The pandemic has brought a lot of uncertainties to our lives, and after two years in this state of wavering doubt, there are finally signs of promise starting to break through, particularly in commercial real estate. However, new challenges such as rising inflation present unique circumstances for the real estate industry that gained momentum throughout 2021.
Moving through 2022 and beyond, here are a few key trends we’re keeping an eye on in commercial real estate:
Return to Office with Hybrid Models
Offices aren’t going away any time soon, but the ways in which they are used will change. Foursquare research shows that fully remote workers are still visiting restaurants, bars, and entertainment venues, indicating that personal preferences may be driving behavior more than COVID precautions. For example, our data shows that 40% of in-office professionals visited a stadium, and 94% visited a bar at least once between May and October 2021.
To incentivize employees’ return into the office, companies are investing in quality spaces with amenities and perks, and offering flexible opportunities for in-person collaboration. Real estate firms need to adapt to this new reality by optimizing the layout of commercial spaces to appeal to employees and make the office a desirable destination. Thoughtful tenant selection means taking into consideration behavioral nuances by demographics ,region, city, and neighborhood. Location-specific intelligence is helping both employers and real estate firms alike to determine where an office should be located, as well as which benefits and facilities should be provided. For instance, an office space co-located with many fast-casual restaurants may not require food services, but a space that is far from any coffee shops may benefit from free beverages.
The Proliferation of Proptech
Executives in commercial real estate are investing in intelligent real estate technology for competitive intelligence. Like most industries, the shift to a digital-first market landscape has dramatically reshaped business as usual within the commercial real estate sector.
Keeping up with the demands of the modern digital economy requires all businesses to transform digitally, and data remains a critical area for investment during this transformation. A new study from 451 Research shows that 73% of business-decision makers and practitioners in the commercial real estate sector say their organizations are currently investing in new technology to remain competitive and keep up with the pace of market change. Ultimately, this creates an upward movement across the entire commercial real estate ecosystem. In fact in 2021, real estate and property technology companies raised nearly $21 billion – contributing capabilities such as embedded finance, home-improvement software and digital solutions for property management. As this space further evolves, there will be more partnerships, deals and overall increased investment between proptechs and managers as stakeholders seek integrated financing, management and analytics technology.
A Continued Housing Boom
Remote work, the desire for more space and low interest rates made residential real estate the hottest commodity of 2020 and 2021. This boom in the housing market resulted in a huge uptick in home improvement activity across the country: according to the National Association of Home Builders, remodeling activity rose 13% from 2020 to 2021 and is on pace for a slower, but solid growth in 2022. Location data suggests that this is only the beginning of the home improvement boom in America. Foursquare research verifies it’s not stopping anytime soon – our data reveals that 57% of Americans made at least one trip to a hardware store in Q2 2021, up +5% from the percentage of Americans who visited a year prior.
As inflation spreads and stretched supply chains leave gaps on shelves, Americans will abandon brand loyalty. Recent data from consulting company Daymon Worldwide Inc. shows that 70% of U.S. shoppers have purchased a new or a different brand post-pandemic. For instance, 13% of Lowe’s shoppers visited The Home Depot on the same day, while 10% of The Home Depot shoppers visited a Lowe’s store on the same day. In this situation, site-specific marketing would be useful, offering a competitive edge to capitalize on this disruption to brand loyalty and win share from competitors to increase market share. Location is critical in offering an edge to site selection, as 74% of CRE execs view location technology as a highly strategic investment that drives competitive differentiation and 77% agree that using location intelligence for site selection is highly important to maintain competitive advantage, according to a recent 451 Research study.
A Quantitative Approach
With real-estate companies looking to adapt to a fluctuating digital-first market landscape, they need fresh and timely data-driven insights to inform decision-making across the entire organization. Findings from 451 Research show that a rising number of brokerages and commercial real estate teams (97%) are embedding data-driven decision-making at the heart of their business. Nearly two-thirds (66%) claim their organization has a formal strategy and is actively implementing the cultural and organizational changes to become data-driven, while roughly the remaining third (31%) are in the planning stages for a data-driven strategy.
By analyzing and solving for the gaps in commercial real estate data, firms can find opportunities where there is historical growth and pricing is dislocated from value. With site-specific location intelligence, firms can determine property earning potential, optimize portfolio holdings and predict earning potential for a site. More quants (funds that select investments using advanced quantitative analysis) are entering the market given the opportunity for outsized returns, stable yield, hedges against volatility and unique tax advantages. With post-Covid recovery and infrastructure investments driving tailwinds across the markets, it is a critical time for sophisticated real estate investors to double down on data.
Revitalizing Physical Retail
Shopping behavior is continuously evolving, changing how commercially driven businesses connect with their customers in a physical environment. E-commerce was rapidly growing prior to the pandemic, and this growth was exacerbated due to months of quarantine. In Q3 of 2020, e-commerce comprised 14.3% of all retail sales, according to the U.S. Department of Commerce Quarterly report. In these conditions, retail has declined in importance as an asset class.
With the darkest days of the pandemic (hopefully) behind us, data shows that people are eager to shop in physical stores again. Foursquare data indicates that only 7% of Americans plan to only shop online for back to school this year (with 67% planning to shop both online and in-store, and 27% planning to only shop in-stores). Momentum is trending in a positive direction as consumers return to in-person retail shopping, while rising inflationary pressure and low interest rates make commercial properties attractive to investors, fueling market activity. However, physical stores will have a new role in the months and years to come.
Forward-looking retailers are prioritizing an omnichannel approach to sales, engaging customers online, via mobile and in stores. Physical stores play an important role, acting as distribution centers, pick-up locations and showrooms, which will only become more sophisticated with new technologies, like augmented reality. Brick-and-mortar buildings can deliver a unique experience that drives brand loyalty.
In order to adapt to – and capitalize on – the changing role of physical stores, commercial real estate firms are turning to location intelligence to determine optimal layouts for commercial spaces, like where a retail store should be within a shopping center. A recent study found that digitally-driven organizations find location intelligence highly important to competitive differentiation in site selection. Location intelligence is also perceived as critically important for workforce coverage optimization – determining which stores to staff in order to provide a quality consumer experience. Moreover, 70% of commercial real estate executives agree that location data helps inform tenant selection and tenant advisory services. Savvy commercial real estate firms are differentiating themselves by using location intelligence to strategically locate physical retail stores, and to arm their teams with accurate sales intelligence.
The commercial real estate market is poised for growth in 2022 and beyond, and location intelligence will undoubtedly play a critical role. Savvy digitally-driven real estate teams are utilizing location technology to maintain a competitive edge – armed with accurate, timely insights, these firms will better capitalize on these trends and reap the rewards.