Commercial real estate (CRE) investing is entering a critical phase, according to the recently released PwC and ULI report. Emerging Trends in Real Estate: The Global Outlook 2018 is an excellent resource that deserves to be read cover-to-cover. The report analyzes the most prominent forces in global real estate, but at Dealpath we’re primarily concerned with the issues that are most pertinent to CRE investment firms.
The report summarizes the conditions facing CRE investors in 2018. According to its findings, CRE property will remain a stable and profitable investment opportunity compared to similar asset classes, but 2018 will feature considerable more risk than years past. Rising interest rates, declining property prices, and an influx of capital add up to a period of increased competition for potentially lower returns. As a result, investors will need to turn to technological innovation to retain a competitive advantage over their peers.
However, the PwC report showed that real estate executives are steadfast in their resistance to change. Just 10% of global CEOs in real estate are concerned about the prospect of technological disruption, compared to 38% globally. Similarly, a mere 7% are worried about new market entrants. Globally, that number rises to 20%.
Combined, these findings show that CRE investing is primed for newcomers to surpass their more entrenched competitors. By leveraging new, purpose-built technology, they have an opportunity to steal market share from establishment firms who are hesitant to embrace the CRE tech movement.
The report also indicates that venture capital investment in PropTech rose to $3.4 billion in 2017, compared to just $2.6 billion in 2016. Interestingly, many real estate operators in the survey showed a preference for investing in or creating their own PropTech solution, as opposed to purchasing directly from a third party. Their reasoning tended to be similar: they wanted to have early buy-in as to the direction of the product, and they see PropTech as a promising investment in its own right, given the favorable growth opportunity that CRE tech companies benefited from in 2017.
In 2018, CRE investment firms will be disproportionately awarded for their sophistication and technological capabilities. The new wave of capital will flow to the companies that can best demonstrate their ability to use data to build and protect enterprise value.
The PwC report is just another sign that tech disruption for CRE investing is coming, and profits abound for those companies willing to invest in software which, for the first time, is being purpose-built to help CRE investors get ahead of the competition.
For a deeper dive, be sure to download the full report.