Canadian real estate executives foresee few dramatic reversals of current industry trends during the next five years. Recently released findings of REALPAC’s 2022 Prospective Survey pick ESG and hybrid workplaces to be prominent influences on investment and operational decision-making up to 2027. Multifamily and industrial assets are still expected to be in favour, and it’s envisioned that companies will be steadily, but not necessarily aggressively adopting new technologies.
Those insights and projections are gleaned from 38 leaders of commercial real estate companies or affiliated services, collectively representing a workforce of 36,500 and holding about CAD $290 billion in assets under management. The survey was conducted in late October and posed questions in 12 categories to chart the industry’s anticipated course in the mid to longer term, and perhaps prompt some thinking on what’s needed to the support the journey.
Underpinning the desirability rating of apartment and industrial assets, an overwhelming majority (97 per cent) of survey respondents foresee a continued shortage of purpose-built rental housing, while 68 per cent expect industrial rents will exceed current levels in five years’ time. Enthusiasm is considerably more muted for retail and office, with just 29 per cent and 24 per cent of respondents, respectively, projecting those property types will be desirable five years out from now.
More than two-thirds of respondents anticipate a hybrid mix of on-site and offsite work will be the predominant arrangement for companies with office space, but nearly three quarters expect that downtowns will continue to be business centres and 94 per cent project that tenants’ employees will spend at least three days per week in the formal office. Respondents were generally more inclined to suggest that tenants will keep the same amount of space for a smaller on-site staff contingent (42 per cent) than to foretell reductions in tenants’ footprints (24 per cent).
More than 75 per cent of survey participants forecast e-commerce activity will remain flat or increase slightly over the next five years, compared to 21 per cent expecting substantial growth. Wide-spread deployment of robots is mostly envisioned for further into the future, with only 16 per cent of respondents projecting retail staff will automated by 2027.
A larger share of respondents expect to adopt automation within their own companies (30 per cent), while 27 per cent foresee rollout of technologies related to operations and property-level management. Data analytics implementation is on the menu for 17 per cent of participating firms and 13 per cent are looking at tenant engagement technologies. As well, 17 per cent of respondents indicate they’ll adopt all four of those technologies.
Turning to business pressures on real estate owners/managers, 57 per cent of respondents expect accounting practices will become more onerous while 92 per cent anticipate they’ll be called on to integrate sustainability into financial reporting. Both investors and regulators are expected to prioritize ESG, and 70 per cent of respondents are awaiting onerous policies from the latter. In sync with those expectations, ESG and burdensome government regulations are identified as the two top business challenges and more than half of respondents suggest boards of directors will be pushed to come up to speed on ESG factors and requirements. ESG acumen is also ranked as a critically sought new skill for commercial real estate executives, along with technology and data skills.
On the ESG performance front, 38 per cent of respondents predict a 10 to 25 per cent cut in their portfolio’s greenhouse gas emissions by 2027, while 27 per cent envision a 25 to 50 per cent reduction. Only 3 per cent expect decarbonization to go deeper than 50 per cent.
More than half of respondents (56 per cent) expect their companies will be more socially responsible in 2027, with more than a third (35 per cent) targeting gains in diversity, equity and inclusion (DEI) and 26 per cent foreseeing greater community involvement. Only 12 per cent of survey respondents conclude their companies will show no improvement in social performance over the next five years.
Looking at what may present a lesser challenge, 90 per cent of respondents expect capital for transactions will be equally or more available than currently. Meanwhile, just 8 per cent of respondents expect construction costs, inflation or labour shortages will be ranking business challenges.
