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Perspectives

Commercial Real Estate Industry Outlook

How will disruptive forces impact the commercial real estate sector on a large scale and drive transformative, long-term change?
Commercial Real Estate Industry Outlook

Perspectives

Commercial Real Estate Industry Outlook

A nexus of technology advancements and consumer behavior changes

The convergence of one or more technologies is leading to fast-paced, big-bang disruptions in many industries. How will disruptive forces impact the commercial real estate sector on a large scale and drive transformative, long-term change?

Disruptive trends in the commercial real estate industry

Commercial real estate redefined

There are a number of dynamics that have great potential to fundamentally change the commercial real estate (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 commercial real estate industry:

  • Collaborative economy
  • Disintermediation in brokerage and leasing
  • War for talent
  • The last mile

This outlook is part of Deloitte’s Financial Services Industry Outlooks series, which provides disruptive trends and bold predictions over the long term for banking, insurance, investment management, and commercial real estate.

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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 commercial real estate, 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 commercial real estate players.

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Collaborative economy

Key takeaway:

 

Technology advancements, consumption and lifestyle patterns, and societal factors are driving the rapid growth of the collaborative economy.

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.

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Disintermediation of brokerage and leasing

Key takeaway:

 

Technology enhancements can further disrupt the traditional brokerage model that already obviates the need for human touch by revolutionizing data ubiquity and transparency, and by providing even more information to tenants.

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 commercial real estate is developed and how it is used.

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War for talent

Key takeaway:

 

Millennials who will comprise 75 percent of the workforce by 2030, prefer an open and flexible work culture that allows them to work anywhere, anytime.

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.

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Key takeaway:

 

A large part of experiential retailing is being driven by increased competition from the exponential growth in online retailing, a trend that continues to lower entry barriers and fragment the industry.

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.

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Key takeaway:

 

Disruptive forces have the potential to redefine the current property market segmentation of primary, secondary, and tertiary, and consequently, valuation.

Discover more Industry Outlooks

What are the key trends, challenges, and opportunities that may impact your business and influence your strategy in 2016? Find your industry and access perspectives and insights from some of Deloitte’s forward thinkers.

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Robert T. O’Brien

Global Real Estate Sector Leader