Learn more about the role of a Center of Excellence (CoE) in leasing and how
From the pandemic in 2020 to geopolitical and economic shocks in 2022, the global economy continues to shift. Economists throughout the world expect a potential recession, debating only when it will start, how long it will last, and what magnitude it will have.
Commercial real estate is not isolated from the world economy and global events. As Covid-19 showed us, even the strongest players get affected by global perturbations. In 2020, Nike’s sales fell 4% due to the pandemic, which shows us that even leaders need to take into consideration market dynamics and adjust their strategy fast.
We created this article to help you better understand the commercial real estate outlook in 2024 and the upcoming years. We invite you to think with us about trends that shape the industry, how to overcome challenges and seize new opportunities by examining vivid examples from different companies and brands. We’ve read and compared a lot of commercial real estate reports and surveys and added our in-field experience based on collaboration with the biggest retailers in the world to this post.
Table of Contents:
All commercial real estate professionals – those who work at Nakisa, who are Nakisa’s clients and who created CRE trends reports and surveys – confirm that the following trends are shaping the commercial real estate market right now.
In 2024, post-pandemic challenges, labor shortages, inflation, energy crisis, and disruptions in the supply chains hit the industry again. Global market instability is the primary factor that sets the context for commercial real estate in 2024.
In an unpredictable market, commercial real estate stakeholders are cautious and carefully navigate a period of price discovery. According to PwC’s interviewees, lenders have been imposing stricter borrowing requirements with increased financing costs. This creates obstacles for companies in raising capital and advancing their projects. As a result, competition for deals has decreased during price discovery, as some real estate assets come under pressure. Meanwhile, Colliers’s report of 2023 states that distress will emerge in all asset classes.
Businesses are choosing different strategies for handling market uncertainty. Some of them downsize significantly their real estate footprint. For example, Meta decides to sublease their offices in Seattle and Bellevue instead of using them. Microsoft also announces that they won’t renew the lease after June 2024 for their office in Bellevue and they turn to remote work instead. Some companies even decide to leave specific markets, like Nordstrom which leaves Canada even though their Vancouver store was estimated as the best-performing store worldwide.
Other companies are seeking to seize opportunities. For example, Psycho Bunny enters the Canadian market in 2023, after amazing growth amidst the pandemic when it tripled its business and opened 20 stores across the USA. Uniqlo is set to grow with the plan to open 20-30 new stores in North America each year until 2027. The North Face also is planning to open more than 70 stores in North America and add up to 300 retail and partner locations in the next five years.
What would be the best real estate strategy for your company? Pause and wait, downsize, or expand? To answer these questions, you need to keep a close eye on market fluctuations and make business decisions based on the data from your stores and offices.
What we can say for sure is that it’s high time for transformations. Big and small businesses need to adjust their strategy to new challenges and view the real estate profile as a crucial component of the strategy. During this unstable period, companies need to search for new out-of-the-box solutions. Smart real estate management can ensure the needed resilience and cost optimization.
It’s crucial to learn from previous crises and recessions. When Covid-19 hit, companies that managed to rethink their real estate strategy and apply quickly new approaches could benefit from new opportunities and stay ahead of the curve of global transformations. Restaurants were adding cloud kitchens or ghost kitchens and food delivery services, retail was moving to online shopping and office workers switched to remote in order to face the change. Even after the pandemic, these trends continue to shape the future of the industries.
Retail bounces back after Covid-19, but it has greatly transformed. Now it is adapting to changing consumer buying habits and an evolving work landscape.
Here are some of the retail trends in 2024:
These trends reflect the evolving consumer preferences and the industry’s response to meet their demands for convenience, personalization, sustainability, and immersive experiences. Retailers that successfully embrace these trends are likely to thrive and remain competitive in the dynamic retail landscape of 2024.
The return to the office brings new considerations for businesses. While some companies may opt for remote work arrangements, others recognize the value of physical office spaces for collaboration and fostering company culture. This has led companies to lean toward smaller but premium office spaces (Grade A or A+) designed to attract and retain top talent, providing an enhanced employee experience and promoting productivity.
Let’s explore more trends for the corporate real estate market in 2024:
These trends reflect the evolving nature of work and the changing expectations of employees.
With growing awareness of sustainability and social responsibility, stakeholders in the industry are increasingly recognizing the need to incorporate ESG principles into their operations. From reducing carbon footprints and energy consumption to promoting community engagement and ethical practices, ESG initiatives are driving positive change in commercial real estate.
