Getting to the Future

Corporate tenants, changing needs

By Suzann D. Silverman on Jun 27, 2012 in Technology

Executives making long-term plans face an interesting juxtaposition: Significant changes lie ahead, but at the same time history is sure to repeat itself. How best to handle this? Move cautiously, but stay open minded and don’t be afraid to try new things.

Never has the industry faced as many big changes simultaneously as those coming down the pike. The creation of the real estate investment trust vehicle, the advent of commercial mortgage-backed securities, the introduction of 1031 exchanges—certainly, all these and other big changes have had an impact on the market. But in the Digital Age, change is advancing ever more rapidly and is layered together with sustainability pursuits, new corporate office preferences and changing demographics.

Technology by itself represents a big cog in the advancing real estate industry machine. Broadband and wireless communications capabilities and programs to track and analyze operations are only in their beginning stages—and represent only a portion of the possibilities that will impact workplace, housing and consumer venues. A new study published by CoreNet Global predicts that technology will soon be able to adjust the temperature, lighting, sound and other aspects of the workplace to the emotional state of its occupants. Elements as non-technological as the fire extinguisher may be monitored via an embedded microchip. And the U.S. General Services Administration is now mandating that its property managers receive information technology training.

On the sustainability front, efforts are now focused on how to analyze all the data being collected on energy use, as well as ways to make small changes in operations that will have a big impact, according to Marc Heisterkamp, director of strategic assets for the U.S. Green Building Council. Municipalities are striving to determine methods of incentivizing greater compliance among property owners within their communities, while green building products continue to be refined or adapted.

Work habits have long been of interest as building owners have striven to meet what have been significantly changing needs of corporate tenants. Technological advancement in communication has led to two big trends: changes in where employees work and how they work. Preference for encouraging work outside the office versus requiring a presence in the space has ebbed and flowed over the past decade or so, but now the trend seems to be taking a much more definitive direction: outward. Tracey Wilgen-Daugenti, vice president & managing director for Apollo Research Institute, who has been studying workplace trends, predicts that within as little as five to 10 years, “employees reporting to a single location working standard business hours could be obsolete.” As a result, companies are seeing little need for larger work spaces, shrinking them to anywhere from 50 to 100 feet per employee, and they are likely to reduce their overall space needs, as well.

Demographic shifts, meanwhile, will drive a change in where space is most needed, and as a result will impact property values. Young professionals, for instance, prefer urban areas, and in particular cities that offer a culture and quality of life that caters to their interests.

History, though, is not to be ignored. The recent recession was the worst in decades, but it is not likely to result in permanent changes any more than the Great Depression ultimately did. The focus now is a returned emphasis on fundamentals, but as conditions improve, growth will become more of a priority again, the appetite for risk will increase and the next economic downshift will likely take some by surprise. Those that learn from past mistakes will find themselves better able to survive—as did the development sector this time around, with its much reduced activity and greater care to pre-lease space.

So hold onto your hat, review maps of past voyages—and prepare to enter uncharted waters.

Suzann D. Silverman is Editorial Director of Commercial Property Executive With reporting by Paul Rosta. For more on the market’s future, plus the most important contributors of the past 25 years, check out CPE’s June 2012 issue Silver Anniversary special section: The Road Ahead, a Look Toward Commercial Real Estate’s Future. Additional features include an extended timeline of milestones from 1986-2012.