The global real-estate industry is facing seismic shifts. The post-pandemic digital transition is transforming the way buildings are used, valued, bought and sold, while economic uncertainty and the potential for a global recession look set to affect every sector of financial services.
A Deloitte survey of 450 CFOs in commercial real estate has uncovered some predictions for the year ahead–and what leaders can do to prepare.
1. Concerns about revenue
Most global real estate leaders are concerned about the economy this year. While 40% expect their revenues to increase in 2023, that’s a massive drop from last year’s 80%. 48% expect revenues to decrease, and 12% predict no change. As a result, the number of respondents planning to cut costs has shot up to 33%, versus just 6% last year.
Industry leaders cite inflation, workforce management issues, cyber risk, and new climate regulations as the main factors they expect to affect revenues in 2023–and most don’t think the industry is ready to rise to the challenge.
2. Optimism on real estate fundamentals
Despite these worries, most respondents (66%) expect real estate fundamentals like the cost and availability of capital, property prices, vacancy levels, transaction and leasing activity, and rental rates to improve or remain stable next year. Leasing activity, rental growth, and tightening vacancies are expected to improve the most.
Downtown and suburban offices are seen as the best opportunities overall, but this varied widely across regions, with Europeans favouring suburban offices, Americans voting for logistics and warehousing spaces, and leaders in the Asia-Pacific region preferring digital economy properties.
Uneven trajectories could drive commercial real estate in new directions, so many leaders and investors will need to weather the uncertainty by focusing on asset-level strategic decisions.
3. Green red tape
The survey found that commercial real-estate firms were some way off being ready to manage new ESG compliance requirements. Only 12% said they were ready to implement changes, and just 7% were using ESG data and analytics in their investment decisions, although most planned to start in the next year or two.
More than 45% said they were waiting for guidance or an industry-driven response, so industry associations need to step up and provide information and advice. Real-estate leaders can prepare for upcoming tax changes by:
1) Making reporting and data requirements for automated regulatory enforcement more transparent; and
2) Considering the tax implications of ESG initiatives. New legislation could offer real-estate firms tax benefits, such as tax credits.
4. New employee expectations post-pandemic
The post-pandemic talent drought and the home working boom have combined to create a new breed of employees who know what they want. Leaders will need to understand the new employee expectations to recruit and retain top talent.
More than 40% of survey respondents plan to increase their diversity, equity, and inclusion (DE&I) initiatives, add more health and wellness benefits, and offer remote options. But only barely a third are prioritising other important measures like flexible schedules, workplace redesigns, and offering more career growth and learning opportunities.
5. Tech spending cuts could backfire
Not surprisingly, more respondents are planning to cut back on technology spending in 2023 over revenue concerns, and fewer than half expect to increase tech spending. This is a big change from last year’s survey, where two-thirds expected spending to increase and only 7% were planning cuts.
However, 80% of respondent firms have been exploring innovations like smart contracts, the metaverse, and tokenisation. Cutting back on tech spending could be a short-sighted move, as those who are willing to stay flexible and embrace risk by exploring new technologies could get ahead of the competition for the long term.