The property industry is operating against a challenging, uncertain and dynamic landscape, marked by a confluence of market trends. Here are some of the most pressing.
Increasing costs
Soaring utility prices are expected to remain high until at least 2026 [Cornwall Insight]. Inflationary pressure persists, with the annual inflation rate in the US accelerating for a second straight month to 3.7% in August from 3.2% in July, above market forecasts of 3.6% [Trading Economics]. In Australia, the cash rate has increased since May 2022 at the steepest rate in the country's history [RBA]. The rising cost of raw materials and labor further complicates this scenario. Property developers and owners need to rethink their investment strategies, seeking energy-efficient alternatives and smart building solutions to offset these financial challenges.
So? These factors will continue to necessitate operational cost-cutting.
Net Zero pressure
Building operation accounts for 30% of global energy consumption [IEA]. 42% of occupiers and developers have signed green clauses, while 65% of leaders believe green leases will replace conventional leases by 2025 [JLL]. As governments worldwide adopt aggressive carbon-reduction targets, the regulatory landscape is set to become even more stringent. Adopting renewable energy sources and optimizing building operations are becoming not just a trend, but a necessity. Staying ahead of the curve will offer competitive advantages in the long run.
So? Buildings must execute energy-saving measures to meet Net Zero commitments and green lease obligations.
Premiumisation
Tenants are shifting towards higher-quality green premises. Of recent re-locations, 66% moved to a building with a higher market rent [CBRE], while unsustainable buildings are discounted. This is occurring while commercial property values are projected to drop by up to 15% [AMP]. The trend underscores the increasing importance tenants place on eco-friendly, tech-integrated, and health-focused facilities. As tenants become more discerning, buildings equipped with modern amenities and green certifications will demand premium rents.
So? Efficient green buildings hold their value and attract better-quality tenants.
Digital transformation failure
The record of studies on digital transformation indicates a high failure rate, with a notable 2013 McKinsey study finding that 70% fail. That is a significant waste of time, money and unmet expectations. In 2021, a follow-up study found that these projects are still failing, at a rate of 69%. The rapid pace of technological change and a lack of digital expertise within organizations contribute to these shortcomings. Successful digital transformation requires not just technology adoption but a shift in organizational culture and strategy.
So? Companies can beat the odds by partnering with established providers.
Demographic shifts
As global urbanization continues, cities are witnessing significant demographic changes, impacting the property market. Millennials and Gen Z, prioritizing flexibility and lifestyle, are reshaping the housing and rental markets. Additionally, with an aging global population, there's a rising demand for properties that cater to senior citizens. This demographic shift requires real estate developers and investors to diversify their portfolio, ensuring they cater to these evolving needs.
So? Adapting to demographic shifts ensures sustained property demand.
So, what is the solution to these compounding market forces? Initiatives, tools, and technologies that can simultaneously reduce outgoings, improve sustainability, increase asset values, and facilitate smooth digital transformations.
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