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Due to the huge impact from COVID-19, the global economy and Commercial Real Estate Industry are facing great challenges right now.

Trend

Commercial Real Estate Industry has multiple sectors, such as industrial, retail, multifamily, office and hotel and etc. Therefore, each sector has its own expectation. Currently industrial is the top-performing sector. Made up of warehouses, manufacturing facilities, refrigeration and storage assets, data centers, and other assets. This top-performing situation mainly contributed by the increase in online shopping. It is beneficial to invest in Commercial Real Estate. Investing in CRE has more potential income like 6% to 12% on average. Since industrial properties have more units, the vacancy risk is relatively low. Commercial leases are usually longer than those residential real estate which means property owners would deal with less tenant turnover.

Technology

To follow the regulation of social distance, the digital transformation of the business and client experience may gradually become essential in the industry. Along with the digital transformation, there are more tasks for companies to complete. It is important to bolster cybersecurity and data privacy. Since the analysts start to meet the clients completely virtually or via the phone, the bolstering of cybersecurity is able to provide clients with enough security of their e-contract. By strengthening the operation, we can build a better trust relationship with our clients. However, the pandemic also has positive influences on some properties, such as industrial real estate, health care, data centers, and cell towers. In these sectors of properties, the rent collections have remained healthy, but largely because of higher tenant incentives and leasing concessions.

COVID-19 accelerated the usage of technology in the commercial real estate industry. In just a couple of weeks, most employees start to work remotely, the property tours turned virtual, most tenant communication converted to online channels. We can see that more technology was required to manage daily operations. Some companies also increased their use of cloud-based applications and productivity tools to lower technology costs and increase efficiency. Therefore, the companies would redefine business processes, job roles, and required skills to fit the change in technology and tools used.

What’s more, the use of smart building technology improved the tenant experience and bolster building security. With the help of new technology, tenants are more willing to pay higher rent.

Finance

The pandemic is destroying the value proposition of Commercial Real Estate, especially for offices, retail stores, and hotels. People are not able to travel and work at home. So some hotels could not pay their mortgages and the property was taken away by the banks. For business owners, employees are working at home but the owners still need to pay the rent for the offices. Therefore, clients will drop their budget by about 20% on average.

Commercial real estate companies need to strengthen asset portfolios and implement a data-driven finance function. Companies should utilize RPA and AI technology to automate tasks. AI and data analytics can identify irregular entries and perform more robust forecasts of property income and expenses, which could make planning and budgeting better.

 

Author: Huilin Liu

 

Reference:

Commercial Real Estate Investing 101: How to Get Started

Retrieved from: https://www.fortunebuilders.com/how-to-invest-in-commercial-real-estate-getting-started/

2021 commercial real estate outlook Rebuilding to enhance resilience

Retrieved from: https://www2.deloitte.com/us/en/insights/industry/financial-services/commercial-real-estate-outlook.html

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