Commercial real estate trend forecast

Nov 8, 2016 | Industry, News

Commercial real estate developers, investors, property owners and facility managers provide the spaces and sites for profitability, productivity, sustainability, innovation, cultural cohesion and heritage preservation.

According to a McKinsey Global Institute (MGI) report, the 23 megacities in the world – with populations exceeding the 10 million mark – will only contribute about 10% of global growth in 10 years from now. Growth will come from mid-size cities with populations of between 150,000 and 10-million. To achieve this growth, role players in the commercial real estate value chain have shaped developmental narratives with local planning authorities.

In South Africa

The South African commercial real estate sector is faced with a set of challenges: on the one hand sluggish economic growth and on the other hand the slow-burning and very real transmutation of physical spaces into virtual sites of economic productivity as a result of technological innovation. Since the great recession of 2008/09, South Africa’s national vacancy rate has hovered between 9,8% – 10,6%, and is likely to be frozen at the same level or increase further unless South Africa’s economic growth prospects improve. Workplace flexibility, virtual working and telecommuting – as a result of technological innovation and shifts in organisational policies can put the national vacancy rate under further pressure in the distant future.

In order to prepare for the future, commercial property owners, investors and developers should turn the focus to a growing and important, but often neglected, segment of the market: the country’s small and micro enterprises, and emergent entrepreneurs. It is estimated that by 2030, no less than 90% of new jobs will be created by small and expanding firms. Thus, a huge opportunity exists to offer solutions to real estate products and solutions to new company start-ups for relatively young and small businesses. This segment of the market comprises 2,8 million businesses that are responsible for 52% – 57% of South Africa’s GDP.

In particular, South Africa’s commercial real estate will be affected more by the sharing economy in the future than by ultra-modern and ultra-seek urban design with smart technologies and the Internet of Things.

If we are committed to smaller and micro-enterprises, there will be a greater demand for shared space, flexible office work spaces and a mix of fixed and variable spaces from tenants.

Importantly, this requires a new model of design and lettable space: new or existing office developments will need to be forged with design principles of incubation centres, start-up innovation labs and flexible work spaces in mind.

In such a configuration, landlords and tenants will need to be more open to more flexible arrangements. A major challenge for landlords and facility managers is the vetting of companies that are in start-up or relatively young, but yet the lifeblood of the economy and commercial real estate in the future. This will in all probably result to higher rentals as part of the risk management for property owners and will likely affect pricing dynamics in the future.

Real estate owners and facility managers have to invest in evolving technologies that can improve interactions with tenants and customers if they are committed to offer smart real estate solutions for the smart city.

TECHNOLOGY STRATEGIES

This will require putting technology strategies in place for newly built or existing real estate assets. Investment in technologies to obtain, manage and exploit can offer rich information layers for the management of buildings to control or reduce operational costs. It will find its way into facilities management at an operational and strategic level.

Further, tech and creative economies are spreading to emerging market cities like wild fire. In fact, the technology and innovation are the lifeblood of economic growth for the future. For the economies of regional municipalities, it is critical that commercial real estate planning and development are anchored in a social-centric paradigm. This means that office spaces with facilities and amenities that support the wellness of its social capital can unleash productivity, increase levels of profitability and exceptional innovation. In a setup of global economic competition, the competitiveness of regional economies relies on its ability to attract and retain top talent and creative minds.

And, while smart city planning and development is often led by municipalities and development in response to pressures such as increased urbanisation, city management, challenges, rising population and climate change, among other role players such as commercial real estate developers, investors and facility managers through smart commercial real estate planning, development, investment and upgrading, should also take part in laying the foundation of future cities.