2020 and COVID-19 was a heavy hit for many industries around the world. Real estate was a surprising survivor, mainly because of the increase in housing demand in different markets. However, commercial real estate wasn't quite the same scenario.
We need to consider how commercial real estate depends mostly on its tenants. Leasing space for struggling markets means enduring the same hardships. It's why retail properties and malls have been some of the largest victims in the industry.
Thankfully, 2021 seems to offer chances for recovery on many fronts. That doesn't mean there won't be challenges. Not all sectors will recover equally, and the same holds for other industries. Given how commercial real estate ties into its tenants' industries, that yields several considerations.
Today, we'll go through 7 of the most critical challenges for the industry. However, we won't leave you hanging. We'll also share a few promising outlooks and our recommendation for overcoming them.
7 Issues for Commercial Property Managers This Year
Deloitte gathered the opinions from 200 industry experts a month ago in its 2021 outlook report. The article compiles reports from several companies around the world, assessing their strategies and challenges during recovery.
While the article provides unique insight into the industry's different concerns, it also sheds light on what they've been during to ensure recovery. We'll dissect their observations into the most relevant issues for commercial real estate.
Companies Should Focus on Building Momentum
Recovery depends heavily on upcoming vaccination, and it's still somewhat uncertain. COVID-19 resurgences, coupled with major economies remaining in the struggle, means that recovery will remain slow during the year in many ways.
For commercial real estate, the outlook looks similar. Some markets have recovered quickly, while others are still struggling with losses. The solution is to tackle the situation actively, improving efficiency via numerous modernization strategies.
Digital Adoption Has Become a Necessity
Creating a roadmap for digital implementation has been a priority for many companies. North America has been more active in this regard than the Asian-Pacific and European markets. Redefining operations and talent requisites have been a global trend.
As we've suggested repeatedly, digital adoption has become key for survival instead of just a competitive edge. Companies need to assess digital maturity in their operations to figure out what to do next. Operation management, tenant satisfaction, and tech talent development should be priorities. Moving away from paper to paperless, implementing ERP solutions like Yardi Voyager 7s, Yardi Elevate, MRI Software version X, PROCORE has taken center stage in many companies.
Improving Business Operations for Boosting Resilience
Managing costs and relocating resources according to project relevance will become necessary as well. 2021 will require companies to create soli plans to keep their operations while improving their efficiency on other fronts.
According to the article, 20% is the average cost reduction for the surveyed companies. Most owners have been responsible for absorbing expenses for preparing spaces toward re-occupancy. Among the measures, companies have had to reduce promotions, compensations, and even work hour flexibility.
Even Positive Finances Require Care
Commercial real estate plays a vital role in macroeconomics. Evaluating global finances before making decisions has become fundamental. Rental collection declines project more declines during the year, thus pressuring liquidity and asset sales.
While that means in more affordable properties, it has a noticeable impact on capital availability. The latter is expected to decline during the year. That means managers need to strengthen portfolios to curb these issues for the long-term. Therefore, data-dependent financial operations will play a critical role in boosting responsiveness.
Screening Talents is More Important Than Ever
The approach to work will change in the future. Companies need to assess more than employee talents, but the positions as well. Figuring out how much work can be done remotely must be a priority with the advent of remote work.
That means heavy investment in digital adoption and applications. The goal is to provide the features for workers to operate with versatility without compromising the company. Additional expenses include training, virtual team managers, and space redesign.
It's also why employers are now looking at hiring remotely to boost productivity. Team members managing ERP solutions, or working on application support do not need to be on-site. Instead, organizations can look at more cost effectiveness if they hire the resources temporarily, and remotely.
Many real estate support outsourcing services like Kriyago offers remote employees for everything from application support, lease abstraction, CAM reconciliation to phone service. The premise is simple – you get to outsource tasks to remote employees – who are adept at it – while managing task and work flow seamlessly. Lease audits, for instance, are done once a year. Outsourcing the task can be a cost-effective idea.
Balancing Business Growth with Employee Engagement
In the end, companies will need to improve their operations with a comprehensive strategy. Boosting effectiveness should be as important as improving empathy and personal connections with—and between—resources.
People have been longing for human interaction for a while now. With anxiety surrounding physical and mental well-being, burnout and other health concerns have become commonplace. Business recovery shouldn't come at the expense of employee and tenant engagement. The latter will be crucial for the former's success.
