From sustainability to the creation and increase in property technology, commercial development is undergoing significant changes and developing new trends to fulfill the needs of the end users. The pandemic has undeniably changed the future of development, which can be seen in the five trends outlined below. Let’s dive into these trends to learn what trends we’ll be seeing over the next few years, and how developers are responding and adapting to the needs of their communities.
1. Incorporation of Environmental, Social, and Governance Standards
According to the World Green Building Council, buildings are responsible for about 40% of global carbon emissions. The real estate industry can positively impact society through environmental, social, and governance (ESG) initiatives. Sustainability and ESG efforts are commonly considered criteria, rather than just a trend, and both investors and occupiers have an increased interest in environmental and social efforts developers are implementing. Environmental efforts can include utilizing renewable energy sources, implementing green building te5 Develchniques, and promoting sustainable land use. Social efforts impact communities and may address housing availability, mobility options, and the health and wellbeing of tenants.
Additionally, ESG efforts can have a positive monetary impact on development. Investors and occupiers may be willing to a pay a premium if certain environmental building features are incorporated, or may pass on the building if their environmental standards are not met. Ultimately, developers can benefit from lower operating costs, increased property value, and increased market appeal that come as a result of ESG efforts.
2. Adopting Property Technology
Property technology (Proptech) refers to all of the technology-based tools real estate experts use to optimize the way people buy, sell, research, market, and manage a property. Technology tools are quickly changing traditional real estate practices and are being utilized by developers and property managers to streamline transactions and automate processes to enhance efficiency.
Real estate professionals may utilize proptech software to automate property valuation, marketing, or communication, allowing them to spend more time on other business aspects. 3D virtual tours and Virtual Reality (VR) can be used to aid in real estate investment and construction. Potential users or investors can visualize the potential of a space using VR technology. Investors can use artificial intelligence and machine learning to analyze data, monitor their properties, and track rental income and expenses. VR can be used in combination with digitized building models to show hidden components of a building or to create architectural models. Proptech also offers tenants the convenience of paying rent online, submitting maintenance requests, and communicating with landlords. With the variety of uses for technology in all facets of commercial real estate, you can see industry leaders steadily adopting property technology to increase optimization.
3. Flight to Quality
The rise of remote and hybrid work since the pandemic has affected the office market and space characteristics tenants are seeking. The market has shown a “flight to quality” with demand focused on new or recently renovated office buildings filled with amenities, rather than older, under-invested buildings. Office owners must create environments where people want to be by including modern amenities, clean air, sustainable spaces, and community areas. Providing spaces where employees can interact and spend time in a refreshed environment helps promote a healthy workplace.
In addition to built improvements, as employees return to the office, owners are considering adding programming and events to promote a sense of community. Hosting events such as happy hour, yoga, or team building activities can be a useful tool in fostering a community within an organization. These events must be considered in the design and budget of an office building to account for the space needed to hold the events as well as the staff available to plan and host events. Other factors encouraging employees to return to the office include creative amenities like coffee bars, cafes, unique indoor and outdoor spaces, easily customizable layouts, and more.
4. Demand for Multifamily Development
Multifamily assets are performing well for developers and investors as interest rates and home prices rise. Many potential buyers have been priced out of homeownership opportunities and continue to rent, supporting the demand for multifamily developments. When making homebuying/renting decisions, people are more interested in quality of life, better surroundings, and shorter commutes rather than focusing solely on rent. These drivers are supported by developments in walkable cities and live-work-play communities. All-encompassing communities provide convenience for residents taking advantage of employment opportunities and entertainment centered around where they live.
As demand for multifamily development continues and office vacancy remains high, developers are increasingly considering converting underutilized office buildings to residential spaces. In cities where rents remain high and unit supply is limited, converting underused office space can provide needed housing inventory while adding to the growth and vibrancy of the downtown core.
5. Seamless Consumer Retail Experiences
Consumer behavior is influencing the need for and design of physical retail space. While e-commerce has reduced in-store spending, many consumers still look for in-person experiences, leading retailers to focus on providing a seamless consumer experience across all shopping methods. Offering services like curbside pickup and the ability to check in-store availability enables consumers to save unnecessary trips to the store as well as reduces the time they are waiting for their purchase to be delivered. Retailer benefit, as the “last mile” of shipping tends to be the most expensive and problematic when it comes to the logistics of e-commerce. Retailers are rethinking their space to relieve some of the headaches that come with last mile problems. Adjusting the layout of a physical location to accommodate fulfillment can be a beneficial use of space by reducing costs associated with inventory, shipping, and processing returns of online orders.
Retailers are also reimagining the consumer experience at a physical store by offering entertainment, choosing to focuson experiences rather than products is helping retailers to drive foot traffic to physical stores. In store product experts, art installations, and community events can positively impact a shopper’s opinion of a brand and encourage increased traffic to a physical location.
These 5 trends are immediately visible in the development landscape. And while they are significantly shaping the world of commercial real estate, they are largely in response to more global economic issues, supply chain concerns, and a changing workforce, which all promise considerable change and an unsettled business environment in the industry for years to come.