Commercial real estate is under siege by sustained low interest rates that have driven down cap rates and forced companies and individuals to both work harder and take more risk in order to achieve their investment return goals. With the unknown impact of unwinding QE on the financial horizon, commercial real estate firms need to be proactive in restructuring in order to prepare for any eventuality.
Technology Advances In Commercial Real Estate
The commercial real estate industry is often slow to change. A recent study by Deloitte found that many companies are still using simple electronic spreadsheets to track all the details surrounding their commercial real estate holdings, including lease dates. This limits the capabilities to use new analytical tools to evaluate both the holdings and their performance.
The same holds true for the properties themselves. New technologies can help commercial tenants identify far more than the volume of pedestrian traffic in front of their location. Important demographic information can be gleaned by high tech sensors, and the data can be harvested by Artificial Intelligence (AI) on a real-time basis to suggest ways to turn the foot traffic into customers.
The fintech industry is also going through technological upheavals with Crowdfunding and cryptocurrencies displacing traditional banking relationships. Commercial real estate firms need to have at least a foot in this world in order not only to be prepared but to take advantage of lower costs of capital and more flexible lending terms.
Changes In Real Estate Workplace Demographics
An aging workforce and the impending retirement of many Baby Boomers is stressing many commercial real estate firms, but can actually be a blessing in disguise. Replacing talented employees is always a challenge, but by understanding the needs of the new generation of skilled workers commercial real estate companies can significantly expand their in-house capabilities.
These needs include a higher degree of flexibility than required by previous generations. Hiring part time, “gig” employees and project specialists can provide commercial real estate firms with a workforce that has highly specialized skills. These workers are often available on a short-term basis and can augment an existing, salaried workforce.
Somewhat paradoxically, these new workers sometimes have a stronger entrepreneurial attitude toward the success of the project they are engaged to work on. Management can cultivate and harness this attitude with incentive pay structures that mimic phantom stock plans traditionally reserved for long-term employees. Carefully tailored agreements that tie bonuses to results are very attractive in the “gig economy”, and commercial real estate firms that offer them have a competitive advantage.
Combining the best of technological advances and employment practices is a tricky combination, but it has the potential to pay-off for commercial real estate firms in the coming year and beyond. These advances have the potential to improve the cost of doing business in addition to identifying new efficiency opportunities. While their many facets that are unknown, and currently unknowable, make them uncomfortable for early adopters, they may also prove to be critical to success.