> **来源：[研报客](https://pc.yanbaoke.cn)** # Reimagining Real Estate: # A Framework for the Future INSIGHT REPORT DECEMBER 2024 # Contents Foreword 3 Executive summary 4 Introduction 5 1 Shifting demand 7 1.1 Demographic drivers 8 1.2 An asset class view 9 2 Global markets 11 2.1 Capital markets 12 2.2 The role of fiscal stability in urban investment 18 3 The pillars 19 3.1Liveability 20 3.2 Sustainability 23 3.3 Resilience 26 3.4 Affordability 29 4 Key value drivers 33 4.1 Real estate and infrastructure 34 4.2 Prioritizing people and communities 35 4.3 Technology 39 5 Calls to action 41 Conclusion 44 Contributors 45 Endnotes 47 # Disclaimer This document is published by the World Economic Forum as a contribution to a project, insight area or interaction. The findings, interpretations and conclusions expressed herein are a result of a collaborative process facilitated and endorsed by the World Economic Forum but whose results do not necessarily represent the views of the World Economic Forum, nor the entirety of its Members, Partners or other stakeholders. © 2024 World Economic Forum. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording, or by any information storage and retrieval system. # Foreword Christian Ulbrich Global Chief Executive Officer and President, JLL; Industry Chair, Real Estate, World Economic Forum During the COVID-19 pandemic's unprecedented economic and societal disruption, the World Economic Forum's Real Estate CEO community developed A Framework for the Future of Real Estate, which presented a vision for buildings and cities to be more liveable, sustainable, resilient and affordable. The years since the 2021 publication have been punctuated by escalating geopolitical conflict, challenges to political stability and the strength of democratic institutions, an unprecedented hike in interest rates across many major markets and the proliferation of artificial intelligence (AI) into the mainstream lexicon. While we could not fully anticipate every nuance of the sector's rapid evolution between the original Framework and this current iteration, we sensed a clear moment of opportunity at the inflexion of the global fight to tame inflation. The time felt right to revisit the original body of work and update the 2021 version to ensure the global real estate industry's continued advancement of the vision. Progress towards that vision has been measured, and while forward momentum is evident in some areas, others are more accurately characterized by stagnation or even regression. This dynamic is not solely attributable to market participants but is also a reflection of the increasingly complex public and private landscape. Ultimately, it should serve as another clarion call to reinforce the vision and recalibrate the framework for evolving market conditions. We hope this next iteration of the framework will underscore the urgency and importance of delivering on our commitments in the built environment and the role that real estate plays – as an asset class, as physical infrastructure and as an enabler of our economic and social goals – in the broader global context. # Executive summary Liveability, sustainability, resilience and affordability are essential for real estate to advance our shared future. Responding to the profound impact of COVID-19 on economies and populations globally, the World Economic Forum introduced A Framework for the Future of Real Estate in 2021. Reflecting insights from a global community of forward-looking real estate leaders, the framework set a vision consisting of four pillars: liveability, sustainability, resilience and affordability. Since then, communities around the world have adopted new ways of living, working and using technology, often with far-reaching implications for real estate. Simultaneously, industry stakeholders – developers, investors, lenders and others – have had to grapple with new headwinds in the form of a redrawn capital markets landscape. In particular, central banks' vociferous response to persistent inflation has reshaped investment strategies, even as monetary policies start to ease. Despite these shifts, the pillars of liveability, sustainability, resilience and affordability remain central to long-term value creation and shared prosperity. This framework draws from interviews with industry leaders and outlines specific calls to action for both the public and private sectors to drive progress. # Public sector actions: Clear and standardized regulatory frameworks: Transparent laws, streamlined zoning and permitting processes, and reduced bureaucracy boost confidence and efficiency in real estate markets. # Encouraging an information-rich market: Promoting data accessibility, standardized reporting and mandatory disclosures reduces information asymmetries, enabling a competitive and efficient market. Infrastructure development: Investments in transport, utilities and public spaces improve returns on collocated real estate. # Financial market stability and access to capital: Policies encouraging a diverse array of capital market participants, including banks, private lenders and institutional investors, help ensure resilience across economic cycles. Financial incentives: Strategic deployment of tax incentives, grants and discounted credit instruments can attract private investment, especially in underdeveloped areas or for affordable housing. Economic stability and growth: Policies that promote sustainable growth, job creation and income stability attract private capital and boost demand for residential and commercial properties. # Private sector actions: Leadership and accountability: Embedding the framework's pillars into organizational goals and performance metrics ensures alignment and collaboration across teams. # Information, measurement and disclosure: Using advanced analytics, artificial intelligence (AI) and property technology (proptech) can improve decision-making and reporting. Comprehensive disclosures on property performance, sustainability and market trends build investor confidence and facilitate efficient resource allocation. Technology: Technologies like smart building systems, AI-driven energy management and