2019 offers many changes for the commercial real estate sector. Advancements in technology, new demands of mixed use space and the development of new business models in the commercial real estate sector will drive new perspectives in the industry. Here we will focus on three key areas of change: changing customer/tenant demands, the importance of agility and technology adoption and the rapid development of new business models.

Tenant Demand

Obviously, tenant demands are at the forefront of the need to shift perspectives about how to approach commercial real estate. Physical spaces are no longer limited to one use. Instead, mixed use spaces that offer diverse experiences are becoming more and more prevalent.

For example, look at the number of development projects in the Portland and Vancouver areas. We are seeing fewer and fewer developments of apartments and condominiums that offer housing alone. Instead, we are seeing spaces for residence, retail and, in some cases, manufacturing.

The tenant mix is changing, and, as such, investors need to consider this in order to maximize retention. Physical spaces that offer diverse experiences provide the opportunity to yield higher occupancy and rents can be incredibly lucrative and beneficial for the investor.

The other area of significant change is lease administration. Business uncertainty in this economic climate is leading to tenant demands of shorter term leases. Therefore, it’s critical for property owners to enhance their lease administration processes to better offer short term leases or hybrid with long-term leases.This can be a benefit to the property owner, as occupancy rates can be increased with a wider variety of lease options.

New Business Models

If we look around, we are seeing the business models of commercial real estate changing dramatically. For example, take a look at companies such as WeWork, and we will see that office leasing is no longer reserved to one company occupying a set amount of space. Instead, business models offering “real estate as a service” are popping up, with, as we mentioned, WeWork leading the charge.

And, with this comes the amassment of large amounts of data that can lead to further shifts in how space is used. WeWork takes this data not only to make changes and improvements to its own spaces, but also they are driving towards becoming an outsourced facilities manager. As large companies are trying to remove real estate management from their responsibilities, WeWork is coming in with services to manage workspaces for companies like IBM and Verizon.

But obviously WeWork is a giant corporation. How can this translate to the smaller property owners? It involves thinking and strategizing like WeWork. For example, spaces such as malls and shopping centers are feeling the hit with fewer brick and mortar locations due to the demand for more online shopping experiences. We’ve touched on this in our blog about the Amazon Effect. As companies such as Sears and Macy’s shut down locations across the country, shopping centers are left with vacancies they need to fill.

A shopping center in Philadelphia is taking on this issue with a WeWork approach. They are opening a small business incubator in the Cherry Hill Mall. They offer coworking space, resources for desk, office and conference rooms, and entrepreneur training and mentorship. Retail space owners should be keen to take note, as this will be a significant way to repair lower occupancy rates as online retailing continues to shake up the market.

Importance of agility and technology adoption

At the heart of all of these future changes is technology. We are all aware of the importance of data and analytics to truly understand tenants and investment opportunities. This data can be used to make effective changes to properties to be more appealing to future tenants, ensure that the proper rent is being charged, and much more. Smart building management systems are being implemented to carry out automated procedures and track building operations, enabling investors to have a more global view about the operating efficiency of a property and thus make necessary changes.

Technology is also being used to improve tenant experience. Virtual and augmented reality can be used to enable potential tenants to visualize a property or space before build-outs are even started. Finished options can be presented in a virtual reality setting to give potential tenants an immersive, 360 degree view of a space, facilitating an easier decision making process.

Predictive analytics tools such as Skyline AI use data gathering and AI to develop precise predictions of prices, rents, effects of renovation, and other information, enabling investors to have a much clearer view on the future of their investments. Additionally, this information can be used to redevelop and improve existing properties to suit changing tenant preferences and reposition spaces for improved tenant use.

Clearly, the future is shifting dramatically for the commercial real estate industry, and 2019 will be an exciting year to watch the changes unfold. What are your thoughts on these changes, or, as they say in the tech industry, disruptions. We would love to hear your opinions, so please share in the comments section!