Rising costs, not tech, is biggest disruptor for CRE sector

Rising costs, not tech, is biggest disruptor for CRE sector

Rising costs, not tech, is biggest disruptor for CRE sector

The rising costs of commercial real estate construction are the biggest disruptor of the global sector rather than several emerging technologies.

A survey by Canadian real estate software and advisory firm Altus Group asked more than 400 property development executives for their insights and 68% said escalating costs is their biggest business challenge over the next 5 years.

There are several reasons for the cost rises: a third cited cross-border trade barriers, two thirds said labour shortages, and 60% highlighted regulatory and approval burdens.

“It’s clear from the report that the global development sector is facing an increasingly complex set of challenges and rapid change, from escalating construction costs through to a sea-change in the development financing environment,” said Bob Courteau, Chief Executive Officer, Altus Group. “However, development leaders clearly see significant opportunities to manage risk and take advantage of changing conditions through a number of future-ready strategies including investments in technology and performance management along with consideration of new ways of managing and financing projects.”

Tech will have limited impact
The executives felt that three emerging technologies will have little impact on their industry over the coming years.

For 65% of poll respondents 3D printing has little to no impact for disruptive change, just 16% said it would have a major impact.

Process automation scores slightly higher with 56% seeing little to no impact and 22% anticipating major impact.

Augmented reality/virtual reality is seen as having little or no impact by 45% and 20% seeing major impact potential.

Smart building technologies were regarded as the most disruptive, with 49% expecting major disruptive changes, and 42% anticipating a significant impact on efficiencies and how development is conducted.  

Financing is changing
The financing of commercial real estate developments is changing with a shift away from traditional and institutional lending.

82% of respondents reporting they were utilizing at least one source of alternative financing while 46% are using traditional or institutional financing with another 45% considering alternatives.

The report notes that many alternative lenders have positioned themselves toward the space of traditional lenders.