CRE Professionals Must Become Strategic Advisors

Changes affecting our industry by 2025 include becoming an increasingly cashless society, the emergence of the “certified underwriter” and taxes and fines on buildings that are not up to energy standards, Lee predicted.

SAN DIEGO—With so many megashifts leading to changes in our industry, the most successful CRE professionals will be those who nurture relationships and become indispensable in helping clients serve their customers, CEL & Associates’ president and CEO Christopher Lee told attendees at Tuesday’s NAIOP San Diego breakfast. The business-management consultant spoke to a rapt audience on “The Transformative Megashifts That are Reshaping the Real Estate Industry.”

Lee presented sample future headlines that reflect rapid technological advances, including an increase in jobs being automated and in virtual offices, which could be greatly detrimental to the office and industrial sectors; the introduction of a new tenant robot; Google becoming the number-one source for real estate data; and Amazon introducing a flying warehouse. He said one of the megashifts he is noticing is that real estate has grown from a local, regional field to a national and global one as companies have consolidated. The emphasis is on collecting relationships, and tomorrow’s focus will be cyber, with value placed on providing information with the highest propensity to close a deal: predictive data. “Brokers will move to strategic advisors; it will be less about a specific event and more about relationships.”

Lee added that we’re in a perfect storm of transformative events and that CRE is moving from being a building-centric field to a more customer-centric one. We need to look at who is the customer of our customer—the end user.

Another megashift is that work is following the worker instead of the workspace or a fixed location. “Innovation is outpacing regulation,” said Lee. He also pointed out that “the age of freelancers is upon us” and that a huge chunk of workers will be doing some sort of freelancing, even in addition to a regular job. “Work is changing very rapidly.”

Cycle-wise, Lee said economic and real estate cycles have been ending in years ending in seven, eight or nine since the late 1980s, so we should be expecting this cycle to end very soon. He noted that we’re currently in an age of capital and asset rebalancing and will soon be in an age of acceleration.

Lee also pointed out the wave effect of many areas of the economy and real estate; issues like sales, loan originations, M&A activity and even the combined value of office furniture tend to come and go in waves.

“We need to examine where we are,” said Lee. Asset performance is beginning to decline, there is a record amount of capital yet to be deployed, asset pricing is one of the biggest challenges facing real estate fund managers; we’re at a point of change right now, an inflection point.

“Generational shifts are driving change,” Lee said, noting the different ways in which people are conducting work now due to Millennials in the workforce. A total of 37% of people work from home at least some of the time. Millennials value work/life balance and healthy work spaces, and 81% of them want to choose their own work hours—this changes the nature of space.

Also, office construction and transactional sales are down, and where at that point of inflection where strategic advisors are in demand. Industrial robots will become increasingly prevalent since they increase efficiency in an increasingly important area of industry, but what will happen to workers who are displaced because of them? Last-mile delivery is huge, and distribution channels are different than in the past, yet industrial sales are down because so many investors are chasing after the same deals. At the same time, single-asset sales are up because those who can’t find office assets to buy are moving into industrial.

On the retail side, many centers will be rendered obsolete due to online sales and will need to be repurposed. In fact, 66% of Millennials shop online while in a retail store; they touch and try on merchandise in store, then find a better deal online to buy. Mobile sales are expected to reach $336 billion by 2020, said Lee. On the other hand, multifamily sales remain strong since investors are moving capital away from office and into multifamily.

Looking ahead to 2025, Lee had the following predictions; we will be moving into a cashless society, a move that is supported by the government because then transactions can be tracked and taxed. Our industry will consolidate further, with between 25% and 30% of real estate firms in existence now disappearing by 2025. We will see the emergence of the “certified underwriter,” with firms like PwC giving assets their seal of approval. At least 10 million jobs will be lost to robotics. People will be growing their own food, with green walls and inside farming becoming more popular (no bugs or smog to combat). Taxes and fines will be levied on buildings that are not up to energy standards, so green buildings will be hugely important, with real estate becoming the “energy czar” for the US. Space will need to be flexible, so it will be bought in “units of consumption.” Women will comprise nearly 47% of C-suite occupants because more of them are enrolled in college now than men. Human resources will impact lease negotiations and space choice. There will be a shortage of qualified real estate workers by 15,000 to 25,000 per year.

The answer to all of these shifts, said Lee, is to become more strategic, more advisory and to create relationships with clients that will sustain them through it all. Clients will need an experienced and forward-thinking guidance system in order to thrive among all of these changes, and real estate professionals can fill that role.