A new report from Canadian commercial real estate services provider Altus Group suggests that the pandemic is fuelling a wait-and-see approach from global property developers, due to the murky outlook.
'It’s evident from the report that the global development sector is facing a complex set of challenges due to long-term market pressures, many of which are exacerbated by the pandemic and its evolving impacts,' said Scott Morey, executive director at Altus Group.
'However, the industry is recognising opportunities balanced with a cautious approach while leveraging digital-based solutions as a foundation to help carry it through this period of uncertainty and into the recovery stage,' Morey added.
Planning risks
Some 67% of development executives said tenant/occupier expectations and preferences have a major influence on development planning. This is compounded by the role the pandemic is currently playing in the built environment as occupancy use and building design now have the potential to significantly evolve and impact the market.
Meanwhile, 74% said public sector infrastructure investment (such as transit hubs) has a major influence on development planning. While shorter-term pandemic support is a current priority in many regions around the world, this suggests future economic recovery plans stemming from new government investment in public infrastructure will continue to be a major factor in development planning.
When asked, 68% said that the risk of a cycle downturn has a significant impact on their decisions regarding new construction investments, with distressed asset acquisitions (57%) and change in asset/portfolio mix (66%) viewed as more of a risk than an opportunity during a cycle downturn. These factors are all contributing to many development leaders taking a wait-and-see approach.
Projects stalling
Some 73% of development executives said project cost escalation is a significant challenge facing development firms, followed by environmental regulations (70%), government policies and processes (65%), and trade and labour shortages (65%).
Covid-19 has amplified existing challenges with increased trade and labour shortages, physical distancing requirements on construction sites impacting productivity, construction site halts in certain regions, and the complexity of government policies and processes.
In addition, many executive respondents expressed surprise that significant distressed asset opportunities have not yet emerged, despite the heightened level of economic disruption caused by the pandemic. While this could be a signal that the worst is yet to come as signs of a Covid-19 second wave emerge, development executives appear to be continuously evaluating conditions and waiting for more opportunities to arise.
Digital plans
Around 52% of development executives are considering or planning to use digital transformation strategies to mitigate business challenges, and 37% are already doing so. Some 56% are considering or planning to use data analytics to mitigate business challenges, and 28% are already acting on this.
Altus concludes that the findings suggest that development executives are broadly acknowledging that digital transformation strategies and tools are the key to building resiliency for the industry in a prolonged and sustained development crisis.
The Altus Group Global Property Development Trends Report is based on a global quantitative survey of 404 property development C-level and senior executives at property development firms, owner operators and owner investors with property development divisions in North America, Europe, Middle-East, Asia-Pacific and Latin America.
