November 30, 2022
What is the Future of the Commercial Real Estate Industry?
The last two years have hard-pressed most industries, and real estate is no exception! When the COVID-19 pandemic hit the planet in 2020, businesses were forced to close down, people had to work from home, and the real estate industry nearly came to a screeching halt. Now that we are overcoming the pandemic, every sector is quickly getting on its feet. So, if you are new to the property market or a veteran who wants to consider options, you must ask the big question, "What is the future of the real estate industry?" This post takes a closer look at the industry to identify the common problems facing it and the emerging trends shaping its future. Keep reading to learn more and orient your company in the right direction for success.
Major Challenges Facing the Commercial Real Estate
The real estate industry, like other sectors, is shaped by the challenges that face it along the way. Indeed, these challenges might also help to create alternative trends that real estate developers and managers can focus on to grow to the next level. Here are some of the problems that you need to know:
- The rise of the sharing economy: Many real estate companies that have adopted traditional commercial models, especially in the hospitality niche, are getting upset by the sharing economy. Instead of booking hotels, visitors prefer Airbnb.
- The new trend to work from home: The work-from-home model, which became pretty popular during the pandemic, has changed people’s views of the workplace. Now, some enterprises are opting to ask their staff to work from home. This could result in reduced demand for office spaces, which were previously considered premium.
- Climate change: The problem of climate change has become a serious threat to most sectors. In the real estate industry, climate change is threatening to tear everything down. Now, every stakeholder wants to see a comprehensive commitment from every property company to address this challenge. If you follow the traditional way of property development, investors are likely to walk away.
The Future of Commercial Real Estate
The challenges we have listed above are only a few of what await developers and dealers in the commercial real estate industry. So, you have to be more dynamic and explore solutions to every challenge innovatively. So, let’s highlight the future of the industry:
Dedicated offices or workplaces that people are used to are changing. Instead, we are shifting to the era of hybrid working. This means that the way people are used to full-time office occupancy the entire week and all month long is changing. Therefore, this flexibility is crucial in defining the future of real estate.
The flexibility is not just aimed at responding to the shift in demand but also at dynamically changing the working environment to suit varying purposes and working styles. So, what might a real estate company offer to help cater to this flexibility? You might want to design office properties with the aim of attracting investors targeting shared spaces. This is a type of office design where small companies or organizations that are scaling can rent one or more ready-to-use desks/ spaces.
We must say that the demand for flexibility is only getting started. As a real estate developer, you have to be more flexible to identify emerging trends and take advantage of them. You might also want to work with a research and development (R&D) team that can help to improve the shared workspaces. For example, Climate Fresk can help you craft more sustainable strategies for your designs.
We are in the era of sustainability. After years of push and pull about the application of sustainable practices, the truth is finally out: every action has some impact on the planet and people’s lives. This is why sustainability has become the future of most industries, and real estate is following the same trend.
Sustainability is the measure of a real estate’s environmental, social, and governance (ESG) impacts and efforts to address them. The demand for sustainability is at its peak, with every buyer demanding a high ESG rating before making the decision to buy or rent a property. If your real estate company has not been rated or got a very poor ESG score, there is a danger of getting ignored by investors. Other factors making sustainability the future of the industry include:
- Capital Markets are Focused on Promoting Sustainability
Are you targeting to list your real estate company on the capital markets? One of the requirements is that companies have to be sustainable. From the London Stock Exchange (LSE) to Hong Kong Stock Exchange (HKEX), the new trend is to push companies to operate more responsibly. Let’s look at HKEX.
In 2020, Hong Kong passed new legislation requiring all listed companies to prepare ESG reports. These reports are comprehensive plans that demonstrate what the companies have done to mitigate their ESG impacts. In addition, the legislation requires companies to explore future risks and craft ways of overcoming them.
As a real estate firm, it is important to appreciate that the requirement for future prediction has made more investors troop to HKEX because the companies are likely to be more resilient. For example, most companies are drawing contingency plans to counter challenges such as the threat of the recent pandemic. Therefore, investors are assured of steady returns from their investment, no matter the challenges ahead.
Remember that the reports prepared by listed real estate companies and other firms must strictly adhere to the principles of ESG reporting, such as accuracy, equity and continuity. So, is your property firm ready? The best way to adhere to these rules by the capital markets is to work with experts, such as Climate Fresk, for assistance.
- New Laws and Policies are Emphatic on Sustainability
Like the capital markets, governments are also passing laws pushing for sustainability. These legislations are all anchored on the need to counter different threats facing the planet today. Some of them include growing levels of waste, loss of biodiversity, and wars in different parts of the planet. One example of this legislation is Taxonomy, which was passed in 2021.
The law acts as a guideline that gives stakeholders a checklist to establish whether the actions of companies of interest are sustainable or not. This leaves real estate companies or property managers with no place to hide. Every investor, tenant, or licensing authority wants to know if you are committed to sustainability. The law also gives specific guidelines on reporting metrics that your company should focus on every year.
Individual countries also have or are developing laws requiring commitment and reporting on sustainability. For example, the UK and New Zealand are planning to make ESG reporting with the Task-force for Climate-related Financial Disclosures (TCFD) mandatory for all companies.
High Energy Efficiency
Energy efficiency is also an important defining component for the future of the real estate industry. Most buildings use a lot of energy, which ends up taking up the bulk of the costs of operations. Investors are looking for properties that can help them to keep the cost of running their buildings low. For example, a company looking for new offices will prefer those designed to maximize natural lighting to reduce electricity bills.
To cut down on energy use, real estate developers are using some of the best innovations in their facilities. These innovations have become the defining points for most properties. Here are some of them:
- Use of energy-saving LED lamps: These are lighting fixtures that use diodes instead of the filaments in incandescent or traditional lamps. With LED lamps, you can cut lighting-related energy costs by up to 75%.
- Installing CONTINEWM in HVAC systems: Air conditioning takes up a huge chunk of energy bills for most buildings. However, you can cut down this energy use by about 50% when you use CONTINEWM. This is a device that is fitted on the front part of the heat exchanger, where it releases negative electrostatic charges to facilitate the smooth flow of air. Apart from increasing the energy efficiency of HVAC, CONTINEWM is easy to install and requires limited maintenance.
Focus on Technology
This list cannot be complete without including technology. According to a study done by Deloitte in 2021, 45% of real estate brokerages are focusing on investing in advanced technologies for assistance at different levels of building life cycles. Common areas of focus for the industry include digital channel development, robotic automation, cloud, and artificial intelligence (AI).
Advanced programs are being used to simplify the process of planning, building design, and construction. Using AI and data analytics, real estate companies are able to avoid accidents, shorten building projects, and customize structures based on customer needs. Other areas where technology is being deployed with impressive results include:
- Water management through sensors and special software: This technology ensures that faucets only release water when a person is using the sink. Then, it automatically switches off the water to reduce losses.
- Smart energy management systems: In addition to CONTINEWM, real estate companies are also using smart energy management systems to ensure that HVAC and lights are turned off when rooms/ offices are unoccupied.
This post has demonstrated that the future of real estate will be defined by a number of components, including sustainability and energy efficiency. Therefore, you have to look at these trends and align your strategies with them. Remember that it is always important to progressively review your goals and the shifting demands of the industry because different generations have varying needs. Make sure to also work and walk with international partners, such as Climate Fresk, for expert assistance on sustainability matters.