5 disruptive trends shaping the real estate industry today

Other than perhaps the "Great Recession" of 2008, it has never been more challenging to own and operate real estate than it is today.

The industry is evolving rapidly, focusing us to confront unprecedented hurdles and shifts that demand our attention and adaptability.

This evolution is shaped by five key trends:

1. Capital markets

2. Rising expenses

3. Climate change

4. Asset obsolesce

5. AI & automation

Capital markets

The impact of capital markets cannot be overstated: the bubble of cheap cash that stretched back to the housing crash and overlapped with the age of mega-valuable offers has come to a halt.

Variables at play—from geopolitical risk and remote work impact to rising interest rates—offer both challenges and generational investment opportunities.

As investors navigate through these new landscapes, diversify their portfolios, and explore fresh opportunities to remain agile, the industry must observe these dynamics to ensure resilience.

Rising expenses

Rising expenses present another formidable challenge.

The demand for real estate continues to rise. Construction materials and skilled labor costs increase. Supply chain issues persist.

This perfect storm leads to higher overall project expenses, decreased property values, and elongated construction schedules.

Operational costs from property management to maintenance and utilities are also on the rise.

Navigating this scenario necessitates the search for innovative solutions to optimize efficiency, without compromising quality.

Climate change

Climate change stands as a force reshaping our industry.

With the clock ticking to reach net zero by 2050, decarbonizing real estate—responsible for 40% of our overall global CO2 emissions—is no longer an option, but a necessity.

Many cities are implementing laws around buildings' energy using and emissions footprints, including Local Law 97 in my native New York City, the real estate capitol of the world.

Investing in and deploying climate tech is the single biggest lever that we can turn on fighting the climate crisis and future-proofing our buildings.

Asset obsolesce

Asset obsolesce reminds us of the impermanence in real estate: what once thrived may now face the risk of becoming obsolete.

Take work from home, once perceived as a momentary blip—it's not.

As of November 2023, the national office vacancy rate is hover at 18% and as high as 25% in certain U.S. cities, far from the 9% average in 2019.

With a bleak outlook for the rebound of office occupancy and a housing shortage fueling high come prices and rents, there is a shift in focus towards repurposing surplus office space into residential.

While the market will eventually level out, adapting to changing demands and technologies is pivotal to ensuring the core longevity of our assets.

AI & automation

Finally, the integration of AI and automation is perhaps one of today's most transformative trends.

While AI as a broad field has existed for decades, steadily transforming our interactions with tech and data, generative AI has captivated the industry's attention over the past 12 months.

This will have profound impacts on real estate:

• Creating architectural renderings and virtual property tours

• Producing predictive models to revolutionize an asset's maintenance by foreseeing and addressing issues before they escalate

• Embracing automation enhances real estate's efficiency, reduces labor, boosts accuracy, and provides a better overall experience for the industry

All that being said, we stand at the intersection of challenge and opportunity. By understanding and leveraging these five trends, we can not only weather the changes, but emerge stronger and more resilient in the evolving landscape.

Technology is our lifeline—and every real estate firm needs a technology strategy, not only to fend off risk, but also to initiate, accelerate, and sustain innovation.