predictive analytics can enhance occupant experiences, optimize energy use and reduce operational costs Capital markets: A robust capital stack, balancing traditional and non-traditional debt and equity, is essential to withstand both transitory and sustained disruptions in cash flows and valuations. Higher reserve requirements, conservative loan-to-value (LTV) ratios and debt yields, stringent documentation reporting requirements, and hedging tools like interest rate caps, can manage risks, reduce defaults and limit strains on financial stability. Both lenders and investors should prioritize diversified portfolios. By focusing on these actions among others, the real estate sector can adapt to evolving challenges while driving sustainable, long-term growth. The alignment of public and private efforts around shared goals ensures a more resilient, inclusive and forward-looking real estate ecosystem. # trillion The value of global real estate in 2022 - more than all equities and debt securities combined. # Introduction The value of real estate assets exceeds global debt and equity markets combined, making it the world's most significant store of wealth. The growth of institutional investment in real estate, which dates back to the mid-20th century, has reshaped cities and economies and raised the profile of real estate to one of significant, systemic importance. In 2022, all global real estate (residential and commercial real estate plus agricultural land) totalled $379.7 trillion, making it more valuable than all equities ($ 98.9 trillion) and debt securities ( $129.8 trillion) combined and almost four times that of global gross domestic product (GDP) ($ 100.6 trillion). Given the sector's scale, scope and its foundational role in business and social activity, broader market stability is reliant on a well-functioning and well-capitalized real estate ecosystem. Previous economic shocks, such as the 2008 global financial crisis, when banks were over-exposed to a range of real estate debt, underscore its systemic importance and the influence of real estate capital markets on both Wall Street and Main Street. Pension funds, insurance companies, sovereign wealth funds and other large institutions have sought exposure to real estate to hedge inflation, provide diversification from equities and fixed income, and generate reliable income streams. Even amid surging inflation and an unprecedented velocity of interest rate hikes, real estate broadly delivered on these investment theses, and long-term allocations to the asset class remain stable as inflation has subsided. Buffeted in recent years by changing patterns of space use – a phenomenon especially prominent in the office sector in Western economies – and abrupt swings in capital markets, the sector is now on the cusp of unprecedented renewal. That renewal will depend on substantial reinvestment in public and private spaces, a sharper focus on sustainability and resilience, and prioritization of affordability and liveability goals. # What's changed: The 2021 framework necessarily addressed the immediate challenges presented by the COVID-19 pandemic, including a dramatic decline in commercial real estate development and investment activity. Looking past the COVID-19 pandemic, the framework also presented the crisis as a catalyst for investment in liveable, sustainable, resilient and affordable real estate. Vision for the future of real estate: key pillars # Key pillars FIGURE 1 # Liveability Human-centric and smart spaces in support of health, well-being, equity and productivity # Sustainability Resource-efficient and decarbonized spaces that deliver environmental, economic and social benefits # Resilience Future-proofed cities and buildings that mitigate and are prepared for a wide-range of risks, from environmental to economic # Affordability Inclusive and accessible spaces that minimize the effects of inequality and support access to economic opportunity and social capital Uncertainty regarding the future remains a fixed feature of the market, underscoring the importance of resilience – and adaptability. Liveability addressed healthy, human-centric and smart spaces, in part capturing a heightened focus on well-being during the pandemic. Sustainability addressed building decarbonization and energy efficiency, with a focus on reducing whole life-cycle carbon emissions. Resilience went well beyond any narrow focus on physical climate risk to include risks ranging from functional and competitive obsolescence to public health shocks. The discussion of affordability reflected the pervasiveness of housing shortages in urban centres around the world and the pernicious impact of high housing costs on social and economic mobility, health and well-being, and other outcomes. Progress towards the frameworks' stated goals would not be automatic. It also articulated a clear set of enablers, relevant across the public and private sectors and across buildings and whole communities. These enablers included guidance in traditional areas such as stakeholder engagement and investment in talent across the spectrum of real estate's workforce needs. They also included a focus on asset monetization, transparency and innovative but prudent financing, harking back to lessons learned from the 2008 global financial crisis. Years before artificial intelligence (AI) and large language models emerged into the everyday vocabulary of real estate industry professionals, the framework anticipated a growing role for technology and innovation. The original framework did not anticipate every feature of the global recovery from the COVID-19 pandemic, nor could it have. In particular, the dramatic shift in the capital markets environment was not among the prospective headwinds catalogued by decision-makers in the public or private spheres at the time. Similarly, the challenges associated with reimagining and recapitalizing spaces following a historically abrupt increase in the cost of financing were also unforeseen. Additionally, the post-COVID-19 pandemic era has been marked by escalating geopolitical tensions. Given the fundamental dependency of real estate asset values on their specific