Various companies are already committed to ecological and social matters and promote them as their mission and values. Brands have various initiatives supporting zero-waste and raising awareness of environmental problems. One of the examples is a new Uniqlo store in Maebashi, Japan. It is built from recycled materials and equipped with solar panels to achieve zero-carbon emissions. Also, it has a repair and customization service RE.UNIQLO STUDIO that helps clients repair, reuse and remake their favorite clothes.
However, not many companies are ready for the upcoming ESG real estate regulations. According to Deloitte, only 12,2% of companies are prepared to meet future requirements immediately.
In terms of environmental factors, commercial real estate stakeholders need to work to reduce their environmental impact. This includes implementing energy-efficient technologies, such as smart building systems and renewable energy solutions, to minimize energy consumption and carbon emissions.
Deloitte and PwC reports insist that the transparency of ESG metrics is required and state that soon we will see new ESG disclosure rules and regulations. For instance, in the United States, the Securities and Exchange Commission (SEC) has proposed a new rule that would require issuers to share information about climate-related factors. This includes vital details like greenhouse gas emissions and climate risks. Real estate tenants, investors, or lenders associated with SEC issuers, might have to provide this information. It is all part of an effort to promote transparency and ensure that everyone is aware of the environmental impact of their assets.
The International Sustainability Standards Board (ISSB) is also finalizing requirements for climate-related disclosures and expects to issue an IFRS Sustainability Disclosure Standard around the end of Q2 2023.
Commercial real estate professionals need to keep in mind upcoming regulations and be ready for them. By integrating ESG principles into their strategies, commercial real estate stakeholders can align their operations with global sustainability goals, enhance their competitive edge, and contribute to a more sustainable and socially responsible future.
For a long time, the real estate industry was slow at digitalization. Historically, the industry heavily relied on traditional methods such as physical property listings, face-to-face interactions, and manual paperwork.
Recently, property technology, or PropTech, has emerged. PropTech includes digital solutions that help real estate professionals build, manage, maintain, buy, sell, and lend property. Covid-19 and economic shocks gave another boost to PropTech and helped fasten the digitalization of the industry. Digitalization is driven by thousands of entrepreneurs and start-ups. According to Forbes, the Proptech market is currently valued at $18.2 billion and is forecasted to reach $86.5 billion by 2032.
One of the most interesting trends in digitalization is the Internet of Things (IoT). It is an interconnected network of physical objects that are equipped with sensors, software, and technologies that collect and share data with little to no human involvement. According to BuildingEngines report, the property team’s interest to invest in smart buildings and IoT increased by 53% since the previous year.
Here are four amazing examples of how IoT helps commercial real estate professionals and businesses achieve their goals:
Besides the Internet of Things, PropTech empowers commercial real estate professionals with digital documentation and transactions, online platforms to discover new commercial real estate assets and opportunities, visual tours of the premises, as well as highly analytical tools for a better understanding of operational efficiency, lease management, and maintenance needs.
The 2022 report by JLL highlights that real estate needs are becoming more complex than ever before. Enterprises need to gather more data to create complex reports and ensure transparency and compliance with accounting standards across the globe. JLL and Deloitte mention the growing importance of having a trusted partner or software to manage commercial real estate challenges. According to JLL, 43% of companies expect they will need more support for CRE technology solutions over the next three years.
“Corporates will need to revisit their CRE strategies and invest in solutions that enable continuous adaptation to rapidly changing market dynamics”, says JLL.
Wonder how software can help enterprises realign their business strategy? Read our blog on CRE software to enjoy the benefits of digitalization to the fullest!
In the commercial real estate market in 2024, factors like unstable market dynamics, retail and office transformations, ESG considerations, and the rise of prop-tech are shaping the landscape. Understanding these trends enables businesses to make informed decisions, optimize their costs and seize growth opportunities.
We can say for sure that 2024 is not easy year for the global economy and commercial real estate industry. However, we see that the commercial real estate market is transforming and that experimenting and offering new solutions to real estate challenges can help companies get ahead of the curve of this transformation.
If you want to get more updates or discuss commercial real estate topics, follow Nakisa LinkedIn page!
Learn more about the role of a Center of Excellence (CoE) in leasing and how
Enterprise lease accounting software manages multi-currency contracts, tracking, calculating, and reconciling finances in real-time with
Find out how Nakisa’s latest HR Suite release democratizes organizational design and org charts, featuring