Are Commercial Real Estate Professionals Overly Reactive to Market Trends?

By Guy Gray | Commerical Real Estate

May 17
Are Commercial Real Estate Professionals Overly Reactive to Market Trends

You’ve seen the headlines before: “A recession is coming.” “Booming market forecasts!” “Commercial real estate agents everywhere are growing additional limbs!”

(OK, maybe not that last one.)

The first two are frequent headlines that tend to shape the immediate behavior of commercial real estate professionals, which begs the question: Are CRE pros inherently overly reactive to market trends? What if they could limit uncertainty? Let’s look at some of this year’s identified trends to determine whether they warrant certain actions, then look at some practical solutions (like technology) that will help CRE professionals avoid overreacting in the future.

Top CRE Trends for 2018

Priorities Areas. Forecasts. Outlooks. When it comes to commercial real estate, publications have a variety of names for market trends, but they all have the potential to elicit a “fight-or-flight” response from CRE professionals — and in turn, affect the way they run their business. For some examples, let’s take a look at a few of the most recent CRE trends identified by top organizations for this year:

  • Retail sectors plummeting: One of Forbes’ 3 Commercial Real Estate Trends To Watch In 2018, the increasing number of retail stores closing is more than enough to make CRE pros’ heads turn. From J.C. Penney, Macy’s and Sears to Kmart, Toys R Us and Payless, the number of closings in retail and industrial sectors reached about 7,000 last year. Forbes also warns that “there’s more to come” for 2018.
  • Technology adoption increasing: In its Commercial Real Estate Outlook 2018 article, Deloitte points out that automation is transforming the real estate industry and that CRE pros who avoid adopting the right software will continue to suffer many operational inefficiencies. According to the article, “the real estate (RE) industry seems to be on an accelerating disruption curve highlighted by rapid changes in tenant dynamics, customer demographic shifts, and ever-increasing needs for better and faster data access to allow improved service and amenities.”
  • Multifamily units fluctuating: United State Commercial Real Estate Services reports that “developers are poised to register the second-highest annual completions count of this cycle in 2018, down by 9.2% from 2017’s cycle peak. Because apartment starts began to slow in 2017, the multifamily market will get a reprieve from new supply by late 2018 and throughout 2019.” (No, this isn’t CRE, but we’ll get to that later.)
  • Millennials rising: It may seem like this topic has been driven into the ground, but the fact is, the Millennial generation now outnumbers the Baby Boomer generation. According to Hinckley Allen’s 5 Trends That Will Shape Retail Real Estate In 2018, “many Baby Boomers are retiring, selling their homes, and leaving the suburbs in favor of city living. The (commercial real estate) industry must adapt to the changing preferences for products, services, and experiences of both generations.”

So, how should CRE pros react to predictions and analyses like these? By evaluating them on a case-by-case basis.

Reacting Appropriately to Market Trends

Using the trends in the above section, let’s determine whether market trends warrant significant change in your day-to-day actions as a commercial real estate professional. Now, these are just a few trends in an ever-flowing stream of them, but they’ll hopefully help you establish a baseline for how you should react to similar changes in the future.

  • Retail: There’s no debating the rise of the e-commerce industry and its effect on retail commercial real estate. But does that mean you should avoid pursuing it? Short answer: no. For one, there can be many quick wins gained in retail, especially for bigger companies looking for alternate properties. Furthermore, while it seems retail is headed down a dark path, there are always opportunities for retail companies to change their strategy and succeed. (Netflix didn’t just stick to physical DVDs, did they? They adapted, and so will many retail stores.) You need to be there waiting for them.
    • Summary: Retail may be on the downswing, but don’t eliminate this industry from your portfolio.
  • Technology: Are property management software and CRE automation the ways of the future? It would appear so. The Deloitte article above contains several graphics and statistics validating the relationship between technology investment and CRE success. Technology can help you adapt your business model to keep up with the changes of the industry, of course, but it will also streamline your day-to-day business and make your processes more efficient. Most importantly, it will give you better data for making decisions about market trends.
  • Multifamily: This trend goes to show that all markets — even if they’re in somewhat of a competition to yours — fluctuate. So while the multifamily development hit its peak in 2017 and remains strong this year, it’s on the downswing. If you overreacted to the rise of multifamily dwellings the past few years and were concerned about potential properties available for your commercial real estate business, you can rest easy knowing that it’s cyclical.
    • Summary: Don’t let alarming trends dictate the way you do business. Take note of competitive changes, but don’t let them overwhelm you.
  • Millennials: While the above trend is an example of how a residential trend shouldn’t affect the commercial industry, this is an example of how it should. Millennials are the biggest generational group in the world today and their actions have far-reaching impact, even in commercial real estate. CRE professionals should watch for the growing trend of smaller commercial units, jam-packed with services, restaurants and more as millennials look to bring the comforts of big city life to the peace and quiet of the suburbs.
    • Summary: Generational trends affect all types of real estate. A little foresight and planning can help your CRE portfolio accommodate millennials.

Overreacting to any of these trends is easy. But if you take a moment to analyze the situation and think about how it really impacts your brand and the way you do things as a CRE professional, you’ll see the correct actions you should take.

Managing CRE Trends with Technology

The human element of emotion is the primary reason why commercial real estate professional can be overly reactive to market trends. By combining your emotion and intuition with data-powered CRE software, however, you can embrace these trends and respond appropriately. Even Deloitte concluded that commercial “RE companies should consider evaluating processes and tasks that can be automated and the technology implementation approach.”

So where do you start? Well, you want a strategic business partner, not just a software vendor. A commercial real estate automation company like Quarem fits the bill. With Quarem, you can enjoy:

  • Comprehensive training and roll-out to help you tailor your individual portfolio’s needs and set you on the path to instant market trend identification.
  • Full data migration of your existing leases, contract deadlines and more. No more sifting through files of papers whenever the next market trend comes along; you’ll have all the data you could ever need available on demand via cloud-based technology.
  • Ongoing support from experienced customer service specialists who are knowledgeable in both commercial real estate and technology, allowing for great understanding of market trends that you’re concerned about.
  • Strategic empowerment that will set you up for success in an ever-changing, fast-paced world of real estate. This includes a portfolio analysis down to individual properties and assistance with crafting a solution tailored to your business.

Commercial real estate professionals like yourself don’t need to be overly reactive to market trends. By analyzing the data, using the right technology and partnering with the right CRE advisors, you’ll set yourself up for future success.

About the Author

Guy Gray serves as Chief Operating Officer overseeing our technology and client services teams. He is responsible for guiding Quarem application development, networking and security, as well as new client implementations.

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