locations, governance changes or outright conflicts can have a profound impact on returns. Supply chain breakages, evermore-observable climate pressures, reliance on energy imports, global migration patterns and other factors have motivated states to pursue more protectionist or even nationalist policies. In some cases, investment decisions are increasingly motivated by political considerations in areas ranging from capital allocations to the de-prioritization of sustainability criteria in investment evaluation. Over four years from the start of the COVID-19 pandemic, real estate market participants have a better sense of the scope, scale and speed of disruption to traditional real estate investment. However, uncertainty regarding the future remains a fixed feature of the market, underscoring the importance of resilience – and adaptability – as one of the framework's core features. It reflects the prescience of the original framework's authors that the vision at the heart of this report is the same. The focus on the key pillars of liveability, sustainability, resilience and affordability captures that these goals transcend the cyclical features of the market or any particular shock. It also reflects that, as the industry has contended with the immediate challenges of a changed capital markets environment and rapidly evolving demand preferences, only modest progress has often been made towards its goals. # Shifting demand The lines between spaces for living, working and leisure are blurring, driving the need for innovation and adaptation. The human relationship with buildings and cities is undergoing a deep and lasting transformation. Around the world, people are rethinking the purpose and function of the spaces they live, work and socialize in, leading to a shift in how office, residential, retail and other property types are designed and used. No longer seen as fixed, singular-use structures, buildings are increasingly being viewed as flexible, multi-purpose environments that can adapt to the changing needs of individuals, communities and economies. In cities across Europe, North America, Asia and Africa, there is a growing understanding that buildings constructed or improved today must be more human-centric, prioritizing the well-being of their users and cultivating social connectivity. # 1.1 Demographic drivers Demographic trends are a major driver of changing demand for space, particularly generational differences. Ageing populations in developed economies and younger, fast-growing populations across much of the Global South are poised to significantly influence real estate development and investment. Younger generations are demanding more flexible and affordable living arrangements, with many preferring vibrant, mixed-use neighbourhoods over traditional, single-use developments and paying attention to sustainability criteria. As populations age, particularly in Europe, Asia Pacific and North America, the demand for properties that cater to older adults is expected to surge. This shift will bring a heightened focus on healthcare facilities, senior living accommodations and appropriately amenitiesized housing in support of liveability goals. Real estate developers will need to incorporate features such as accessibility, safety and proximity to medical services while also responding to a growing preference in some regions for "ageing in place", which emphasizes residential adaptability to accommodate seniors who prefer to remain in their homes. Infrastructure investment priorities will also shift to accommodate an ageing population. Mobility and accessibility will be key concerns, with increased investment in transport infrastructure that supports easy, barrier-free movement for older individuals. Additionally, healthcare infrastructure will require expansion, not only to meet the demand for medical facilities but also to ensure that such services are equitably distributed, particularly in regions where ageing populations are more concentrated. Looking forward, the success of real estate developments will increasingly depend on their ability to adapt to changing circumstances and meet a wide range of user needs. This will require real estate developers, investors and city planners to adopt innovative approaches and think creatively about how spaces can be reconfigured, repurposed and optimized over time. FIGURE 2 Median age of the population by region Source: United Nations. (2022). World Population Prospects 2022. # 1.2 | An asset class view In recent years, performance has diverged across property types, with some showing resilience and others facing headwinds. The outlook for commercial real estate varies significantly across property types, regions and submarkets, reflecting each sector's unique characteristics alongside broader market trends. In recent years, performance has diverged across property types, with some showing resilience and others facing headwinds. The office sector has received the most attention with regard to demand shifts, as the complexities of changing work patterns reshape the use of office space worldwide. Return-to-office rates differ by region, with Asia leading and many US markets still recovering or stabilizing below pre-pandemic levels. Despite this variance, hybrid work models are prevalent, vacancy rates remain high in many areas and demand for traditional office space has weakened. However, newer office properties in key global hubs, with tenant-responsive amenities and that are well-located relative to transport, including in cities like New York, London, Singapore and Tokyo, continue to perform relatively well as they attract tenants who prioritize premium locations, sustainability and flexibility. These properties, often referred to as Class A, are considered "flight-to-quality" assets, offering amenities and configurations that appeal to companies seeking to enhance their office environments and attract and retain talent. Vacancy rates for these high-quality spaces are lower, and rental rates have been stable, driven by demand from firms looking to upgrade their workspace as part of a broader talent strategy. In contrast, Class B and C office