CRE Companies Weigh Preparedness for a Digital Future

January 11, 2021

Commercial real estate companies are not ready for a digital future, according to 200 top real estate executives surveyed by Deloitte for its 2021 CRE Outlook.

Just one third of industry leaders think they have “the resources and skills required to operate a digitally transformed business,” according to Deloitte, a global professional services firm, headquartered in London.

The chaos caused by the spread of COVID-19 has sped up the pace of change. The demand for real estate has been mixed as a result of the pandemic, helping properties in some locations and hurting others. Technology has been at the center of these changes as many worked and shopped from home and communicated electronically. Many of these changes are likely to continue even as vaccines for COVID-19 are distributed in 2021.

CRE Needs a Plan for New Technology

Most respondents (56 percent) surveyed by Deloitte believe the pandemic uncovered shortcomings in their company’s digital capabilities and affected their plans to transform for a digital future. Deloitte surveyed 200 senior executives at top commercial real estate companies around the world —including property owners and operators, developers, brokers and investors -- in 10 countries during the summer of 2020.

"Now more than ever, CRE companies need to capture and analyze high-frequency data to create a meaningful tenant experience,” according to Deloitte. “This could include data around how tenants use different amenities, and or engagement and performance levels."

Most of the experts surveyed by Deloitte have not yet created a plan to adapt.

Less than half of the respondents consider digital tenant experience a core competency of their organization. Only 45 percent plan to increase their investments in cloud, robotic process automation, artificial intelligence and digital channels over the next 12 months. Only 41 percent of respondents said their company has stepped up efforts to redefine business processes, job roles, and skill requirements to include the use of technology and tools.

However, more than three-fifths of companies acknowledge that they are capturing data from Internet-enabled “Internet of Things” sensors like electronic locks and thermostats. This data could potentially be shared with tenants and also used by real estate companies to make better operating decisions.

"Overcoming these formidable challenges could open up a new world of opportunities,” says Deloitte.

COVID-19 Shocks the Demand for Real Estate

The pandemic has already upended the way people use real estate – increasing the demand for a few kinds of properties and hurting the demand for many.  The winners include industrial and health care properties, data centers and cell towers. Demand for hotel and retail properties was savagely damaged, along with many office properties.

Apartments were in the middle, according to survey respondents, with less volatility than other kinds of real estate.

Demand is likely to change again in 2021. “A vaccine and or treatment will allow normal economic activity to begin to resume in mid-2021,” according to Deloitte. "Our economists expect growth to remain somewhat constrained for a period... it will take time to deploy the vaccine."

Respondents disagreed on whether apartment rents would grow over the next 12 months – nearly half (47 percent) thought rents would grow by between one percent and 10 percent, and more than a third (40 percent) thought rents would shrink between one percent and 10 percent. No one thought rents would rise or fall more than 10 percent.

Tenants are also likely to change what kinds of housing they want in the long term. In a 9,100-respondent pulse survey published in The Deloitte Global Millennial Survey 2020, more than 60 percent of respondents say people will want the option to work remotely more frequently, even after the pandemic fades. That is already affecting where people choose to live – giving them the opportunity to live further away from expensive employment centers and still remain employed.

"People are starting to avoid overcrowded cities such as San Francisco, New York, Toronto, Tokyo, and Paris," according Deloitte.

The shock to demand caused by the pandemic has already hurt many real estate companies – impacting their ability to invest in the future. More than half of the survey respondents have reduced compensation, frozen promotions, reduced or offered flexible work hours, and enacted furloughs and layoffs to lower workforce-related expenses since the outbreak.

Deloitte asserts that CRE leaders need to “master the art of walking a tightrope” as we continue to navigate the pandemic and its long-term effects, which will help differentiate leaders in the sector.

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