The future of commercial real estate

Article

The future of commercial real estate in Europe

A scenario approach

The European real estate market is in motion. Depending on where you look, the market has either fully recovered from the financial crisis or is still in the process of recovering. Across the entire European investment market, activity in the last quarter of 2016 was up by 5 % compared to Q4 2015, for a record quarterly transaction volume of €86.8 billion.

Four potential scenarios

“Times and conditions change so rapidly that we must keep our aim constantly focused on the future.” The words of Walt Disney were true then and are even more so today, in times of constant change and high uncertainty. This paper illustrates four potential scenarios on how that change might look like in cities in Europe, and how this would affect the commercial real estate sector. One robust conclusion from our study is this: the real estate industry will be disrupted. Real estate players need to prepare for dramatically changing markets in the future.

  • Scenario #1: Boooom

The "Boooom" scenario describes a future in which new technologies present a high degree of disruptive potential in a broad range of industries. In this scenario, however, the real estate sector has overcome the challenges of the digital era and is thriving on previously unknown technological opportunities. The basis for real estate’s successful integration of technology has been a general economic recovery across Europe and a buoyant housing market. These drivers have made real estate a future-oriented asset class again.

  • Scenario #2: Gotham Country

The “Gotham Country” scenario describes a future in which technology has become the main driver of the economy in general and of the real estate sector in particular. The human element, in terms of construction and facility management, is minimized as a result of automation and technological developments in the real estate sector. The real estate market is characterized by low attractiveness and dwindling returns. As a result, the European real estate sector has not kept step with other regions and asset classes as investment opportunities.

  • Scenario #3: Tech-No! Crisis

The "Tech-No! Crisis" scenario describes a future in which the possibilities of new technologies have disrupted several industries but have proven to be overestimated for the core real estate industry. Additionally, the turnaround in the interest rate policy of the European Central Bank has led to a dramatic fall in real estate asset prices and further declining total returns, especially compared to other asset classes.

  • Scenario #4: Lazy Bone

The "Lazy Bone" scenario describes a future in which new technologies have pushed into most industries and markets worldwide, changing the way we live. However, the real estate industry has not followed this global trend, with digitization being only a niche trend. Global markets keep on booming and capital inflows to the real estate sector are secured for a long time. Thriving industries lead to low real estate vacancies and high rents. The pressure to upgrade buildings for digitization has proven too low. 

The future of commercial real estate

Real Estate Predictions 2017

In the beginning of this year we published our eight predictions for the real estate sector, which are now documented in the 'Real Estate Predictions 2017 report'.

19/01 Cyber Risk

26/01 Crowdsourcing

02/02 Smart Mobility

09/02 Future of Work

16/02 Blockchain

23/02 Standardization

02/03 Ports

09/03 Smart Cities

Real Estate Predictions 2017

Real Estate Predictions 2017 event

In May or June we will organize the Real Estate Predicitons 2017 event 'Smart and connected Real Estate'. Would you like to join us? Pre-register here. Please note that this is not the official registration. We will keep you updated about the registration procedure and other details as we get closer to the event.

Real Estate Predictions 2017 event

Pre-register

More information?

Want to know more? Please visit our Real Estate website or contact Wilfrid Donkers via WDonkers@deloitte.nl or +31 (0)88 288 1890 or Paul Meulenberg via PMeulenberg@deloitte.nl or +31 (0)88 288 1982.

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