Many commercial real estate (CRE) property owners and operators are facing new challenges as the industry continues to shift. The Counselors of Real Estate outlined many of them in a recent report. With new federal and local sustainability mandates, an increase in tenant demands, and property teams scattering to maintain building compliance, it’s time to tackle these issues before they escalate.
Here are five challenges facing commercial real estate operations (as outlined in the Counselors of Real Estate report) and where attention can be focused.
Challenge #1: Hybrid Work
“As companies consider a reduction in their footprints in response to emboldened employees’ desires, the key will be to adapt offices for mid-week peak occupancy rates while trying to incentivize employees to spread the peak so reduced space can be better utilized,” the Counselors of Real Estate report states.
Remote and hybrid work is now favored by almost 80% of U.S. employees who want to work from home at least one day per week. CRE owners and operators need to collaborate with tenants to facilitate a space that allows for this dynamic (and increasingly popular) approach to work.
Focus Area: Tenant Experience
Curating an appealing, experiential office culture with a focus on interpersonal socializing will become even more important to draw workers to the office.
- Relaxation spaces
- Outdoor spaces
- On-demand services
It’s true many CRE companies are spending millions on adding amenities to their properties – from new art installations to tenant lounges and wellness centers, cafes, and more. But when it comes to amenities, one size doesn’t fit all.
Each property is unique, as are their amenity needs. Property teams need data to help them determine where their investments will pay off. Data extracted from tenant usage of a tenant experience app is the key. That’s because property teams can access real-time data on tenant preferences and behaviors.
Challenge #2: Energy Efficiency
On average, a commercial building HVAC system can account for 50% of total energy usage for a CRE property. In fact, the Counselors of Real Estate report found HVAC and lighting tend to be the largest contributors to energy consumption in office buildings.
You might be spending more on monthly HVAC costs than you know. Energy efficiency can significantly impact your ROI and bottom line. Not only that, but energy efficiency can also affect your building occupancy, tenant retention, and even building value.
What’s more, several cities have sustainability mandates in place to reduce carbon emissions from commercial buildings. In fact, New York City penalizes commercial property owners with fines if they are in noncompliance (see also Challenge #4 below).
Focus Area: HVAC Optimization
An intelligent HVAC management system can save you 20% on your energy bill. Such software offers your building the capability to reduce energy consumption all while exceeding indoor air quality (IAQ) standards. This sort of technology improves operational efficiencies, increases tenant comfort and satisfaction, helps your portfolio meet its sustainability goals, and grows net operating income (NOI) – all with no new capital equipment costs required.
An intelligent HVAC management system can integrate with your building management system (BMS), monitor and learn your equipment’s operations, and leverage artificial intelligence to make real-time micro-adjustments. The result? Every piece of your HVAC equipment is optimized.
If you implement an intelligent HVAC management system with a virtual engineer component, you can also tackle your on-site labor shortage issue as well (see more in Challenge #3). With the right partner, you’ll be able to tap into a team of remote HVAC BMS engineers to support your team. Your on-site engineers can leverage this remote team to make changes and optimize your BMS. This can help to reallocate your engineers to more important functions so you can optimize their time.
Challenge #3: Labor Shortage Strain
There’s been a profound change in how workers view their employment status. For various reasons, the pandemic prompted many workers to reassess what type of work they want to do, under what conditions, and for what pay – or even whether to work at all.
According to the Counselors of Real Estate report, “Labor shortages are stressing nearly all areas of U.S. business, and commercial real estate is not exempt. According to recent research, 88% of contractors report moderate to high levels of difficulty finding workers, and 35% have turned down work due to labor shortages.”
Focus Area: Intelligent Real Estate
Intelligent buildings and automation will shape the office of the future after COVID. The pandemic has created significant opportunities for the commercial real estate industry to tap into technology.
And it’s why many real estate investors, owners, and occupiers are adopting intelligent real estate technologies to:
- make data-driven decisions;
- increase NOI;
- accelerate sustainability initiatives; and
- improve the tenant experience.
There are three main parts to intelligent real estate:
- Intelligent buildings: These are buildings that have a modern building operations platform to digitize all commercial real estate operations. Then, add a tenant experience app that acts as a remote control to the building for access and amenities. Round it out with tech that addresses energy efficiency and sustainability (see Focus Area #2 above).
- Intelligent spaces: As hybrid work becomes a norm, this tech can help you understand the utilization of your space. Think in terms of desk hoteling or a system for employees to book workspaces.
- Intelligent advice: This is where you take in all the data for your building to create intelligent advice and useful insights. You can use these insights to make data-driven decisions that move your business forward.
Challenge #4: Evolving ESG Requirements
Government regulators around the world are increasingly passing laws, rules, and ordinances regarding the performance and disclosure of real estate assets according to environmental, social, and governance (ESG) criteria, according to the Counselors of Real Estate report.
These requirements are forcing real estate investors to measure and report – and in some cases publicly disclose – their assets’ energy and water use, waste, carbon emissions, and climate change risks.
Focus Area: Sustainability Strategy
With several sustainability mandates in commercial real estate already underway (and likely more on the horizon), it’s easy to see dollar signs. The question on everyone’s minds: How much is this going to cost me? But the better question is: How much will this cost me if I don’t make sustainability a priority?
A recent economic analysis of the state of U.S. office buildings shows as much as 70% of total inventory faces an alarming period of repricing due to fast-paced obsolescence. It’s accelerated by the pandemic but worsened by evolving environmental and health standards.
Data will be key to building your sustainability strategy. Many asset managers are tackling their sustainability strategies by investing in tech platforms that help them better understand how energy is being used at their property. This way they can make sure they’re in compliance with sustainability rules and regulations while also being aware of energy and cost saving opportunities, HVAC unit lifespans, tenant comfort scores, and IAQ in their buildings.
Challenge #5: Cybersecurity
We are in a new era of cybersecurity risks in commercial real estate, driven by decades of technological advances that impact all buildings’ physical and environmental functionality. There are material risks for investors, owners, operators, and occupants.
With decades’ worth of cybersecurity mismanagement in the CRE industry, the Counselors of Real Estate report notes, “The problem is systemic and pervasive throughout the entire industry, which is unfortunately now on full display in a global era of cybersecurity awareness.”
Focus Area: Vendor Management
Before signing a contract with a potential software vendor, do your homework. Ask for their track record on data breaches, request their business continuity plans, and confirm who exactly is responsible for handling, processing, and storing personal information.
With one trusted digital vendor marketplace, CRE owners and operators can restrict bids to their network or even widen the search when new facilities are added. Being able to use a trusted vendor marketplace that fully integrates with the commercial real estate operations platform used to store equipment and tenant data makes for a more efficient, secure, and seamless maintenance process. Using a pre-vetted vendor network is especially important today as property teams are facing more and more cybersecurity interruptions.
Improve Your Commercial Real Estate Operations
CRE software is benefitting commercial properties in more ways than one. From meeting sustainability goals, to maintaining compliance, and improving tenant experience, CRE tech is streamlining commercial real estate operations for property teams.
If you’re like many other property owners and operators facing the challenges above, it’s time to talk about tech. Check out our recent eBook, “The CRE Tech Guide to Boosting NOI,” to learn new ways you can boost NOI at your property – with help from tech.