As a real estate asset class, the key characteristic of direct investment is that it requires a sufficient (if variable) operational management input provided by investors or external suppliers such as occupiers.
There’s nothing alternative about operating real estate that continuously outperforms its peers. The accelerated evolution of technology and consumerism inclinations redesigns commercial real estate business models and brings relentless change to the industry.
As investors try to grapple with this swiftly changing market (especially in the pandemic), IPG saw the potential in this diverse pocket of real estate.
Our operational real estate team gets returns on the most specific asset types, from hotels to healthcare and data centers.
Let’s dive in.
Real Estate Operational Management – What is it?
Operating real estate management (or operational real estate) typically deals with the design, management, and improvement of operational systems in the CRE.
Real Estate Operational Management is largely focused on methodology and strategy, and also it tends to be involved with the effectiveness of deployment and resources that produce services and products.
Operating real estate correlates to how the delivery of the wide range of operational tasks or functions associates with:
- Assets, property, and facilities management
- Specialist real estate functions, and
- How the ancillary support services are structured, procured, and delivered
Investors Going For Consumer Preferences in CRE
With the rapid evolution of technology, consumer preferences are redesigning traditional commercial real estate, especially business models and the use of built space.
Our team has debated how CRE companies can manage the constant challenge of matching the relentless speed of change, and can the traditional rules of work be fast enough to provide the agility operating real estate companies will likely require?
The voice of the global investors and their investment preferences can be a valuable insight here. They are more likely to invest in the areas of global capital flows, and takeaways such as:
- Cyber risk
Global Capital Flow As an Operating Real Estate Takeaway
Global capital investments continue to rise on the back of steady economic and employment growth in operating real estate markets, and all despite concerns about a flattening yield curve, tax reform initiatives, the threat of trade tariffs, etc.
An increase in capital commitment is likely to diversify investors’ portfolios through higher operating real estate investments and other thematic investments.
They aim to invest in properties with flexible leases, and flexible spaces. On the thematic side, highly specialized, mixed-use, and nontraditional properties are going to increase their capital commitment, then those focused on traditional properties.
That is how owners/landlords and operating real estate managers should build their property and tenant mix in order to attract more capital.
Technology – The Second Operating Real Estate Takeaway
It is imperative for operating real estate companies to upgrade their digital strategy and infrastructure.
Technology today makes every aspect of the CRE business easier. Around 60% of investors believe that technology advancements have the greatest impact on legacy properties, especially in the last few years.
As a matter of fact, more than 80 % of CRE companies prioritize the use of predictive analytics and business intelligence to manage their operating real estate business areas.
One of the challenges facing operating real estate companies is the ability to prioritize investments among different technologies and needs. Often, CRE leaders tend to spend more time and resources managing modern and legacy infrastructure, while neglecting the power of data utilization.
Cyber Risk Management in Operating Real Estate
It is important that CRE companies evolve from reactive to proactive risk management.
Technology advancements have also resulted in the increased need for information security and data privacy. These risks are expected to rise, as CRE landlords expect to increase technology usage.
Technologies such as sensor-enabled building management could broaden the attack surface of hackers, increasing the financial and reputational damage to sensitive data.
Many CRE companies are struggling to find the right balance in investments and efforts to handle cyberattacks. They have to prove to investors that their operating real estate management is adequately equipped to manage cyberattacks.
The Importance of Talents In Operating Real Estate Management
Doubling the efforts to prepare for a digitized workforce and work environment.
Investors strongly agree that CRE companies need to do more to nurture talented people working in operating real estate, as the industry seems unprepared to proceed with the:
- Engagement, and
- Retention of a younger talent pool
Most CRE companies appear unprepared to deal with the immense proportion of baby boomers likely to retire over the next three to five years.
Proptechs in Operational Real Estate Management
Given the high investor enthusiasm, operating real estate companies are taking a look at different approaches to engage with proptechs and eventually gain a competitive edge.
Prop Techs are increasingly popular in operating real estate management, as it offers to expand investors’ coverage across various real estate value chains.
Globally, 9 out of 10 realtors said that prop techs have a moderate to significant influence on their CRE industry.
That is why there is merit in CRE companies becoming knowledgeable about proptechs, since these firms are using technology to nurture several more takeaways of operational management, such as:
- New, innovative ideas to enhance operational efficiency
- Tenant experience
- Information flow
Operating real estate companies that proactively adapt to the forces of change are most likely to cash in on investments, whether it’s through dollars, tenants, and top talent.
Of course, this requires operating real estate companies to be innovative, collaborative, and agile. Read more on CRE outlook if you wish to dive into institutional investor expectations and actionable recommendations for each of the five key operating real estate takeaways listed above.