Commercial Real Estate Industry Outlook

CRE Redefined

There are a number of dynamics that have great potential to fundamentally change the CRE business over the next decade. Market disruptors in technology—including cloud computing, mobile, social media, and analytics—have primed the sector for some of the most important shifts in its history. It’s important that industry leaders continue to think about the longer-term strategic issues at play and how they can stay ahead of the disruptive forces.

In our inaugural longer-term outlook, produced by the Deloitte Center for Financial Services, we have identified four themes that we believe will result in significant disruption for the CRE industry:

·         Collaborative economy

·         Disintermediation in brokerage and leasing

·         War for talent

·         The last mile

Collaborative economy

Based on the premise of “on demand,” technology advancements, consumption and lifestyle patterns, and societal factors are driving the rapid growth of the collaborative economy. Companies such as Uber and Lyft are leveraging technology to offer on-demand taxi services, reducing the need for car ownership. This trend can be equally applied to CRE, as collaborative space usage is gaining prominence in places where one lives, works, and plays.

Our CRE forecast:

The growth of the collaborative economy will have far reaching implications for traditional CRE players.

Disintermediation of brokerage and leasing

Technological advancements are increasingly automating brokerage and leasing tasks and activities, bringing down barriers between potential tenants and real estate owners. Developments in cloud computing combined with mobile and social media are resulting in cost-effective and real-time availability of property information and are enabling many leasing activities online. This has reduced entry barriers for niche and smaller companies.

Our CRE forecast:

There is every possibility that the current brokerage model will undergo a metamorphosis over the next decade.

War for talent

The talent gap and evolution in the talent marketplace will have a significant impact on where CRE is located and the way it is designed and used. There will be greater demand for integrated urban-lifestyle centers that cater to the live, work, play mantra.

Because of this trend, mixed-use spaces that include office, residence, and recreation options will be favored over stand-alone properties. Offices could morph into an office-as-a-service model, acting as physical meeting points rather than daily workplaces. Further, the increase in contract workers, or talent preference for flexible work locations, will result in knowledge workers preferring to work from home, with many tenants demanding small offices in their apartments.

Our CRE forecast:

We believe the war for talent will have a significant impact on where CRE is developed and how it is used.

The last mile

We believe disruption in manufacturing and retail and consequently last mile connectivity will significantly impact retail and industrial properties.

Brick and mortar stores will still remain integral to creating customer experience, but primarily for products that require ‘touch and feel’ or have significant service components.

Our CRE forecast:

We believe technological developments and consumer demand for speedy delivery will significantly impact last-mile connectivity as well as the demand for both industrial and retail real estate.

Disrupt or get disrupted?

The writing is on the wall: CRE usage will undergo a metamorphosis over the next decade.

Deeply rooted in the convergence of technology and evolving consumer behavior, the physical and digital worlds are blurring fast. While the collaborative economy will redefine the use of every kind of property, the war for talent will promote demand for mixed-use space.

Disintermediation in brokerage and leasing will disrupt and significantly transform the age-old brokerage business. And retailers’ and manufacturers’ rush to meet ever-increasing consumer demand for speed through last-mile delivery will blur the lines between retail and industrial properties.

These disruptive forces have the potential to redefine the current property market segmentation of primary, secondary, and tertiary, and consequently, valuation. Incumbents will have to be smart about their location strategy as property location will be more important than ever. They will have to focus significantly on designing or redesigning flexible physical space that can be customized to tenant and ultimately consumer needs in order to remain relevant.