Development Magazine Spring 2016

Four Key CRE Disruptors

Commercial real estate is being redefined by four key trends.

DISRUPTION IS A HOT button issue for almost every executive today, so it’s no surprise that commercial real estate (CRE) leaders are now paying attention to how it could transform their businesses. The nexus of technological advancements and shifts in consumer behavior is bringing about disruptive change. Given these changes’ potential to redefine land use and fundamentally change the CRE demand-supply dynamic and business model by 2030, CRE executives are paying closer attention to them than ever. 

Recent research by the Deloitte Center for Financial Services — as well as the experiences of Deloitte practitioners — reveals four key macro trends that CRE executives should keep top of mind as they begin positioning their companies to be more agile and flexible in the face of disruptive forces. As they look forward into the next 15 years, they should consider the following:

headshot of a man

Steven Bandolik

The collaborative economy will reshape demand for and use of CRE. The collaborative or “sharing” economy has moved beyond car-, ride- and home-sharing and is beginning to spill over into CRE. (See “The Future of Shared Office Space,” Development, winter 2015/2016.) This trend brings with it a variety of new challenges and opportunities, including new ways to use excess capacity, more demand for flexible-term leasing and a shift away from an ownership society. As a result, new definitions of commercial space usage and fluid design will emerge, and dynamic revenue models in leasing will surface. As this disruptive growth starts to take hold, CRE leaders should consider rethinking their approaches to designing, developing and redeveloping both new and existing workspaces to meet the “touch-and-go” needs of office users and optimize the value of space.

Technology will disintermediate brokerage and leasing. Direct-to-consumer CRE services that rely on technological advancements in information sharing, cognitive technologies, big data analytics and artificial intelligence are on the rise. Improved access to market information and data will bring buyers and sellers — and lessors and lessees — closer together and increase the potential for transactions without brokers, leading to the disintermediation of traditional brokerage and leasing models. Nonbroker revenue sources and new service models will therefore become critical for businesses in this space. Many companies, for instance, will need to embrace cutting-edge information technology capabilities that drive value for clients in new ways, while others might look to collaborate with more nimble startups.

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Robert O’Brien

Consumer preferences will blur the lines between retail and industrial properties. Consumer expectations for retail services are increasingly impacting the CRE sector. The on-demand and same-day delivery options that consumers crave, coupled with technological innovations in areas like 3-D printing, robotics and virtual reality, are already influencing the location and use of retail and industrial properties. On-demand retailing and manufacturing enabled by 3-D printing will reduce inventories and demand for large warehouse spaces, while inventory optimization technology will become more commonplace to maximize space utilization. CRE executives operating in retail and distribution can benefit from these changes by developing and investing in smaller, local distribution centers and flexible store formats that can more nimbly accommodate consumer retail expectations. Investments in or use of new technologies, including the Internet of Things, radio frequency identification (RFID) and drone technology, could also lead to success in a disruptive climate.

The war for talent will revolutionize demand for office and mixed-use properties. A growing talent gap and evolution in the talent marketplace are driving big changes in where CRE is located and the way it is designed and used. Competition to acquire the best talent will impact the location and design of office development projects. Mixed-use transit-oriented developments that incorporate office, housing and recreation options will emerge to appease a robust millennial workforce and its demands for a nontraditional employment experience. Large-scale “live, work, play” environments will be key in attracting and retaining millennial employees, who will comprise 75 percent of the workforce by 2030.

While there is no certainty about the extent of disruption that will be created by each of these trends, they present vast potential to turn traditional CRE models on their heads. CRE leaders and decision makers should keep these trends in mind as they consider how to steer their businesses through disruption in order to succeed in the face of major industry shifts.

For more information:

Commercial Real Estate Redefined: How the Nexus of Technology Advancements and Consumer Behavior Will Disrupt the Industry,” Deloitte Center for Financial Services

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