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Report: Industry is Entering the Age of “Responsive Real Estate”

CBRE, San Francisco, Seattle
Image Courtesy of CBRE

By Meghan Hall

The commercial real estate industry has a reputation for the sloth-like nature in which it changes. Over the next ten years, however, the commercial real estate industry is expected to see some major shifts according to a CBRE global outlook report. Ultimately, as technology and demographic shifts continue to infuse themselves into commercial real estate, there are ten major trends that CBRE believes will come to fruition by 2030. All of the trends fall under one main theme: they will make real estate more responsive to industry needs than ever before.

“I think what this [study] was really we were conscious that there are three big, mega trends that are driving real estate markets,” said CBRE’s Global Chief Economist Richard Barkham. “We saw big trends through technology and digital and demographic change, and economic growth. So those three factors, I think, created a positive framework for real estate, but also one in which we saw real estate becoming more responsive to human need than ever in the past.”

For those at CBRE, responsive real estate is more than just the standard, long-term lease in which landlords are largely passive once they hand over the keys. Through innovation like artificial intelligence and data, to Gen Z’s cultural influence on the way firms work, real estate will bend more to cater to the needs of individual companies.

“There has been a tendency for properties to look more or less the same, and for owners to offer fairly standardized leases to users, who then have to adopt a one-size-fits-all approach to their organizations,” explained Barkham. “But I think now, landlords are better able to offer a menu of services, from basic, low-cost accommodation through a whole range of different services that can be supplied…”

CBRE touches on ten major topics in its report, which includes everything from the 5G workplace, which Barkham, to investment through the use of  AI, to retail’s changing environment, which CBRE believes will become “phygital”—a combination of physical and digital. However, there are a few trends which Barkham believes will be the most impactful in the years to come.

The first, and one that is already well underway, is the fluidity of the workplace. While many are initially inclined to believe that this pertains primarily to workplace design, CBRE points out that it also includes another big factor: “the office” now can pertain to almost any physical environment where one reports for work. As a result, by 2030, many companies will be mostly mobile, and employees will be able to take advantage of a network of locations in which to go into the office.

Since 2004, the number of people who stated they were conducting some of their work outside a traditional workplace setting grew by 38 percent. The number of people who now are conducting most of their work outside of the usual office setting grew by 79 percent over the past fifteen years.

“I have to say, if anything is going to nudge or accentuate [a trend], it is the current circumstances of working from home,” said Barkham. “…Organizations are increasingly not going to require people to come to one place to work, nine to five, every day, of every week. That model is rapidly disappearing.”

However, Barkham also notes that offices will not disappear entirely either, and that going to work is an inherently social activity, one that requires proper management, even if employees have the ability to work elsewhere. That, is also where another change will come: more than ever, companies are hiring a Chief Places Officer, a position designed to bridge the gap between technology, real estate and employee productivity. 

“Above all, this person will be more than a connector and stakeholder,” CBRE states in its report. In an increasingly fragmented workplace, people still must feel a sense of belonging to a strong corporate culture that values ethics as well as performance.”

The flexibility and fragmentation of the physical workplace will also lead to another trend, what CBRE has deemed the “hotelification” of real estate. Hotelification is already forming as a movement, as landlords create new, flexible business models and concierge-style services in an effort to lure tenants, particularly in the nation’s most competitive commercial real estate markets.

“The way in which hotels operate is that the hotel chains, they don’t own the real estate. They brand it and manage the experience,” emphasized Barkham. “We see a portion of the office sector, like flexible work providers, become like hotels. They’re asset-like buildings, but they manage the experience and they manage the short term rental market, and they  do it in such a way that people know what they’re getting.”

Branded hotels have had higher occupancy rates than independent hotels since the 1980s, a trend which CBRE will also be beneficial to other aspects of commercial real estate over the next several years. And, for both owners of multifamily and office properties, “hotelification” can contribute to flexibility to meet the market, lower tenant management burdens, additional revenue from services provided, and more.

As real estate changes in both form and function, it leads to perhaps another big shift in commercial real estate: which metrics are used to measure property value and how those metrics will lead to new methods of valuation.

“It used to be pretty easy,” said Barkham. “But I think where you’ve got more hotel-like usage patterns, then you need a new way of valuing that.” 

Barkham also added that changes in retail will also cause shifts in valuation practices, especially for stores who do have brick-and-mortar stores, but rely primarily on online sales to keep them running. “How do you value something where you have that showcase function, but not the sales per square foot to crank a traditional valuation model?” he asked. 

Social media usage and other metrics may become more central to determining a property’s value, although specific fundamentals have yet to be established by the market. And, while many trends in the next ten years remain unknown, CBRE is confident that its predictions will stick.

“We wanted to give people a sense of what it could  be like, [even though] we have been  knocked for six by the COVID-19,” said Barkham. “[But] I stand behind all of these. Things are going to change, but I think our ten trends are with us going forward.”