buildings, which are typically older office properties with more limited amenities and at greater distances from transport hubs, are underperforming significantly. These properties often lack the modern amenities, environmental credentials and flexibility that today's tenants demand, making them less competitive in the current market. Many of these older buildings are at risk of obsolescence, struggling with high vacancy rates and downward pressure on rents. In cities across North America, Europe and Asia, building owners are exploring alternatives, including conversions to residential or mixed-use properties, particularly in regions with high office supply and low residential availability. However, the feasibility of such conversions varies significantly depending on vacancy rates, building structures, local market dynamics and regulatory environments, with some regions facing challenges in adapting older properties due to zoning restrictions or high retrofit costs. The retail sector is also undergoing a nuanced transformation across global markets, which began years before the pandemic. Prime high-street locations and experiential retail spaces are seeing a resurgence, particularly in regions where consumers have returned to in-person shopping with a focus on integrated dining, entertainment and lifestyle offerings. Major urban centres like Paris, Hong Kong and Johannesburg are experiencing strong performance in these segments, as well-located retail properties adapt to provide experiences beyond traditional shopping. Community and neighbourhood shopping centres are another area of resilience – particularly in regions like the Middle East and Latin America – benefiting from their essential-service anchors, such as grocery stores, which attract consistent foot traffic. These locations have demonstrated stability, supported by a reliable customer base and growing demand for convenient retail options. There is an increasing crossover between real estate and emerging infrastructure asset types such as data centres. In contrast, regional malls and big-box retail centres face ongoing structural challenges worldwide. High vacancy rates and declining rents are common as these properties struggle to compete with e-commerce and adapt to shifting consumer preferences. In response, some owners are reimagining these spaces, repurposing underperforming retail assets as logistics hubs or incorporating healthcare and residential uses where feasible. The success of such redevelopment varies by location, with regions like North America and parts of Europe leading in adaptive reuse, while other markets are still exploring viable strategies for revitalizing traditional retail spaces in a way that aligns with local demand patterns. Multifamily rental housing trends evince both regional distinctions and common global challenges. In the US, the multifamily sector has recently seen a surge in new supply as developers have responded to growing demand; however, this influx is expected to be absorbed in the coming years as population growth and ongoing housing needs sustain demand. Globally, housing affordability remains a persistent issue, with the gap between market-rate and affordable housing especially pronounced in high-density urban centres. Across Europe, Asia and Latin America, rising urbanization is straining existing housing supplies, pushing prices upward and intensifying affordability challenges for low- and middle-income households. In rapidly urbanizing regions in Asia and Africa, the demand for multifamily housing is rising, driven by younger populations migrating to cities for job opportunities and improved quality of life. As urban areas expand, ensuring an adequate supply of affordable multifamily housing has become an urgent priority worldwide, with cities aiming to address these shortages to create more inclusive and sustainable housing markets. Mixed-use properties are increasingly important as they provide flexibility in urban environments where space is at a premium and consumer needs are diverse. Mixed-use developments combine residential, commercial, retail and sometimes industrial elements, creating vibrant, multi-functional spaces that enhance convenience and liveability. Cities across the globe – from New York and London to Dubai and Shanghai – are seeing the value of these integrated spaces, particularly as they support community-building and reduce travel times for residents. In regions like Latin America and South-East Asia, mixed-use properties are becoming a more accepted feature of urban planning, as they help alleviate housing shortages while providing accessible amenities. By combining multiple uses, these developments contribute to urban resilience, enabling adaptability in response to shifts in market demand, whether for office, retail or residential space. The demand for data centres continues to grow globally as digital transformation accelerates across all industries, fuelled by increasing data storage and processing needs. Key regions such as North America, Europe and East Asia remain hotspots for data centre investment, with established technology hubs like Virginia, Frankfurt and Singapore leading the way. However, emerging markets in regions like South-East Asia and Africa are also seeing growth as businesses and governments expand digital infrastructure to support economic development. These data centres are often located close to urban areas to reduce latency and improve service delivery, making connectivity to robust power grids and cooling resources critical. The rising focus on energy efficiency and sustainable operations is driving investments in renewable energy and water-saving technologies in data centres, aligning with broader environmental goals. Beyond traditional infrastructure, including roads, bridges and telecommunications, there is an increasing crossover between real estate and emerging infrastructure asset types such as data centres. Some investors consider certain asset types like life sciences to be real estate, whereas others include them in infrastructure. There may be a need in the future for more formal integration. Buildings are also increasingly seen