Our industry is experiencing a period of great change. We recognize the ability to anticipate new innovations and adapt is essential for providing optimal service to our clients. Over the next year, the commercial real estate industry will see disruption in four key areas.
1) Brokerages becoming tech firms
It's not enough to use technology in the marketing and management of commercial property services. Now that tasks once handled by human beings are automated, technology is an essential part of daily operations. That's why the industry is seeing the rise of tech-enabled brokerages that seek to use integrated technology to deliver client services.
To gain a competitive advantage, well-established brokerage firms are building in-house Software-as-a-Service (SaaS) platforms to deliver unified services. Brokerages seek to stop outsourcing different aspects of their business and become a one-stop-shop for their agents and their clients. These new in-house services are directly focused at streamlining lead generation, management, prospect research, and marketing. Brokers need to offer these all-in-one technology amenities with their fees to attract new talent to the commercial real estate field.
2) Predictive analytics increase value
Commercial real estate relies on accurate numbers in forecasting to justify risk. To that end, predictive analytics is transforming how we make acquisition, management, and disposition decisions. We are collecting large quantities of data related to everything from tenants to buildings. Naturally, data collection means a significant increase in analytics.
Predictive analytics’ importance to the industry will grow exponentially during the year. A 2017 report from PWC Global estimates that artificial intelligence technologies will contribute $15.7 million to a global economy and increase profitability in local economies. We are using its insights to gain more value from properties, investments, and broker management. New growth maps show what is happening around a potential investment property and predict its potential returns. Tracking workflows reveals individual agent best practices and insights to boost their bottom line.
3) Short-term lease trend stays
The number of freelance or “gig” workers is anticipated to grow to 40 percent of the workforce over the next five years. Coinciding with this increase is the demand for short-term lease space and coworking spaces. As the life cycle of a new business shortens, commercial lease terms have decreased in length. Small businesses and startups are less willing to negotiate a five- or ten-year lease term.
Converting a space into a short-term lease or co-working space represents an opportunity for landlords or developers. These spaces can maximize occupancy rates while searching for a better long-term occupier. A continuous short-term space can drive traffic to the building and potentially its surrounding tenants.
4) Industrial growth continues at a rapid pace
Changes to consumer retail habits and demands have led brands to seek faster delivery by positioning goods closer to urban centers. This demand has developers rethinking the warehouse and manufacturing industry, as seen with Prologis’ vertical warehouse in Seattle, the first of its kind in the United States.
Warehousing and manufacturing growth will maintain moderate growth into 2019, says a forecast from the Urban Land Institute. Concurrently, the ISM Semi-annual economic forecast predicted 80% growth in manufacturing sectors. This growth will place continued demands on industrial real estate markets up and down the West Coast, even as new properties come online. Many markets, like Los Angeles, San Francisco, and Seattle, reported increased lease rates and historically low vacancy rates throughout 2017.
Continuous developments in technology and consumer behavior changes drive these disruptors in commercial real estate professionals. Expect to hear more about artificial intelligence in predictive analytics, technology in commercial real estate, and individual market changes during the year.