Commercial Property Management: What to Expect in 2016? Trends and Tendencies.
Time is passing imperceptibly. Yet another year has passed, and we are already well into 2016. It is no secret that the commercial property-management industry is not changing very much. However, every year brings with it something new, something different… Meaning: new challenges lie ahead, which we have to be prepared for. The most important thing is to know which direction to take in order not to regret your decisions.
Do you remember the expectations for 2015? Last year, I looked over the tendencies and trends and made some predictions for the commercial property-management industry in 2015. You may wonder why I am going back to 2015. Because some of those tendencies are still going to be here in 2016… So, the question is: what trends and tendencies still remain from 2015 and what new to expect in 2016?
- Steady commercial-property industry growth worldwide.
Real estate is a cyclical industry, which depends very much on economic trends such as fluctuations in interest rates. Even though the economic crisis was not so long ago, the property-management industry is recovering quite quickly. Despite the fact that real estate was the cause of the Economic Depression, the industry all around the world is growing steadily and making billions of dollars. Commercial property management is probably the industry that is most tied up with the economy and with people’s fundamental needs and behavior. Every economic change reflects as a new trend for commercial real estate. The Economic Depression is almost forgotten, economies are rising from the ashes and people finally can afford more. According to World Bank data, since 2011 in the United States the GDP per capita has increased by 33,33%, in the UK by 31%, in Australia by 4%. The unemployment level is decreasing; in the United States the unemployment level decreased by 31%, in the UK by 19.2%. Faster job-market growth increases consumer spending, therefore the GDP is likely to grow even more in the coming year. The commercial property-management industry continues to shine as well. Foreign investors are looking for long-term partnerships with domestic partners who have knowledge and experience in local markets, therefore rising foreign investments in commercial real estate both in the United States and Europe are providing additional funding sources either for new properties or current estate development. It also means more difficult management processes, more tenants to deal with, lease units to control, and spaces to maintain.
- Growing significance of the suburbs.
Even though everybody talks about growing urbanization and expanding cities, suburbs might be even more important for commercial-property owners and managers. Every year, more and more people are moving to the suburbs, so suburban communities are expanding. According to Forbes, roughly 38% of young Americans are living in suburbia and 45% live outside the largest metropolitan areas, mostly in smaller metro areas. Based on baconsrebellion.com research, Millennials’ locational preferences are: 48% suburban, 38% urban, 14% rural. People moving to suburban areas want their next home to be within “a short drive” of grocery stores, restaurants and retail stores. Today’s suburbs are not the suburbs of the past. Suburban areas are becoming more like urban centers, and will try to reproduce the urban experience. The real-estate market is replicating the attractive urban components in suburbia. Even though they are leaving urban areas, people do not want to reject all the conveniences they are used to, so the suburban environment should combine the work-and-play lifestyle of today’s population. This means that more commercial properties like shopping malls and office buildings, or a combination of both, will be set up in suburban areas.
- Changing demand for office space.
The entire work culture has changed. The traditional workday, where employees are at the office 8 hours per day at fixed hours, will soon be the exception and not the rule. Most companies are working or going on a global level, so employees should be ready for work 24/7; Gen Y employees are overturning the traditional workday. Some companies are even creating workplace-flexibility programs because of new technologies and global workplace dynamics. Furthermore, a large number of employees are often working from home or at a distance, from virtual offices, or using apps like Skype, Skype for Business, Viber or similar, or virtual meeting places like Webex, or simple teleconferencing, to communicate with each other or with clients all around the world. Some of the companies that realize the importance of work flexibility allowing flexible working hours and working from a distance are Ernst & Young, Aflac and MITRE. We also need to bear in mind that these are the start-up times, when every year there are more and more successful start-ups, which are demonstrating a growing appetite for new office space. So, all the above-mentioned factors are radically changing the demand for office space – this leads to businesses shifting to smaller office spaces, meaning that properties should reorganize building plans in order to split the space into more but smaller offices to meet the demand. During the last 10 years, office space per employee has decreased by 25% in the USA and 35% in the UK. So, great news for property managers: vacancies are predicted to decrease. According to Statista.com, office vacancy rates in the United States will decrease from 15.6% to 14.6% during 2016.
So, with reorganization corresponding to the demand, not only can well-known buildings like One World Trade Center, Petronas Towers in Kuala Lumpur, The Shard in London or the Empire State Building in NYC be filled with tenants, but also smaller and lesser-known buildings all around the world.
With the inspiration coming from the Google Offices, many companies are seeking to establish creative and robust offices for their own workers, with large open spaces and lots of natural lighting, places for entertainment and relaxation, so it is important to let your tenants redecorate their offices in a way that reflects their company’s face and vision. Read more about the future of the workplace.
- Changing demand for retail space.
