by Brianna Crandall — October 19, 2015—The convergence of market forces in U.S. commercial real estate (CRE), from advanced technologies to new concepts like the sharing economy, will disrupt and lead to a new era of business for the sector by 2025, according to Deloitte’s annual Commercial Real Estate Outlook.
Bob O’Brien, global and U.S. leader of Deloitte’s real estate practice and a partner with Deloitte & Touche LLP, commented:
We are seeing the emergence of a number of dynamics that have great potential to fundamentally change the commercial real estate business over the next decade. Market disruptors in technology — ranging from the Internet of Things to artificial intelligence — have primed the sector for some of the most important shifts in its history. It’s therefore important that industry leaders continue to think about the longer-term strategic issues at play and how they can stay ahead of the impacts.
Deloitte’s Commercial Real Estate Outlook, now in its 17th year, identifies the top disruptors that will transform the sector in the next decade based on the perspectives and firsthand experiences of Deloitte’s leading practitioners, supplemented by original research from the Deloitte Center for Financial Services.
This year’s Outlook presents Deloitte’s top four predictions on how disruption in other industries will soon impact the CRE sector on a large scale and drive transformative, long-term change. These predictions are:
- The collaborative economy will reshape CRE demand and use: Growth in the collaborative economy will increasingly spill over into CRE, creating a variety of new challenges for traditional players and incumbents. Redefinitions of commercial space use and fluid design will emerge as players look to compete against the expansion of online marketplaces and fulfill the demand-based needs of tenants. Simultaneously, dynamic revenue models will replace existing business models as players move to capitalize on the burgeoning short-term leasing phenomenon.
- Technology will disintermediate brokerage and leasing: Brokerage and leasing businesses will become disintermediated as direct-to-consumer innovation in the sector continues to challenge market players to evolve. It will become critical for companies to develop new service models and non-brokerage revenue sources — centered around central client relationship management, artificial intelligence, and cognitive technologies — in order to adapt to market demands for data ubiquity and transparency and accommodate shifting tenant expectations. A spike in global consolidation may be observed as traditional players acquire companies to achieve additional capabilities and scale, or as smaller firms find it unviable to remain in business.
- The war for talent will revolutionize demand for office and mixed-use properties: The growing talent gap and evolution in the talent marketplace will have a significant impact on where CRE is located and the way it is designed and used. The robust millennial workforce and its unique demands for a varied employment experience will lead to the dominance of mixed-use spaces that include office, residence, and recreation options over stand-alone properties. As the war for talent intensifies, talent dynamics will become an integral factor in location-based decision-making and development projects, especially for office property owners.
- Consumer preferences will blur the lines between retail and industrial properties: Consumer preferences for on-demand and same-day delivery, as well as technology innovations in areas like 3D printing, will significantly impact the location and use of retail and industrial properties. On-demand retailing and manufacturing will reduce inventory holding and demand for large warehouse spaces, while leading to the rise of inventory optimization technology; smaller, local distribution centers will become the norm; and flexible store formats will emerge to adjust to changing consumer expectations and advances in technology.
The Deloitte global real estate group offers leading audit, tax, consulting, and financial advisory services through a fully integrated multidisciplinary global professional services network of Deloitte Touche Tohmatsu Limited member firms.