as potential providers of infrastructure, for example, through the provision of electric vehicle charging. # Global markets Consistently attracting private capital is essential for delivering a better built environment. The commercial real estate capital markets have experienced significant challenges in recent years, with a historically abrupt increase in the cost of capital, reduced availability of financing and general economic uncertainty amid shifting demand for space. The impact of these factors has been felt globally, as rising borrowing costs and changing investor sentiment have created a turbulent environment for transactions and capital allocation. However, as the world enters a new phase of economic stabilization and anticipates a more favourable interest rate environment, the outlook for real estate capital markets is improving. In advancing the framework's vision, favourable capital markets are an essential condition, as progress depends on consistently attracting private capital. # 2.1 | Capital markets # Recent challenges: Over the past few years, global real estate capital markets have navigated through a period marked by economic instability, high inflation and geopolitical uncertainties. A primary challenge has been the rapid rise in interest rates, which has affected the cost of capital and reduced access to financing for both existing assets and new developments. To combat inflation, the Federal Reserve and other central banks around the world have implemented aggressive monetary policies, resulting in elevated borrowing costs that have put pressure on the real estate sector. Higher interest rates have increased the cost of financing, leading to lower asset valuations and a slowdown in transaction activity. These forces have fomented a challenging environment for owners and investors, compelling them to reassess asset performance, re-evaluate portfolios and recalibrate capital strategies to better align with these new market dynamics and build resilience into the capital stack. FIGURE 3 Central bank policy rates Global central bank rates. Average realized and expected monetary policy rates by region (percent) Source: Adrian, T., Natalucci, F. & Wu, J. (2024, 31 January). Emerging Markets Navigate Global Interest Rate Volatility. International Monetary Fund (IMF). https://www.imf.org/en/Blogs/Articles/2024/01/31/emerging-markets-navigate-global-interest-rate-volatility. Following a sharp rise in interest rates, global commercial real estate investment volume fell beginning in 2022 through 2023. The market subsequently stabilized and as short-term interest rates ease and investors' bid-ask spreads narrow, the market is poised for a period of recovery and growth. Buyers seeking to deploy capital, both for performing and distressed assets, are foundational to a rebound in investment volumes. Year-on-year volume change in quarterly transaction volume Source: MSCI. # $\$ 400+$ billion in “dry powder” stood ready at the end of 2023. Despite these challenges, there are encouraging signs for global real estate in the equity and debt markets. With inflationary pressures stabilizing and central banks gradually shifting to more accommodative monetary policy, equity and debt are better poised to come off the sidelines. JLL's 2024 Global Capital Markets Outlook estimates that over $400 billion in "dry powder" stood ready at the end of 2023,² positioning institutional investors to re-engage the market, including in higher-yielding and value-add sectors of real estate. Balancing the improving investment outlook, challenges in the cost and availability of debt continue to weigh on capital markets. Even as short-term rates ease, high financing costs pose significant barriers. In some instances, negative leverage has emerged, where rental yields no longer exceed financing costs, prompting institutional investors to pursue higher-return strategies or consider flexible capital structures to sustain returns. This recalibration is echoed by a more selective approach from lenders, who are increasingly cautious, requiring reduced loan-to-value (LTV) ratios and stringent debt-service coverage. This shift in lender priorities is directly impacting capital flows, as lenders favour low-risk, high-quality assets that can withstand economic volatility. Private credit has emerged as a vital component in bridging capital gaps in real estate financing, particularly in areas where traditional lending remains constrained. Debt funds and private credit vehicles are increasingly significant, including in Asia-Pacific, where they are attracting global capital in search of diversification. As private credit expands across the capital stack with structures like mezzanine financing, preferred equity and distressed debt, it is providing investors with greater flexibility while simultaneously supporting market liquidity and stability. The growth of private credit reflects a broader evolution in real estate capital markets, offering innovative financing solutions that help sustain investment momentum and underpin market recovery across various global markets. Price discovery remains an ongoing challenge, particularly for the office market, where the limited volume of recent transactions has made it difficult to determine accurate market values. This challenge is most pronounced in markets like New York and San Francisco, where hybrid work arrangements have disrupted traditional office demand. Furthermore, valuation gaps are apparent between public and private real estate markets, where liquidity and valuation cycles diverge. Public real estate investment trusts (REITs), which internalize market sentiment more observably, often experience immediate and volatile price adjustments compared to private market assets, which adjust more slowly due to infrequent trades and long-term capital commitments. As transaction volumes gradually increase, these valuation discrepancies are expected to narrow, although the pace of alignment will vary by asset class and region. FIGURE 5 US listed REIT returns versus private commercial real estate returns (cumulative total) Note: 1. Listed REITs are often a leading indicator for private commercial real estate. Listed real estate bottomed in 2023 while private was still climbing. Starting in late 2023, listed began recovering while private began hitting its trough. 