Deloitte: 2014 Holds 'Continued Challenges'

CHICAGO-Beyond the dominance of one property sector or another, uncertainty around the state of the domestic economy, the outcome of impending regulations such as the soon-to-expire Terrorism Risk Insurance Act, changes in demographics and worker requirements will drive key trends for commercial real estate in 2014. So says Deloitte in a report that sums up its message in its title: “Trimming the sales for growth.”

Bob O'Brien, Deloitte's Chicago-based global and US real estate services leader, notes in the report that “challenges remain” despite progress on a number of fronts, from a slowly improving economy to an increase in CRE lending. “The coming year likely will be one of continued challenges for industry executives to realign business models, adjust to increasing regulations and attempt to innovate for growth,” O'Brien writes.

Along with the potential impact of regulations such as TRIA and the continuing Dodd-Frank rollout, there are other factors helping shape the landscape. “Capital availability for construction activity and non-prime properties remains tight,” O'Brien writes. “Technology is becoming a driving force in a number of ways—from its impact on retail property owners through the rise of online shopping; to increases in mobile workforces and the resultant changes in demand for office space; and its influence through social media and mobility (again) on the potential talent shortage that may be looming for the sector. Successful firms will navigate these issues in order to capitalize on these changing drivers of growth.”

Further, the report states that it's “difficult to see how the government makes the hard choices necessary to provide long-term solutions, but we do know that the longer it waits, the harder the fix will be. Delay may create risks to the rate of CRE industry growth, although key parameters—fundamentals, transactions, lending—continue to improve.”

In view of what Deloitte sees as “the expected modest near-term economic growth, longer-term risks to the industry from government fiscal policy and CRE's standing in the current recovery cycle,” the report states that astute players can potentially enhance their competitive edge “by reducing costs through improved processes and leveraging technology to improve operations.” In addition, the report recommends that CRE firms “focus on enhancing the tenant experience to suit tenants' changing needs, with an emphasis on service, sustainability, and increased use of technology.”