy Grainger, Global Head of Sustainability Services and ESG at JLL. "It creates opportunities for forward-thinking developers and investors to consider upgrading existing office buildings, with the prospect of higher short-term rents and protecting long-term value."

Grainger emphasizes that the business case for sustainable buildings has never been stronger.

"The rising costs due to climate risk, increased tenant demand, tougher regulation, and restrictive financing all point to decarbonization investments as a smart long-term strategy," he says.

4. What's next for real estate investments?

Commercial real estate investments are in the early stages of significant capital reallocation.

"Depending on the location, it's fair to say diversification will take different forms," says Sean Coghlan, Global Head of Capital Markets. "And even for those sectors that are currently unfavorable, we still see a place for global, diversified portfolios."

For new strategies, Coghlan says implementation will be a hurdle, given the varying degrees of barriers to entry, competition, and crowding of entry strategies. "This really reinforces the need for investors to act with agility and have real-time market connectivity."

As a clearer picture emerges, existing holdings of investors will need to be assessed, he adds.

5. How adaptable will investors become?

As job vacancies reach record levels and housing shortages abound, investors and owners wonder what to do with buildings at their peak.

Transforming these spaces into apartments, life sciences labs, luxury hotels, data centers, or even vertical farms are becoming increasingly attractive options.

"With many buildings now outdated if not unused, and others simply failing to generate adequate returns, conversions are increasingly in play," says Walid Goudiard, Head of Project and Development Services, EMEA.

He adds that as more adaptive reuse projects come to fruition, developers gain valuable experience. Financing also becomes increasingly readily available.

"The environmental and social benefits are now clear, while future financial rewards boost investor confidence in the emerging business case for adaptive reuse strategies," says Goudiard.