Mortgage Delinquency Has Been Rising
On a different note, The World Property Journal released a recent article about the rising problem with mortgage delinquencies. 94% of outstanding loans were current for starters, which marked a 0.3% decrease from November. The main issue comes from increased delinquencies in both multifamily and commercial mortgages.
The pandemic's impact on retail properties was one of the leading causes. Despite delinquency frequency subsiding with economic stabilization, the recent COVID-19 wave disrupted property income again. Vaccination promises recovery, but it's a long-term reality, so companies will have to keep this in mind during 2021.
It's Not All Grim: 2021 Brings New Opportunities
Thankfully, J.P. Morgan reports several consumer trends for 2021. While it's not exclusively beneficial, it does provide several chances for real estate companies to adapt to this year.
As different asset types experience different situations, knowing where to "place your eggs" has the potential to yield substantial returns,
Revamping Retail
Retail has moved from physical stores to online commerce, and the pandemic accelerated the process significantly. 2020 experienced almost a 4% increase in online sales during the year.
While that means brick-and-mortar stores have faced losses, logistics and storage experienced prominent growth. Additionally, consumer preference for online shopping is likely to remain, thus calling for a shift in the retail market.
The Importance of Grocery Anchoring for Malls
The performance of shopping centers during the COVID-19 crisis has been diverse, mostly depending on one factor. The article details that grocery store availability is the main reason.
Therefore, grocery-anchored malls have remained quite stable during the pandemic. On the other hand, traditional centers have had to file for bankruptcy in the most radical cases.
The Return of Offices and Urban Locations
Despite the popularity of remote work and suburban locations, not everyone benefits from this approach. Younger workers in need of training call for office spaces.
Additionally, working with other people enables better ideas and cooperation in many cases. As such, office demand won't disappear; thus, returning to cities will be a trend with offices reopening.
Affordable Housing's Increased Demand
Affordable housing became a necessity as many employees experienced reduced income and even unemployment risks.
Despite the measures against evictions and rent control, the homeless population has been growing. Property managers interested in affordable housing might be at a prime moment to hop on it.
Rent Payments Are Still Quite Positive
Finally, rent collection has remained somewhat steady for higher-quality assets. Again, it depends mostly on tenants' financial situations, so it's still worth keeping in mind.
Therefore, the main focus should be on screening tenants and their industries. Finding a growing company for your spaces could yield noticeable returns against financially troubled ones.
Commercial Real Estate Technologies: 4 Upcoming Trends
We speak from experience when we say that technological innovation is the key to overcoming most problems. We've helped dozens of companies implement the latest industry software into their operations.
Here is a report by Deloitte, where they detail four relevant trends about to impact commercial real estate. We've already worked with all these technologies in recent years. We can attest to their efficiency and budget benefits.
ERP Software
Mentioned in the article as "digital twins," these management systems let you register and track all relevant data from your buildings. You can keep a digital copy of your properties to make operations safer and more efficient.
You can track tenant requests and even create special portals for communications. Tenants can send messages and pay their rent through the platform.
Digital Engagement
Digital engagement can enable property managers to streamline services without having tenants and prospects visit the facilities - including virtual tours, online payments, and other conveniences.
During the pandemic, these features enabled landlords to manage their tenants while abiding by social distancing regulations. During recovery, these services' convenience will keep them popular.
Data Management
Commercial real estate generates huge amounts of data every day. That includes footfall, sales, rents, and general cash flow. With data analytics coming into the equation, real estate management companies can make more informed decisions.
Using analytics services like Azure Synapse Analytics or Power BI can help make better sense of data. Businesses will be able to scale better as they can improve work processes. There is no need to create monthly excel sheets to share across departments. For instance, you don’t need to worry about different ERP and different accounting systems.
With the right data management using tools like Azure Synapse Analytics and Power BI, you can make data reporting simpler, and smarter. Commercial real estate needs to leverage this to adapt and get easier to oversee all data, from logs, files to media, helping get better insights through analytical dashboards and operational reports.
Robotic Process Automation
Finally, RPA has been a staple for 2020. Many real estate firms have started to reap the benefits of streamlining financial operations and other repetition-based tasks. During the pandemic, this technology has been vital to reducing physical proximity without compromising operations.
Similar to other trends, RPA will remain popular after many companies have discovered its efficiency. It enables lower operational expenses while keeping—or even boosting—functionality and profitability.