Even though the number of shopping malls has risen in the past few years, it is becoming increasingly difficult to attract more tenants to the malls due to the growing number of online sales. Online shopping is on the rise, and is significantly challenging traditional shopping. E-commerce sales have grown by 28 % since 2012, and are expected to grow a further 37.5% by 2018. Traditional retailing is losing sales to online retailing. According to strategyandpw.com, since 2000 only one quarter of retail sales growth has come from traditional retailing, and the other three quarters occurred through online retailing. However, that does not mean that shopping malls will become extinct, they are simply changing their purpose and becoming more oriented towards social phenomena than simply towards shopping. Read more about retailing trends and how to overcome today’s shopping-mall management challenges here, and get inspiration on how to deal with retail crises and the shopping malls’ struggles. So, despite the fact that the number of online shops is increasing, people still want to have an in-store experience and see and touch the goods they are buying. Therefore, we will see that retailers are reconsidering their strategies, and are dividing their sales partly traditionally and partly online. So, shopping-mall managers will not be seeing empty store spaces, but just like office managers they are going to need to reorganize the building layout and make more but smaller stores. Statista.com foresees a retail vacancy decrease from 2015 to 2017 from 12.6% to 11% in the United States. However, in order to keep shopping malls alive, managers need to think of the shopping center more like a social, entertainment, and leisure environment than simply as a place for shopping. More retail trends of 2015.
- Changing demand for industrial space.
Online shopping affects not only retail-space demand but industrial demand as well. When online shopping started to grow expansionally, the demand for industrial space jumped immediately. In order for supply to equal demand, retailers started to look for industrial premises for stocking their goods. As mentioned above, online retailing is constantly expanding, therefore all that industrial space is going to be needed. Statista.com foresees a decrease in industrial-space vacancies in the United States from 11.1% to 9.5% by the end of 2016.
- Internet and technology possibilities in property management.
From its inception, Internet has always been very important for property-management activities. Starting from property lists to lease-unit pictures, a lot more is now based on the Internet. However, with more capabilities arising every year, Internet is more important than ever before because this generation grew up with the Internet. Unfortunately not everybody uses what it can do best. Only some property managers ensure that their properties can be found using such popular apps as Zillow, Sitegeist or Vert. Also, a lot of property managers still do not have a website showing the appearance of their buildings for a tenant deciding which property to choose. However, you need to keep in mind that today’s consumer, tenants included, looks firstly online for information, which shows the need for more education on web-based marketing and business solutions for commercial property-management and real estate. Visualization here is very important; people like to see the properties firstly on the Internet instead of going through all the properties physically, as it saves so much time. Today’s technologies allow the tenant to feel like he is there. Google started this era of visualization with the Google Earth app, and there are now many tools for interior visualization, such as Panorama 360, 360 Degree Camera, Sphere – 360º and more, that easily help you make 360 degree videos to give the potential tenant a feel for the building. At the very least, you can do a panoramic photos of the lease units, buildings, floors and surrounding area.
Talking about the lack of education about business solutions for property management, it is important to mention that technology is improving and impacting the real-estate management industry like never before. Technologies for commercial-property management are evolving every day with functions helping to manage properties more easily than we probably ever thought possible. The world is moving towards cloud technologies, and the property-management industry is no exception; therefore, for the convenience of property managers, there will be many more cloud-based property-management systems allowing managers to use the information 24/7 from anywhere in the world. Read more about cloud-based property-management systems.
New systems help to improve not only the management process itself and the manager’s work, but also help to increase the level of customer services and satisfaction, with programs like Tenant Portal, where tenants can see their invoices, historical data, work orders, documentation, etc. More companies will be moving from Excel to more functional property-management systems. Read more about when Excel is not enough for the efficient management of your properties. Tools like Tenant Portal allow not only property managers but also their tenants to fix and track the data on changing office sizes, payments and CAM fees and make efficient analyses.
“Some businesses today consider location even more important than compensation in recruitment efforts,” said Rick Cleveland, a managing director at Cushman & Wakefield. Today’s generation are working in order to afford a pleasant and interesting life, in order to live. People like to take breaks, relax, play and have fun, and it is critical that they can do this close to the workplace. Therefore workplace location is a key factor for employee engagement. According to the workplaceinsight.net research done in the UK, 57% of respondents said that they are staying in their job because of the location, and only then referred to the salary – 52% and job security – 33%. It is true that you cannot always choose the location of your managable property yourself, but you certainly can emphasize the best things about your location, whether it is in the city center, or close to great restaurants, shops or good public transportation.
Every year, property managers face something different, something challenging. It seems this year is not an exception: vacancies will be decreasing due to the demand for more but smaller properties, therefore workload will be increasing – more contracts, terms, invoicing, tracking and analysing, also more maintenance and work orders. It is very difficult to deal with hundreds, thousands or even tens of thousands of tenants if the property-management process is not optimized. In order to do that, managers need more realistic forecasts, faster and more efficient planning and accounting, and visual tracking and management of vacant/occupied spaces. This year brings even more tools to make property management efficient. Technology is one of many tools that organizations use to help solve problems. Good software will not bring you new tenants or change the location of your property; but technologies can still help to avoid making bad decisions and foresee issues or problems before they occur.
What are your next steps as you prepare for predictions to happen? Turn them into advantages by using the right tools to deal with the challenges that are coming. Let 2016 be the start of improvement and growth in your business.
Read more about how to prepare for every specific trend in our upcoming blogs. Subscribe to our news, and get prepared for a battle with the property-management challenges that are coming!
I, at any rate, cannot wait to learn more. Can you?