Key take-aways: A commercial real estate outlook for 2020

By Bob Arthur

Source: Biz Journals

’Tis the time of year when economists take a close look at the data on economic, employment and real estate trends to create a commercial real estate outlook for the year ahead.

While assessments for 2020 vary, many agree on some common themes:

  • Sustainable, but slower growth is expected for the U.S. economy and commercial real estate (CRE) market, with tariffs, recession fears and a flattening yield curve among the issues posing potential risks.
  • Technology continues to change the CRE business in wide-ranging and consequential ways – including raising information security and data privacy concerns.
  • As baby boomers who spent their entire careers in real estate retire, the CRE business faces challenges attracting and retaining talent in the face of increasing competition for skilled workers.

The question is, what might CRE professionals take away from these findings? Here are some ideas.

1. To attract more capital, reassess your property and tenant mix.

While investment in CRE continues to increase, some investors may be growing more selective. Demand is often higher for properties that represent newer and emerging business models or thematic investments that support strong macroeconomic trends.

In practical terms, that means buyers interested in diversifying their CRE portfolios may have greater interest in mixed-use and nontraditional properties. CRE companies might also consider ways to attract a new generation of tenants with amenities and leasing options that appeal to their interests and address their needs.

2. Upgrade your digital strategy and infrastructure.

Effectively employed, technology, including the predictive analytics and business intelligence it can generate, has the potential to add significant value to properties and the CRE organizations responsible for their management. They can also be a “tipping point” for investor and tenant interest. From smart building technology used to control lighting, temperature and building access, to sensors and beacons that track retail traffic, to artificial intelligence that supports and streamlines tenant relations and financing planning, the opportunities are virtually limitless. The challenge CRE companies face is deciding how to prioritize their technology needs and investments. That includes considering the costs of managing both new and legacy infrastructure versus completely replacing old systems with modern digital infrastructure.

3. Capitalize on investor interest in proptechs.

Proptechs, digital technologies that change how property is occupied, managed, leased, bought, sold and managed, are particularly popular among investors. One example: Building Information Modeling, a smart 3D modeling tool that enables designers, builders and CRE managers to plan, design, construct and manage a building throughout its life cycle. CRE companies that explore proptech options avail themselves to new and innovative ways to improve information flow, operational efficiency and tenant experiences.

4. Move from reactive to proactive risk management.

The cyber risks facing the CRE business today are on par with the physical risks, and investors want proof that you are prepared to manage them. Any strategic upgrades to a digital strategy, therefore, must address the information security and data privacy concerns today’s digital technologies create.

The threat of cyberattack puts more than your own data at risk. Hackers that break into sensor-enabled building management systems can, for example, change security settings. A hacked thermostat can cause serious health and safety problems. Use of smartphones and digital assistants by tenants and visitors can, likewise, have unintended security and privacy consequences.

The bottom line: CRE companies cannot wait for security breaches to respond. A proactive risk management strategy that balances investments with the threat of cyberattacks is critical to business in 2020.

5. Prepare for a digitized workforce.

As the current generation of CRE leadership enters retirement, many CRE organizations find themselves at a loss. Replacements often have less experience and are insufficiently equipped to address the industry’s most challenging issues.

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