Deloitte: Investors Losing Interest In CRE Laggards
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Global investors are planning to ramp up their capital commitments to commercial real estate, particularly in the United States, Germany and Canada, Deloitte said in its 2019 Commercial Real Estate Outlook.
But investors are also becoming more selective. They are more interested than ever in nontraditional assets, such as mixed-use properties, and new business models in CRE, such as properties with flexible leases or coworking, Deloitte said.
Investors likewise want their properties to be more technologically sophisticated, the better to attract and keep tenants. The Deloitte report is based on a survey of about 600 global investors.
How can properties attract the attention of investors committed to investing in newer business models and tech-enabled ecosystems?
Owners should reconsider their existing tenant mix, since physical spaces that offer diverse experiences are providing an opportunity to yield higher occupancy and rents, the report says.
CRE companies would also do well to consider using artificial intelligence and predictive analytics for smarter tenant repositioning.
For example, some retail owners are now offering empty mall space to retail incubators or even as coworking space, Deloitte said. Retail incubators get a marketplace to demo their products before they otherwise expand, and people in coworking spaces get more networking opportunities and increased walkability.
Companies can also offer short-term leases or a hybrid along with longer-term leases, the report says. With increased business uncertainty, traditional tenants are looking at more flexible leases, while the less traditional tenants already thrive on such leases.
While commercial real estate has been slow to embrace technological innovations, the report found that investors’ expectations indicate it is time to take a more proactive stance.
CRE companies should invest in core technology systems that are more dynamic, automated and easier to integrate with emerging systems, Deloitte said. For instance, one core application could include smart building management systems, which carry out automated procedures and track building operations.
Investors' interest in nontraditional and more tech-oriented properties comes against a backdrop of a rising investment volume in CRE. According to Deloitte, global commercial real estate transaction volume increased 13% during the first half of 2018 compared with the same period in 2017, to $341B.
The Americas’ volume rose by 9% year over year to $132B for the same period, and the United States led the Americas’ growth with a volume of $122B, up 11% over the previous year.
The trend is expected to continue, as 97% of the respondents to Deloitte's survey plan to increase their capital commitment to CRE over the next 18 months.