Published 09 May 2017 Category: Insights

Emerging trends of commercial real estate in 2017

Due to the tumultuous events of 2016, emerging trends in the commercial real estate space will be shaped primarily by the global economic downturn and the war for talent. Zeroing in on businesses in Asia, an overall negative outlook on how the global economy is affecting company futures will have an impact on the CRE marketplace.

According to the Compass Index, where 1,200 respondents across seven countries across APAC were surveyed, workers in China, Hong Kong, Singapore and Australia were found to be pessimistic about how external factors would affect their businesses in the coming year.

42.3% of respondents in China expressed worry about the impact of the world economy on their business, while 21.1% said they were concerned about the effects of price pressure. Surveyed workers in Hong Kong (39.2) also cited the global economy as a cause for concern, with 27.2% flagging price pressure as an obstacle to building their business. Those in Singapore were on the same page, with 37.9% pointing to economic downturn as their number one worry, with price pressure at a close second (36.5%).

According to Deloitte’s 2017 Commercial Real Estate Outlook report, “volatile global markets” will be a contributor to changes in interests rates. The Deloitte economics team predicts that the Federal Reserve may raise interest rates in the near future, which could increase mortgage costs and act as a deterrent to real estate investments in the future.

Despite a pessimistic outlook due to the global economy, the labour market might be in for some improvements. Deloitte notes that the “employment-to-population ratio is projected to peak in 2018” thanks to the Baby Boomer generation reaching retirement age. An improved employment scenario is predicted to boost consumer confidence in the CRE marketplace.

On this front, the Compass Index showed that 24% of businesses in Australia cited “staff recruitment” as their number one business challenge in the coming year. In the Philippines, 20.39% of respondents expressed worry over recruitment prospects, while 29% of Japanese businesses were also concerned about being able to hire suitable talent.

The Deloitte report also concurs, bringing into focus the “competition for talent” which will impact CRE in 2017. Specifically, elements such as a shortage of candidates with aptitude in the areas of science, technology, engineering and math (STEM), urbanization and the Millennial generation’s preference for autonomy in the workplace are key contributors to a shortage in talent. To add, there will also be an increased demand for mixed-use developments for Millennial consumers that expect to “live, work, and play in proximity” which will result in the reimagination of office spaces.

In fact, a PwC report on Emerging Trends in Real Estate 2017 for APAC confirmed the impact that the sharing economy has on CRE in the coming year. There appears to be a “gradual shrinking of residential footprints in Asia” where Millennials are willing to have less personal space as long as they have access to shared social facilities such as kitchens, gyms and work spaces. This trend is recognized by local developers and designers alike who seek to integrate the sharing economy into new residential and office spaces.

The sharing economy in a living, breathing example is illustrated in the “tech clusters” seen across Asia, in startup hubs such as Bangalore, Hong Kong, Shenzhen and Singapore. In a recent JLL report, technology startup ecosystems are evidently built around a preference for proximity. The closer people are together, the higher the likelihood of innovation as it is easier to meet and collaborate. The report notes that key motivators are cheaper rent, proximity to amenities and access to talent pool.  

In all, 2017 is set to be an exciting year for the CRE marketplace, taking into account the global economy, a changing labour market and the impact of the sharing economy. Pessimism aside, this is a very interesting time to work in real estate as big changes to the way that we live, work and play is underway.