Keep An Eye Out for These Commercial Real Estate Developments

Commercial Real Estate Trends to Watch in 2020

Commercial real estate executives recognize the need to invest in technologies that improve the experience of customers, but often do not invest in them fast enough.

Workforce patterns, migration and urbanization are reshaping customer expectations, and a number of emerging digital and AI innovations are helping commercial real estate (CRE) businesses address these demands and optimize end-user interactions, according to Deloitte’s 2020 Commercial Real Estate Outlook survey findings. The study drew on a survey of 750 CRE executives in 10 countries to determine whether, and to what degree, new technology and analytics help leaders make more educated location choices and improve tenant experience.

Overall, CRE executives found interest rate volatility, regional sector instability and tenant concentration threats to be their biggest obstacles. Respondents, although largely moderately hopeful, have divergent opinions about how the CRE sector will do by 2020: 15% are extremely positive, 61 percent are very hopeful, 14 percent are bullish, and 10 percent are negative.

Jim Berry, vice-president and director of Deloitte & Touche LLP, and Deloitte, U.S. Real Estate chief said that Asia’s global respondents are the most positive, followed by those from North America and Europe, while U.S. respondents expect property dynamics to be fairly favorable for the coming year.

The Digitalization Problem

The survey found that tenant tastes are evolving due to increasing demand for urban and global imports, shifting labor needs such as mobile positions and workspaces, and technological advancements such as AI and the Internet of Things (IoT). The on-demand economy is reshaping consumer preferences about how real estate is being used, and technology-enabled facilities and customized service are already changing the CRE sector, according to Berry. Creating superior environments is not only about serving the customer, but also providing resources to the end user or the day-to-day user of that space, such as a shopper or an employee in an office space.

Although most CRE executives view tenant engagement as a top priority, the skill of their digital tenant engagement is not a core competence. Surabhi Kejriwal, research chief for Real Estate, Deloitte Center for Financial Services, Deloitte LP said that CRE companies believe it is important to invest in technology to improve the experience of clients, but the survey found that most are not planning to invest in them soon, while 64 percent of executives surveyed report raising their technology expenditures over the past 18 months, only 56 percent recorded want to significantly (14 percent) or moderately (42 percent) get their tech investments to a higher level by the end of 2020.

The Digitalization Problem in real estate

Digital Improvements to Customer Experience and Back Office Operations

The research identifies many ways in which CRE companies can adapt to the increasing demand for digital engagement, improve organizational and decision-making efficiency, and tackle issues resulting from the expanded usage of digital technologies:

Promote smart building adoption

IoT is now an increasingly critical factor in improving the experience of tenants and end-users. Surveyed CRE executives expect that IoT-enabled smart buildings will have a growing effect on tenants’ leasing decisions: 61% of respondents agree that smart buildings will be just as or more important than the position of tenants’ leasing decisions. In fact, 68 percent assume that renters will pay at least 6 percent –10 percent premium for a smart house.

As of June, 70 percent of the CRE executives surveyed state that one-fifth or fewer of their assets are smart buildings, but 56 percent note that their business plans to dramatically expand its investment in smart buildings by the end of 2020.

Promote smart building adoption

In phases, IoT technologies can be added to reduce risk and to allow improvements over time. Companies should make increasingly greater investments in existing and new buildings to make them IoT-enabled, emphasize smarter electricity, protection and parking services, incorporate charging points for electric vehicles and predictive maintenance, and eventually, evaluate occupant behaviour data and predictive capabilities.

Improve the ability to collect data

According to the report, most CRE organizations have not yet thoroughly investigated how to collect and use knowledge to enhance decision-making, enhance organizational efficiency, and create differentiated tenant experience. For eg, 60 percent of respondents claim that their organizations do not collect their own IoT sensor data. One explanation is possibly because many CRE companies are not explicit on who owns the data and who has the right to access it, according to Saurabh Mahajan, manager at the Deloitte Center for Financial Services.

About two-thirds of respondents find the owner or developer of the building to be the data holders. The remaining one-third say it’s either the property manager or the tenant who owns it, or they don’t know. For the 40% for respondents whose companies collect data internally, three-quarters use data to gain insights into decision-making, about half use data to improve operating efficiency, and 40% use data for more pragmatic business decisions or future planning activities.

Unlock the AI information value

When CRE businesses expand their data collection activities through technology such as IoT systems, mobile apps and augmented reality, the next move is to use the data. AI will test a number of conventional and alternative data sets with speed and precision to enhance decision-making and strategies.

AI is in the early stages of acceptance in the CRE industry – fewer than one third of respondents say their CRE companies are using it – but awareness of its importance is growing. AI will help companies analyze indicators and behaviors to forecast tenant activity and turnover, allowing more informed selection of tenants. Many AI value-creating tools for CRE companies include automating the leasing process and helping to identify potential sales tools.

Strengthening cybersecurity and privacy

As the use of advanced digital technology grows, the scope and sophistication of cyber threats is also increasing. Respondents find flaws in multi-vendor linked networks and third-party service providers to be the largest data security concern. For example, smart buildings may capture a variety of building activities and personal information from occupants, employees and customers. The information is monitored and collected by multiple sensors that are attached to multiple vendor systems and increase risk exposure. Most CRE companies outsource data management to third parties, which may pose further data security issues.

Update Talent Models

For many CRE organisations, their performance in solving these areas will also likely depend on their ability to address talent needs and challenges. Whether it is handling a range of data governance tasks or using AI, they will need to recruit, maintain and develop professional talent with unique skills customized to each region. For example, 45 percent of all surveyed organisations face challenges in cyber security management due to the lack of trained cyber security experts, while 52 percent of respondents globally and 57 percent from the U.S. found lack of adequate expertise to be a major challenge in the implementation of AI technologies.

CRE companies will tackle cyber security skill gaps by adding more integration through cyber security systems to help manage with fewer resources and by contracting certain technology expertise. For AI, CRE organizations should rehabilitate existing talent, hire new talent with advanced AI expertise, or partner with proptechs who specialize in creating and applying AI-based solutions to resolve talent challenges in the short term.

Adapting to Different Rates of Operation and Security

CRE tenants and end-users connect with their physical environments in a a way that is changing rapidly. Expectations are often shifting as a result. Because the preferences of tenants and end-users of real estate and the manner in which they interact with their physical world are changing rapidly, CRE businesses need to change their focus to delivering real estate-as-a-service. According to Barry, this involves using data to grasp the actions of tenants and to create unique experiences.