How CRE Firms Can Stay Agile in 2019

Perspectives from veteran Deloitte advisers on capital flows, technology and other issues that will shape the industry next year.

Every year, Deloitte develops an outlook outlining trends for the next year in the CRE sector. Last year, we advised CRE firms to get on the innovation bandwagon to avoid being outcompeted (see our December 2017 column, “Catch the Wave: Three Tips from Deloitte for Success in 2018”). While the accelerating pace of disruption always demands attention, it’s important to note that investors are increasingly taking notice—upping the stakes for CRE firms to change their mindsets and embrace change in 2019.

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To help CRE companies fine-tune their approach to change, we decided to dig deeper into the factors that are influencing investment decisions in our 2019 outlook report.  Representing a diverse range of asset sizes and property types, our survey of 500 global investors reveals the following key themes:

  • Led by investors based in the U.S., Germany and Canada, a large proportion of respondents plan to increase their capital commitment to CRE.
  • Nontraditional assets, such as mixed-use properties, and new business models, like flexible leases and spaces, are expected to attract increased allocations.
  • Many of those surveyed expect to prioritize their investments in existing and potential investee companies that respond rapidly to changes in business models and adopt a variety of technologies to make buildings future-ready.
  • Participants expect technological advances to have a significant impact on legacy properties within the next three years.
  • The volume of capital flowing into CRE assets is poised to rise in 2019: 97 percent of investors plan to increase their commitment over the next 18 months. That raises some crucial questions. From the investor’s perspective, what are the most agile firms doing differently? What are they doing better? And how can CRE companies leverage those insights to drive performance in their own businesses?

Here’s some of what they had to say.

CRE firms should prioritize adoption of emerging technologies.

Among investors, the CRE industry has long been thought of as a laggard when it comes to adopting technology. But with 84 percent of investors reporting that portfolio companies should prioritize the use of technologies like predictive analytics, companies can no longer afford to fall behind. CRE owners should consider prioritizing technologies like business intelligence and IoT; 83 percent and 55 percent of investors, respectively, say they want companies to increase their focus on those areas in order to make their buildings future-ready.

CRE firms should get more proactive on cyber risk management.

Technology is, unfortunately, a double-edged sword that CRE companies must handle with care. Fifty-three percent of investors report that rapid IT changes and rising complexities in the sector are the top challenges for managing cyber risk, and 66 percent are only somewhat satisfied with companies’ preparedness against cyberattacks. To get more proactive on cyber risk management, CRE companies can give their boards more accountability, conduct regular cyber risk assessments and enhance employee awareness.

Investors will be looking closely at these factors as they assess capital allocation to the CRE sector in 2019, and CRE companies should be prepared to adapt to their expectations. While some companies may stick to more traditional business models, many competitors will forge ahead – and it’s those firms that will ultimately claim available investment dollars.

Steve-Bandolik
Steven Bandolik

Steven Bandolik is a managing director with Deloitte Services LP and a senior leader in Deloitte’s real estate practice. He provides advisory services in the debt and equity capital markets, corporate finance, mergers and acquisitions, investments, strategy, restructuring and reorganization, and asset recovery. Bandolik brings more than 30 years of effective, hands-on real estate investment, finance, development, and asset/property management experience, both as a leader and as a strategic advisor.

Jim Berry

Jim Berry is a partner of Deloitte & Touche LLP and the leader of its U.S. real estate practice. He has more than 32 years of experience serving companies in the real estate, construction and hospitality industries.

Surabhi Kejriwal
Surabhi Kejriwal

Surabhi Kejriwal is the Real Estate research leader at the Deloitte Center for Financial Services where she is responsible for driving eminence and thought leadership for the real estate practice.

Read the November 2018 issue of CPE.