Real estate leaders eye improvements amid uncertainty

HLB's Survey of Business Leaders - Real estate analysis

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Key survey findings at a glance:

  • Real estate business leaders are more optimistic about the economy than their global peers.
  • Leveraging digital technology and improving digital capabilities is one way real estate leaders are responding to the changes brought on by the pandemic
  • 45% of real estate business leaders plan to reassess their supply chain to source closer to home, which is 14% less than their peers

The global financial crisis of 2008 and 2009 left a deep impression on real estate professionals, making them wary about a post-pandemic future. However, many are embracing initiatives to build resilience while optimising operations. 

Since the real estate industry depends on diverse sectors, from retail to industrial, outlooks and business-related strategies vary. Nevertheless, leaders are centring improvement goals on cost management and operational efficiency while strengthening digital capabilities. 

To determine how real estate experts are adjusting and adapting, we reviewed data from our global HLB Survey of Business Leaders. Our study asked executives about their twelve-month outlook, main priorities, and perceived weaknesses. Furthermore, we examined objectives in critical areas, such as talent acquisition and approaches to environmental issues. 

Although the vaccine rollout improves prospects for the second half of 2021, our research suggests a lengthy recovery period. Industry leaders will focus on streamlining and restructuring processes to remain competitive and thrive in the years ahead.

Real estate expectations: Economic outlook

Looking forward to the next twelve months, 22% of real estate leaders believe the rate of global economic growth is likely to increase, and less than half expect a decline. These results suggest that real estate professionals are slightly more optimistic about the economy than their global peers. Still, everyone agrees that the top two risks to growth are economic uncertainty and the impacts of COVID-19. 

According to CBREproperty values for global commercial real estate (CRE) won’t find their bottom until later in the year. In addition, we could see a decline in rental growth, with vacancies continuing well into next year. 

At this point, leasing companies may keep the same asking price for units, but they’re prepared to give a bit in terms of concessions. Few in the real estate industry were immune from the pandemic’s impact, and most face uncertainty in the market.

When will values stabilise?

As things progress, city centres are better positioned to navigate change. Various real estate sectors, such as data centres, industrial properties, and single-family homes, may increase in value while retail and hospitality buildings may decrease. 

Part of the property valuation problem stems from an exodus of people from crowded urban areas, with a noticeable shift in London, New York, and Tokyo. However, it’s unclear how workplace social distancing policies and increased virtual work will affect office building values. 

Companies may downsize square footage to account for remote staff. Others will seek buildings with fewer offices but larger, well-equipped collaboration spaces. Going forward, brands may reassess property value propositions to focus on amenities. 

The bottom line is that leasing space and selling buildings aren’t close to price discovery yet, and the downward trend for certain real estate divisions may last through the year. To this end, real estate executives express less confidence in their own growth prospects, with 65% reporting feeling confident or very confident, compared to 75% of global respondents. In addition, only 12% feel very confident. 

Although economic uncertainty and COVID-19 are agreed-upon barriers to growth, real estate leaders are less concerned than their global peers about disruptive technologies, environmental or climate issues, or exchange rate volatility.

Actionable steps for real estate growth 

In 2021, leaders will focus on several growth activities, with responses for the top two priorities comparable to their global peers. 57% report improving operational efficiencies as a top goal, and 51% want to reduce costs. Building organic growth and developing strategic alliances or joint ventures also ranked high. 

Increasingly, real estate professionals consider strategic partnerships as a key to growth. In CRE, a design firm can help reimagine commercial real estate properties or identify high-value amenities driven by changing behaviours and workflows. 

Moreover, real estate leaders look for opportunities to connect with proptech companies to enhance tenant relationships. For example, mobile applications can improve the digital tenant experience by providing real-time building updates and an online space for community interactions. 

Core areas for improvement 

Efficiency, digital capabilities, and talent acquisition are the prime areas real estate leaders noted as business gaps. They plan to focus on these aspects over the next twelve months. But, 24% of leaders also pointed out identifying new partnerships as an area for priority over the next 12 months. 

Cost management via operational efficiencies is a crucial driver for leaders across industries. Yet, digital capabilities are essential to increasing efficiencies. Traditionally, the real estate industry has been slower to adopt new technologies, explaining why they consider it a weakness. Moving forward, going digital will be critical to achieving other goals, such as talent acquisition, operational efficiency, and resilience. 

Digital capabilities for financial and operational resilience

When looking at digital capabilities, the top five priorities are cloud computing, the internet of things (IoT), artificial intelligence (AI), robotics process automation (RPA), and 3D printing. Real estate executives aren’t short on innovation, but they need to upgrade technologies and skillsets to meet today’s demands.

IoT sensor data is increasingly important in the real estate industry. Successful implementation can help build trust and increase engagement with tenants. Furthermore, it can drive decision-making. By analysing tenant behaviour and preferences, owners can see how renters use amenities, enabling property managers to provide personalised experiences. Tenant data also is used to forecast potential lease renewals and develop custom retention strategies. 