2. The NCREIF Fund Index – Open End Diversified Core Equity (NFI-ODCE), a commonly referenced benchmark for private real estate that tracks 25 open-end funds owning core commercial real estate, has declined for six straight quarters. Source: NCREIF, Bloomberg, Cohen & Steers. The tightening of lending conditions, while showing signs of easing, has made it more difficult for investors to secure traditional financing prompting a rise in the use of alternative financing structures. # Key trends shaping the future of commercial real estate investment: Shifts in capital allocation and investment strategies: The post-COVID-19 pandemic volatility in commercial real estate capital markets led many investors to adjust their strategies. Institutional investors and lenders, in particular, tended to became more selective during the market's nadir, focusing on assets that offered long-term growth potential and stability – often referred to as core and core plus. These categories traditionally encompass stable, income-generating assets, which have historically included office buildings. Recent shifts in demand preferences and market fundamentals described earlier have strongly influenced the risk perception of those asset classes. As a result, while investors remain drawn to core and core plus for their relative safety, there is heightened scrutiny of what qualifies as "core" in today's environment and alternative asset classes are expected to attract increasing attention. Meanwhile, higher-risk strategies such as value-add and opportunistic investments – which involve enhancing or substantially repositioning assets with an expectation of greater returns – may attract renewed interest as risk-aversion abates with market recovery. At the same time, there is growing recognition of the need for pricing of climate risk and related insurance costs in asset values. These include more careful assessments of physical and transition risks as sustainability and resilience become increasingly important criteria for investment decisions. An evolving environmental, social and governance landscape: Overall, environmental, social and governance (ESG) has become a focal point for both businesses and governments striving to meet global sustainability goals. However, in some parts of the world, ESG has also become highly politicized, leading to polarization that impedes progress towards the framework's vision. Opponents of ESG frameworks might argue that they prioritize social or environmental goals at the expense of economic growth, job creation or energy independence. This politicization can lead to regulatory pushback, as seen in certain US states, where legislation has been introduced to limit or outright ban the consideration of ESG factors in investment decisions. Such measures hinder the ability of businesses and investors to fully align with sustainability objectives, ultimately slowing down efforts to transition to more sustainable practices. The framing of ESG as a political or ideological issue rather than a pragmatic approach to long-term resilience, risk management and profitability creates unnecessary divisions, making it harder to build the consensus needed to address pressing global challenges and, often, to fulfil fiduciary duties. Emergence of alternative asset classes: In response to the shifts in traditional property sectors, investors are exploring alternative asset classes that are less affected by economic cycles. Segments such as healthcare real estate, senior housing and student accommodation continue to gain traction, driven by demographic trends, stable demand and an exodus from more traditional asset classes like office. Additionally, technological advancements are creating new opportunities in areas like data centres, which are seeing increased demand due to the growth of cloud computing and AI applications. Focus on debt and structured finance: The tightening of lending conditions, while showing signs of easing, has made it more difficult for investors to secure traditional financing, prompting a rise in the use of alternative financing structures. Private lenders, debt funds and other non-bank financial institutions are stepping in to fill the gap left by traditional lenders, offering mezzanine financing, preferred equity and other creative capital solutions. While lending standards have eased for many high-quality borrowers and assets, and commercial mortgage-backed security (CMBS) issuance activity has recovered somewhat in the US, the shift to a more diversified lending landscape is expected to continue. Distress will remain a driver of these outcomes for the foreseeable future, with investors seeking flexible financing options in support of acquisitions and refinancing as banks and other legacy lenders work through varying levels of distress, consolidation and refinancing hurdles for seasoned loans. The outlook for distress in regional banks' commercial real estate loans in the US reflects ongoing adjustments in the banking sector, but recent signs suggest a gradual improvement. Regional banks are key capital providers to commercial real estate and typically have more sizeable exposure to real estate than larger banks. According to 2023 FDIC data, the largest banks ( $160 billion plus in assets) had a total of \(4.4\%$ total direct exposure to real estate (multifamily, commercial and construction loans), while banks with assets between \)10-160 billion had $17.8\%$ total direct exposure. While regional banks are still managing a portfolio of distressed loans, and that portfolio may increase in size, there are indications that underwriting standards for new loans are beginning to ease. This shift comes as different classes of lenders cautiously return to levels of activity approaching pre-COVID-19 pandemic norms, providing increased liquidity to the market. While lending remains selective, particularly for assets in weaker segments, easing standards is expected to facilitate refinancing for stabilized properties