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Busting the commercial real estate ‘stability’ myth

The commercial real estate space is undergoing dramatic changes, and investors need to revisit their strategies in order to survive the disruption. Let’s speak about why it is crucial for landlords to have a way to visualize their space.

In today’s turbulent market, solid investments with stable, permanent yields are more appealing than ever before. According to conventional wisdom, commercial real estate, which promises multiple tenants and long-term contracts, is a low-risk, financially prudent investment that’s protected from the whims of a chaotic market. 

But thanks to the pandemic, global capital fluctuations, and countless other factors, commercial real estate is no longer a static investment requiring little oversight from stakeholders. The space is undergoing dramatic changes, and investors would be wise to revisit their strategies and approaches in order to survive this massive disruption.

Why commercial real estate is no longer a ‘safe bet’ 

Worldwide market volatility, tech advances, and post-pandemic recovery efforts have all created significant changes within the commercial real estate market. With many once-bustling downtown cores and shopping centers (which were once considered low-risk, prime investments) sitting empty, consolidations and redevelopment projects have emerged as major forces within the space.

Even industry titans have felt the squeeze and responded accordingly, by either joining forces with former competitors, buying smaller companies, or cutting their losses. Major structural changes such as mergers, acquisitions, and splits are now shaking up the landscape, as businesses attempt to regain their equilibrium after several tumultuous years.

Fears of an imminent recession and inflation, along with hiked interest rates, have seen deals that were once considered “no-brainers” end up falling apart at the last minute. Within commercial spaces, tenant churn is at unprecedented levels, with what feels like month-to-month turnover on leases leaving proprietors scrambling to regain their footing.

“Pre-Covid, you had some portion of the corporate population of clients going through change,” says Rick Bertasi, the CEO of commercial real estate advisory firm Newmark Global Corporate. “Today, everyone is changing, at the same time.”

Like nearly every industry, commercial real estate is evolving. While investors and owners struggle to cut through the noise, the space has shifted from a model of a static collection of long-term assets to a living, breathing thing with its own rhythms and cycles. 

Commercial real estate now resembles a beehive, buzzing with activity. While less predictable than in previous periods, the space is alive with possibility and the energy that comes along with frequent departures, newcomers, and the act of changing shape.

High flexibility is now mission critical

Being able to respond quickly to market fluctuations is now key for staying afloat in the commercial real estate space. As we can see in the resistance to returning to full time work in the office, the last few years of pandemic living have permanently shaped peoples’ preferences and lifestyle choices, including where they work and shop.

Real estate investors and proprietors must take heed of these new developments, even if they cause disruption to the industry’s usual ways of doing business and planning ahead for the future.

Take, for example, the impact of social media and the massive shift to e-commerce, as the success of online-only brands without brick-and-mortar locations has caused retailers to reexamine whether or not a physical storefront is necessary for their business. 

Simultaneously, numerous brands have embraced pop-up stores, which see them open a temporary storefront for in-person purchases in a limited time, special format. Pop-up stores have exploded in popularity in recent years and show no signs of slowing down. 

For the brands, a pop-up location is a win-win: an opportunity to network face to face with customers and foster brand loyalty, without the high-stakes commitment of a long-term rental contract. But for site managers and owners of commercial real estate, the pop-ups pose a unique conundrum.  

With empty units to fill, pop-up stores can provide much-needed rental income to landlords. But due to their temporary nature, many landlords struggle with agreeing to take a space off the market for such a short period of time, as they’d prefer to sign a long-term agreement. Real estate owners are also forced to weigh space and layout concerns, balancing the needs of both current and prospective tenants. 

Whether they’re triggered by industry mergers and splits, consolidations, government incentives, or trends like pop-up stores, frequent changes are now par for the course in the commercial real estate industry. This loss of predictability creates a difficult environment to navigate for proprietors, who need to reexamine the way that they manage their commercial space inventories.

Adapt or die to the ‘new normal’ in commercial property

Landlords, proprietors, and commercial real estate investors are now living in a reality that values speed, agility, and flexibility above all else. As difficult as adjusting can be, especially in a conservative industry that’s historically bristled at change, those who refuse to face the new normal risk being left behind.

In today’s market, successful commercial property owners and stakeholders must be:

1. Highly independent

Landlords need the ability to make real-time, high-impact decisions, without being beholden to complicated bureaucratic procedures set forth by their companies or firms. At this stage in the game, independence is a huge advantage for acting swiftly and coming out ahead.

2. Quick responders and always available

Forget traditional office hours and endless face-to-face meetings before signing an agreement. As potential tenants may even be ambivalent about opening a physical location, and with so many unoccupied units essentially making the space a “renter’s market,” landlords have to act fast to lock in tenants – even if they’re short-term contracts.

3. Tech and tool-savvy

Stakeholders should leverage all tools at their disposal to monitor and organize pertinent information, as well as track trends applying both to their assets and the industry at large. By utilizing technological solutions for commercial real estate management, they can gain the perspective and knowledge necessary for navigating a chaotic market.

4. Information and data-literate

While real estate owners don’t need to be data scientists, they do need the ability to access critical information about past and current tenants in order to make the right decisions for their business, and develop accurate projections regarding their spaces.

It’s critical that landlords have a way to visually see and understand their space’s current status, tenants, and vacancies, as well as pending and potential changes to how their assets are allocated. Landlords must be able to graphically envision and manage their units in a dynamic, interactive way for better, savvier space management. These solutions must also allow landlords to make changes independently, without needing to enlist the help of an AutoCAD specialist (like an architect) in order to make every adjustment.

POC System provides a unique space management platform that’s intuitive, straightforward, and easy to use. The solution empowers real estate proprietors with a big picture overview of their available spaces, current and prospective tenants, and visualization of their present and future unit allocation. The software empowers users with streamlined access to their resources and data for optimization and analysis, so that they can make real-time, smarter decisions about the future of their commercial real estate assets. 

 

If you’d like to learn more about how our space management system can help you manage your commercial real estate assets and benefit your business, book a demo with us.

 

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