Commercial Real Estate Redefined

A combination of technology advancements and consumer behavior are disrupting commercial real estate, yet from these changes are coming opportunities to redefine an industry that meets demands of both the new consumer and the new tenant. James Eckenrode with Deloitte took to the stage at the Commercial Real Estate Conference 2016 to lead a conversation on how technology and innovation are reshaping not only commercial real estate, but the banking, financial services and investment business across the globe.

Among the disrupters are:

  • The collaborative economy – changing global consumption patterns and social, mobile, analytics and cloud (called SMAC) technologies.
  • The last mile – new business models and product and services innovation.
  • Brokerage and leasing disintermediation – global interconnectedness and data ubiquity and transparency.
  • War for talent – rising urbanization and speed of data access and exchange.

The collaborative economy goes beyond the heavy influence of Uber and Lyft. “Couch surfing,” pop-up retail and co-sharing office space are part of the sharing economy too, and all have an impact on CRE, from hospitality properties to office space to distribution and logistics systems. Increased competition from outside services is forcing CRE to think creatively about design and create flexible options for both new and existing space. Leasing and administration processes are being reinvented as tenants want shorter leases and more options. CRE owners are adapting to a dynamic revenue model based on shorter-term leases, as they move from traditional 3-10 year leases to rentals by the month, week, day or even hour. Good for underutilized real estate, but stressful for companies faced with less certain revenue streams. Overall the growth of the collaborative economy has far-reaching implications, and it’s changing things more rapidly than expected.

The last mile is being transformed as online retailers reshape the traditional supply chain (manufacturing facility to distribution centers to retail stores to consumers) with fulfillment of on-demand, tailored orders and delivery options including same-day, automated lockers for pick up and even drones. 3-D printing is the longer-term trend, going from a novelty to a competitor as everything becomes printable. In China, module buildings are already being printed, significantly reducing construction costs. For the consumer comes the biggest change: As this technology grows and becomes more affordable, the supply chain will be bypassed altogether as consumers will print out everything from sneakers to food.

The biggest impact comes to retailers – analysts estimate that 50 percent of malls will close by 2030. The blurring of the lines between retail and industrial grows deeper, as companies have to decide how to co-manage retail and industrial together:

  • Retail owners can try different store formats, tailored space and innovative techniques to enhance the shopping experience.
  • Retail owners could provide distribution infrastructure in vacant or underutilized space.
  • Industrial owners could acquire and develop urban distribution centers.
  • Industrial owners and property managers can utilize RFID, geotagging and IoT for smart and efficient use of space and tenant services.

Disintermediation of brokerage and leasing is coming from technology advancements that are automating brokerage and leasing tasks, including cognitive and geospatial technologies that create relationships directly between landlords and tenants. New entrants are providing innovative services to both groups, including free and open access to CRE data and comparables, which have traditionally come from bankers. Online listings showcase development opportunities and virtual tours offer property access without setting up a broker tour. The explosion of information available in the public domain has totally redefined the need for brokerage and leasing professionals who are now challenged to diversify, provide customized services and collaborate with start-ups to enhance the experience.

The war for talent is real, with a talent shortage coming in the next 10 years. The Bureau of Labor and Statistics predicts that slow U.S. population growth and the significant retiring of baby boomers are partly to blame. Nearly 62 million new degree holders are going to be needed to fulfill jobs by 2025, with only a projected 39 million obtaining higher education by the same year. Beyond the basic shortage of knowledge workers is how cognitive technologies are reshaping today’s jobs and creating new roles.

For commercial real estate, the challenge comes in locating properties near where knowledge workers want to live and to deliver the spaces where they want to work. There will be a higher demand for mixed-use spaces that cater to millennials’ demand to live, work and play. Opportunities include the redevelopment of existing properties to take advantage of the dynamics, increasing expertise in development and design of these flexible properties, and collaborating with property owners of various property types to create urban environments that millennials want.

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