and new acquisitions. As this gradual recovery unfolds, distressed asset sales and loan workouts may taper, though the pace will depend on broader economic conditions and how effectively banks can manage their exposure across different asset classes. FIGURE 6 US multifamily and commercial real estate quarterly loan default Source: Federal Deposit Insurance Corporation (FDIC). # Regional variation in commercial real estate markets: The outlook for commercial real estate capital markets varies significantly across regions, reflecting differences in economic conditions, regulatory environments and market maturity. In North America, the focus has been on navigating the challenges of high interest rates and adapting to changes in demand for office and retail space. The industrial and multifamily sectors remain strong, supported by solid fundamentals and investor confidence. Cross-border investment in real estate continues to play a significant role in global markets, with the United States, Canada, Japan, Singapore and others accounting for a substantial share of cross-border capital flows. While cross-border investors' share of activity varies widely across regions, their impact is notable in major markets, especially in Europe and Asia-Pacific. In the US, cross-border investment represents a smaller percentage of overall real estate activity, but the dollar volume is considerable. Regional differences reflect diverse market dynamics and regulatory environments, with cross-border investors gravitating towards liquid, transparent markets with favourable governance and investment conditions. FIGURE 7 Cross-border investment: key sources and global distribution of capital Top sources of cross-border capital Share of overseas capital in the top 20 global markets Source: MSCI. The global commercial real estate capital markets are poised for a period of gradual recovery and stabilization as interest rates moderate and investor sentiment improves. In Europe, the commercial real estate market is grappling with economic uncertainty related to energy costs, the monetary policy response to inflation and geopolitical risks. However, prime assets in major cities such as London, Paris and Berlin continue to attract capital, particularly from institutional investors seeking safe-haven investments. In the Asia-Pacific region, the outlook is mixed. Markets such as Singapore and Sydney are benefitting from robust demand for logistics and office space, while emerging markets like India and Viet Nam are seeing increased interest from foreign investors seeking growth opportunities. However, concerns about an economic slowdown in China, rooted in a downturn in the residential real estate sector and over-levered developers, are tempering optimism, particularly in the office and retail sectors. The global commercial real estate capital markets are poised for a period of gradual recovery and stabilization as interest rates moderate and investor sentiment improves. While the challenges of the past few years have reshaped the investment landscape, they have also created opportunities for those willing to adapt to new realities. Moving forward, investors will need to be agile, focusing on sectors and regions that offer resilience and growth potential. Through innovative financing structures and embracing sustainability, the commercial real estate industry can navigate this transitional period and emerge stronger in the years to come. The outlook for commercial real estate capital markets is ultimately one of cautious optimism, with a recognition that the path to recovery will be uneven and subject to ongoing economic and geopolitical uncertainties. Nonetheless, for investors with a long-term perspective and a willingness to embrace change, the opportunities in global real estate remain compelling. # 2.2 | The role of fiscal stability in urban investment Just as stability in the real estate capital markets is an essential condition for investment, sovereign fiscal stability is also necessary to drive investment in real estate. Global cities are at a pivotal point as they navigate an increasingly complex and dynamic environment characterized by rapid urbanization, evolving demographics, climate challenges and technological advancements. To maintain competitiveness, enhance resilience and create an enabling environment for real estate investment, cities must prioritize key areas such as infrastructure, governance, housing affordability and sustainability. These areas require significant public funding along with the ability to attract private capital. According to a recent report by PGIM, 53 cities across the US lack adequate funds to cover their bills, and both China and the UK have struggled with municipal financing challenges. The World Economic Forum's 2022 report, Rethinking City Revenue and Finance, highlights critical financial obstacles, including limited local revenue sources, dependency on intergovernmental transfers and challenges in mobilizing private investment. This reliance on external funding can create vulnerabilities, as such funds are unpredictable or politically influenced. Moreover, urban infrastructure needs, driven by rapid population growth and climate resilience goals, further strain budgets and complicate long-term financial planning. Mitigating these fiscal challenges requires cities to adopt diversified revenue sources and innovative financing models. For example, cities can expand their tax bases through property and land value capture mechanisms, such as development rights charges or tax-increment financing. By leveraging these approaches, cities can create more resilient and sustainable fiscal frameworks to support long-term growth and development. # The pillars Investment in buildings that are more liveable, sustainable, resilient and affordable has never been more urgent. # 3.1 |Liveability Liveable cities of the future focus on compact, mixed-use developments that promote worklive-play models, cultivate social connections and provide equitable access to services. Liveability refers to the combination of factors that enhance the comfort and well-being of individuals and communities at the