The real estate industry must embrace technology, new business models and the concept of ‘space as a service’, the Urban Land Institute (ULI) and PwC say in their Global Outlook 2018 report published on Tuesday.
‘This report demonstrates that we are at a crucial point in the evolution of real estate,’ said Lisette van Doorn, CEO of ULI Europe. ‘Lately, we have been seeing more and more investors, operators, and developers moving into the proptech space: from partnerships on real estate projects to investments in proptech firms. Real estate companies must embrace change and become more sophisticated and client-focused to compete effectively. The companies that are unable to leverage new technologies and adjust their business models risk being left behind.’
While the global business leaders interviewed for the report agreed that real estate is in a late cycle, many of them suggested that the relatively strong global economic outlook and resulting occupier demand might prolong the cycle.
An increase in transactions in Europe and record levels of activity in Asian markets - such as Hong Kong and Singapore - support this idea. At the same time, pricing of core assets remains a challenge, which is driving investors to alternative sectors, such as logistics, and to second-tier cities, such as Copenhagen in Europe.
Risk of rising interest rates has increased
Rising interest rates and inflation are also expected to exert pressure on the industry, particularly in the US and Europe. According to the interviewees, the risk of rising interest rates is much higher now than it was six months ago.
‘Our conversations with industry leaders in this global Emerging Trends report underline the fact that these are interesting and challenging times for the industry,’ said Gareth Lewis, director of PwC Real Estate. ‘We're seeing a value shift from the passive “bricks and mortar” component to a more dynamic, operational business. This is important for investors - who on the one hand need to manage risk, but are also looking to find innovative and cost-effective ways of accessing operational expertise and innovation, or face diminishing returns.’
Examining the trends and challenges facing Europe's property industry, ULI/PwC say the region is drawing comfort from the fact that the European Union economy is growing at its fastest pace in a decade, which is supporting occupier demand as well as investment.
Much of the growth has been driven by the core economies of Germany, France, Italy, and Spain, says the report. For European property professionals, it is hard to dissociate London from the continuing uncertainty around Brexit. But the authors also note that Asian investors - less bothered by Brexit than their European peers - are looking to the long term by deploying capital in London.
