Altus Group Limited (“Altus Group”) (TSX: AIF), a provider of software, data solutions and independent advisory services to the global commercial real estate industry, recently released the Altus Group Real Estate Development Trends Report, which provides an outlook of a global property development industry being hit by rapid change from disruptive market forces that did not exist a few years ago or have evolved substantially.
According to the report, which is based on a global survey of more than 400 property development executives, 68% said cost escalation is the biggest business challenge they are facing over the next five years. Several related factors account for this, which in combination are creating a ‘domino effect’ for developers:
- 34% of developers view cross-border trade policy as having a negative impact on the industry as uncertainty continues about future implications stemming from international tariffs and trade agreements
- 65% of developers are facing challenges with labour shortages, which are exacerbated by government policy and booming demand
- 60% of developers are concerned about the development approval process which is often complex and protracted
“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.”
When asked about the impact of emerging technologies on the property development industry, many respondents expressed a significant degree of uncertainty around some technologies that are experiencing successful application and adoption in other industries. Only a minority of respondents recognized a potential for major disruptive change with certain technologies:
- 3D printing – 65% see little to no impact / 16% anticipate major disruptive change
- Process automation – 56% see little to no impact / 22% anticipate major disruptive change
- Augmented reality/Virtual reality – 45% see little to no impact / 20% anticipate major disruptive change
Development industry leaders seem to have significant reservations about the potential impact of 3D printing, a rapidly evolving technology which is already being applied successfully to smaller scale development projects in countries such as China, Netherlands and USA.
Respondents, however, appeared to acknowledge the potential of more established technologies. 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.
Finally, the report also indicated a decade-on shift since the financial crisis in financing patterns, away from traditional and institutional lending, with 82% of respondents reporting they were utilizing at least one source of alternative financing while 46% are using traditional or institutional financing. Further, over 45% indicated they were considering, planning or utilizing some form of alternative financing exclusively.
This shift has coincided with a rapidly expanding range of financial options and sources coupled with a substantial increase in global capital inflow into real estate in recent years. Many alternative lenders and private funds have actively positioned themselves toward the space of traditional lenders, with investors increasingly seeing real estate as an income source as well as an opportunity for premium returns on the equity and joint venture structure side. In addition, there has been an increase and acceleration in the adoption and utilization of real estate joint ventures with 62% of development executives indicating they are considering entering into partnerships or joint ventures.
Related Stories
Market Data | Sep 27, 2019
The global hotel construction pipeline ascends to new record highs
With the exception of Latin America, all regions of the globe either continued to set record high pipeline counts or have already settled into topping-out formations amidst concerns of a worldwide economic slowdown.
Market Data | Sep 25, 2019
Senate introduces The School Safety Clearinghouse Act
Legislation would create a federally funded and housed informational resource on safer school designs.
Market Data | Sep 18, 2019
Substantial decline in Architecture Billings
August report suggests greatest weakness in design activity in several years.
Market Data | Sep 17, 2019
ABC’s Construction Backlog Indicator inches lower in July
Backlog in the heavy industrial category increased by 2.3 months and now stands at its highest level in the history of the CBI series.
Market Data | Sep 13, 2019
Spending on megaprojects, already on the rise, could spike hard in the coming years
A new FMI report anticipates that megaprojects will account for one-fifth of annual construction spending within the next decade.
Architects | Sep 11, 2019
Buoyed by construction activity, architect compensation continues to see healthy gains
The latest AIA report breaks down its survey data by 44 positions and 28 metros.
Market Data | Sep 11, 2019
New 2030 Commitment report findings emphasize need for climate action
Profession must double down on efforts to meet 2030 targets.
Market Data | Sep 10, 2019
Apartment buildings and their residents contribute $3.4 trillion to the national economy
New data show how different aspects of the apartment industry positively impact national, state and local economies.
Market Data | Sep 3, 2019
Nonresidential construction spending slips in July 2019, but still surpasses $776 billion
Construction spending declined 0.3% in July, totaling $776 billion on a seasonally adjusted annualized basis.
Industry Research | Aug 29, 2019
Construction firms expect labor shortages to worsen over the next year
A new AGC-Autodesk survey finds more companies turning to technology to support their jobsites.