level of individual assets and their larger communities. It encompasses human-centric and inclusive designs, where social, community and recreational facilities cater to the diverse needs of citizens. With most people spending up to $90\%$ of their time indoors,[5] the quality and design of spaces significantly impact productivity, health and overall satisfaction. Liveable cities of the future focus on compact, mixed-use developments that promote work-live-play models, cultivate social connections and provide equitable access to services. # Key issues and challenges: Flawed urban planning frameworks: Many urban planning frameworks lack adequate flexibility and appropriate levels of density. Some cities do not have robust planning regulations, leading to various consequences. Urban sprawl: Cities and neighbourhoods that are designed around the use of private vehicles and have uses that are segmented, requiring increased travel. Design limitations and poor space planning: Existing building designs that do not optimize space use or support occupant well-being. Building material quality: The ubiquity of building materials, including furnishings, that are made with chemicals that harm indoor air quality and occupant health. # Strategic recommendations: Community-centric development and flexible zoning: Mixed-use real estate and agile infrastructure are critical in enabling individuals to meet their daily needs without excessive transit times. By supporting flexible zoning that can help drive the integration of residential, commercial and recreational spaces, cities can promote vibrant communities where social interaction and accessibility are central. Accessible essential services: Urban planning frameworks that ensure essential services like healthcare, education and retail are within walking distance from residential developments and close to public transit hubs. This reduces dependency on vehicles, removes stress from public transit infrastructure and lowers mobility-related emissions. # CASE STUDY 1 # One Bangkok Mixed-use development and proximity to economic opportunity, essential services and social connection are key components of liveability. One Bangkok, the largest integrated master-planned district in the city, demonstrates the success of mixed-use in driving foot traffic. One Bangkok attracts 90 million visitors annually and connects directly to the city's mass transit systems. With a gross floor area of 20 million square feet, the development includes offices, retail destinations, residential towers, hotels and a live entertainment arena, along with an extensive art and culture programme designed to be inclusive and accessible to the public. With almost half of the development dedicated to green spaces, the public has better access to Lumphini Park and Benjakitti Park, forming a larger green canopy of almost 12 million square feet. Source: Frasers Property Denser urban areas are often characterized by greater innovation, driven by the colocation of diverse populations, businesses and institutions. Well-planned density: It is crucial to reframe density as a driver of liveable cities as it has myriad benefits, ranging from a reduction in transit-related carbon to helping increase housing supply. Baron Georges Eugène Haussmann's re-design of Paris in the 1800s is a testament to the potential for density as it continues to be a sought after global city. Density allows for more efficient use of infrastructure and public services, as concentrated populations make it economically viable to invest in amenities like public transit, parks and healthcare facilities near where people live. Denser urban areas are often characterized by greater innovation, driven by the colocation of diverse populations, businesses and institutions. Research shows that higher urban density is linked to increased innovation, as indicated by a $1.1\%$ rise in patents per 1,000 people for every $10\%$ increase in population density. $^6$ Frequent interactions among people from different backgrounds and fields spark new ideas and collaborations, creating a dynamic ecosystem of experimentation and entrepreneurship. This environment attracts forward-thinking companies and start-ups, accelerating innovation and positioning these cities as global leaders in technology, culture and business. Hybrid work models and office space transformation: With hybrid work models remaining popular, offices are transitioning from static, desk-oriented environments to dynamic spaces designed for collaboration and creativity. The integration of technology plays a key role in this transformation, allowing seamless connectivity between remote and on-site employees. To enhance liveability, future office designs should focus on flexible work zones, co-working spaces and wellness-oriented features such as adjustable lighting and temperature controls. Co-working spaces are another solution poised for growth in liveable cities. With flexibility at the forefront, coworking provides businesses with the opportunity to scale up or down in response to changing needs, which is essential for facilitating economic growth in urban centres. These spaces are often more conveniently located than traditional offices, making them ideal for promoting the live-work-play balance crucial to modern urban living. Spaces that support well-being: Habitability should extend beyond basic needs to ensure that buildings are designed for comfort, health and well-being. This includes enhancing natural light, providing outdoor spaces and ensuring homes are built to withstand changing climate conditions. Inclusive design principles should also consider accessibility for people of all abilities, ensuring cities are welcoming to everyone. # CASE STUDY 2 # Ghaf Woods The provision of green space and proximity to nature, even in dense urban areas, is increasingly becoming a priority as the recognition of benefits from mental health to climate resilience increases. Spanning close to eight million square feet, Majid Al Futtaim's Ghaf Woods development will feature over 7,000 premium residences nestled within a lush woodland. The architecture is inspired by and reflects the natural la