By leveraging IoT and AI to collect data, real estate leaders can manage or survey properties in real-time while adjusting activities to account for fluctuations in the demand or supply of spaces. Data suggests that tech investments in property operations and management can help real estate professionals get a clearer view of operations and productivity. To boost resilience, companies plan to:

  • Analyse business workflows and processes
  • Identify ways to decrease redundancies and restructure
  • Update asset management systems
  • Automate or outsource non-core activities
  • Use the cloud, RPA, and AI to  modernise the leasing process

Real estate also has a keen interest in exploring 3D printing, partly due to the convenience and speed of modular construction enabled by 3D printing. Additionally, 80% agree that technological advancements will help overcome cross-border business challenges. Although real estate professionals outsource work overseas, technology has not solved everything, with many leaders experiencing that some systems and processes are not being able to be automated.   

Bolster talent and diversity initiatives

With talent acquisition ranked as a vulnerability, real estate leaders aim to improve it. However, advances in this area rely on increasing digital capabilities. Leaders must find ways to appeal to and retain a multigenerational workforce. To do this, companies will assess processes, redesign job roles, and improve recruiting strategies while focusing on diversity and inclusion. 

For D&I priorities, 86% of real estate leaders agree that building diversity in boards and the workforce is increasingly important. 93% say it’s essential to ensure equal support and opportunities. D&I initiatives can result in a stronger brand from improvements to profitability, creativity, employee morale, and productivity. In the future, hiring managers can expect to hear questions from job candidates about D&I initiatives and the company’s community involvement. 

For those who boost talent outreach to underserved and minority communities, the rewards can be significant. 78% of real estate leaders believe a more diverse and inclusive workforce will ultimately improve financial performance.

Although many industries have similar objectives for talent acquisition and D&I, fewer real estate leaders believe remote work will affect hiring. Globally, 65% think flex or virtual positions will attract diverse talent versus 51% of real estate professionals. Could it be assumed that the sector doesn’t lend itself to remote work, due to its perceived interpersonal nature? Or should we conclude the fact that real estate management have been less willing to embrace virtual work for any position, including those with limited public interactions which is reflected in the responses. 

The human impact: Wellbeing and in-person interactions

During the pandemic, the real estate industry felt the strain of social distancing, as did so many others. Digital technologies, such as virtual reality or drones, may offer 360-degree property views, but nothing beats showing a property in person. 

Accordingly, 82% of professionals feel that remote work and social distancing make it harder to deliver the value of human touch. It’s also an issue of seller-buyer relationships, with 39% of leaders saying that remote work and social distancing are detrimental to establishing trust.

Leaders express concerns about virtual workforces, with 51% feeling that it affects collaborative working and 31% suggesting it thwarts creativity. Balancing a public health crisis with work-related goals isn’t easy. Similar to global leaders, real estate executives overwhelmingly agree “that staff physical and mental wellbeing is a top priority for our human resource department.” 

Going green in real estate

Climate change and green initiatives continue to fuel innovation in the real estate arena, with 71% of business leaders making changes to their business to profit in the low-carbon economy. Increasing digital capabilities and choosing purposeful alliances can further environmental plans. 

New partnerships with smart building designers assist in reconfiguring spaces to attract and retain tenants. IoT devices and sensor technologies help leaders visualise space use and automate building maintenance and management processes. 

Eco-friendly buildings and actions aren’t just about bettering the climate. They can build a better brand. Leaders understand that their clients are under pressure to lighten their industrial footprint or comply with potential new regulations. Real estate leaders can adjust their value propositions to meet clients’ potential needs by rethinking ways to utilise space and build new ones. 

New construction and supply chain challenges

Real estate segments experience varying levels of supply chain issues, with 45% saying they’re reassessing their supply chain to source closer to home, which is 14% less than their global peers. For those eyeing new construction, materials in short supply have led to steep increases in building costs. 

Leaders can avert a possible crisis by diversifying supply lines and looking for local manufacturers when possible. This does the double duty of making businesses more environmentally friendly and less reliant on trade relations.

Looking ahead: Streamline and thrive

The push for leaner operations and cost containment isn’t without challenges. However, 96% of business leaders based in this sector are confident in their ability to successfully steer the business in a new direction in response to the impact of COVID-19. Although 2021 brings uncertainty, real estate leaders are well-positioned to navigate what lies ahead.

Methodology

Findings in this article are based on 51 survey responses from real estate business leaders collected in quarter 4 of 2020, as part of HLB’s Survey of Business Leaders 2021. The majority of businesses surveyed are privately or family owned. Thank you to Stephen Newbold from Colliers International for his valuable input. For the full research report see HLB’s Survey of Business Leaders 2021: Achieving the Post-Pandemic Vision: leaner, greener and keener. 

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Ralph Mitchison

Global Real Estate & Construction Industry Leader

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