Reporting in the Evening Standard, based on data from Remit Consulting, indicates improvements in the UK’s commercial property sector. The firm’s data shows that rent collection in the last quarter reached its highest level in the pandemic period, which is partially due to the easing of lockdown regulations in the country.
Data from their REMark Report shows that “…an average of 72.1% of rents due in the UK had been collected with seven days of the September quarter rent day, which covers payments for the three months ahead”. This includes rent for retail and dining establishments, bars, and warehouses. Comparatively, in the previous quarter, 66.5% of rentals due were collected by the same point. Retail rents were sitting at 68.8% (up from 62.3%) and leisure at 57.2% (up from 40.1%).
This is in keeping with a general upward trend, the firm told the newspaper, “which is good news for investors and landlords such as pension funds and other institutions, particularly as the upward trajectory of payments from tenants is similar to the previous quarters of the pandemic.”
…but not all good
Despite the strength of this news, it’s not a unilaterally positive picture, as the data also indicates that this ‘record high’ is still considerably lower than pre-Covid levels. Altogether, since the start of the pandemic, there is a shortfall in rent from commercial occupiers amounting to nearly £7 billion – a considerable chunk for property owners and investors, including institutional investors such as pension funds.
Managing the fallout
The matter of the “missing rents” is something the industry and public service are keeping a close eye on. This report from the International law firm Morrison & Foerster LLP gives an excellent rundown of the public consultation that the UK government has done around trying to establish a way forward for both struggling commercial tenants and landlords.
The policy paper published in August 2021 can be found here, and outlines the government intentions to “legislate to ringfence rent debt accrued during the pandemic by businesses affected by enforced closures” and their intent to formalize a “process of binding arbitration to be undertaken between landlords and tenants”.
Meanwhile, a number of the large and influential property industry associations have called on the government to end the moratorium on evictions that came into effect during the height of the pandemic and lockdown measures.
From smart buildings and smart cities to AI and machine learning, there’s little room for doubt that the world is rapidly moving towards a fully tech-enabled society. Forward-looking commercial real estate (CRE) professionals are embracing these new capabilities, and revolutionizing the way we add value to commercial real estate operations.
In the previous article, we discussed the impact of IoT (the Internet of Things) and Artificial Intelligence (AI) in CRE. In part three of this ongoing series, we examine the role robotics plays in moving real estate into the future.
One of the areas where the use of robotics in CRE has really taken off is drone-assisted operations. Drone technology is being used to target some key challenges faced in the industry.
Processes that used to be far more complicated and expensive, like aerially mapping a property, can now be accomplished in a fraction of the time, and at a lesser expense. Part of the benefit is that drones allow developers and marketers to tell a story, as the development unfolds week by week in stunning images from on-high. Large construction sites can also be more easily managed when material stocks and inventory are being monitored with drones.
Another use of the tech is cutting down the time spent on surveying properties for maintenance and compliance purposes. Aerial surveys can easily reveal damage or deterioration and allow owners to address the problem sooner.
Drones equipped with specialized imaging cameras can also detect major issues like gas leaks or help pinpoint areas of heatloss for energy optimization. Given the drive towards cleaner, more energy-efficient buildings, this is a technology that is likely to become a cornerstone of future CRE operations.
Robots have also gained some traction working in building interiors. Machine technology can be used to map interior spaces and even, to present them to prospective tenants.
San Francisco-based operator Zenplace uses small telepresence robots to show properties, complete with a screen for the realtor to interact with clients – all from the convenience of the office. This means a more convenient process for prospective tenants, who can gain access to a property using an app on their phone while cutting down travel time for the agent.
A bot by any other name
Another area where robotics is taking CRE by storm is software robots aka “bots”. Robotic Process Automation (RPA) is the use of bots to automate mundane and repetitive tasks that would otherwise need to be done by human workers. This means time-intensive work like document management or invoice processing can be outsourced, leaving brokers free to focus on larger strategic goals and more creative problem-solving.
Using RPA, brokerages can also extract large amounts of untapped data from existing databases. This is likely to be an increasingly useful application in years to come, as digitization in CRE increases and large volumes of new data start pouring in from a slew of smart buildings being added to existing portfolios.
What the bots can’t currently do is analyze that data – the creative interpretation that task requires is best left to humans.
Reimagining Logistics Assets
On the back of a burgeoning e-commerce industry, robotics is also adding value through streamlined logistics processes. The landscape of logistics assets is changing, with a movement towards micro-distribution centers and multi-purpose retail spaces opening up new opportunities.
In a research report from the Commercial Real Estate Development Association (NAIOP) these new trends, and the robotics enabling them, are explored in detail. Some key findings are that previously underutilized spaces, including areas in malls or old parking garages, are finding new purposes as distribution sites that help solve the Last Mile problem of logistics.
Given their location in urban and suburban centers, these new types of logistic assets are blurring the lines between logistics and retail. Landlords and owners can now install logistics mini-sites in existing buildings, largely thanks to automated storage and retrieval systems that shrink the operational footprint. It’s a new way of imagining space and how assets can best be put to work.
An additional interesting trend is that larger logistics assets are now often being established further away from city centers. While this may sound counter-intuitive, with greater automation the need for on-site staff decreases, and companies can take advantage of cheaper land and operations costs in more remote areas. The NAIOP report goes on to quote ABI Research’s projection that, by 2025, some 4 million commercial robots will be hard at work in over 50 000 warehouses.
The human face of robotics
By now, you could be forgiven for thinking that this sounds like the start of a robot revolution that will put a lot of people out of work in the long run. The truth is, we are far from independently functioning robotics and AI.
Advances in these technologies allow people to do their jobs faster and more easily, taking a lot of the monotonous aspects out. As rapid-fire data-handling, logistics, and site management become the norm, there will also be an even greater need for people to oversee those processes. And the potential robotics offer for improving CRE operations means more ways to add value for customers and CRE professionals alike.
Say “Bahamas” and you probably have a mental image of cocktails on the beach – which is not a bad association at all – but there is much more to this island destination than being a vacation hotspot.
The Commonwealth of The Bahamas – the official name – is located in the West Indies. It is the richest country in the region, with a GDP ranked 14th in North America – built primarily on tourism and financial sectors (specifically offshore banking). The nation is renowned as a tax haven, with no income, corporate, wealth, or capital gains tax – a strategy that has earned them both fans and critics.
Here’s what you need to know about commercial real estate (CRE) trends and news in this region…
Travel restrictions easing
The Bahamas is one of the first countries to lift the restrictions on international visitors who are fully vaccinated. In May 2021, the new regulation became effective which means those travelers “who are fully vaccinated and have passed the two-week immunity period will be immediately exempt from testing requirements for entry and inter-island travel”. Fully vaccinated travelers must still apply for the Bahamas Travel Health Visa with proof of vaccination, at travel.gov.bs.
This is a welcome relief for the hotel and tourism sectors which is a critical part of the economy – making up some 51% of GDP – and it should provide a kick start for tourism related CRE deals that were stalled or delayed as a result of the global Covid-19 pandemic.
Thinking outside the box
The government is keen to incentivize land sales at the moment, and is using fresh techniques to promote business, such as offering discounts on land parcels to young professionals in the western area of New Providence.
Prime Minister Dr. Hubert Minnis announced in December 2020 that new development was on the cards in this region which constitutes “crown land”. “Crown land is really the people’s land, it’s not individuals, it’s the people and we just want to ensure that the people receive their land,” he said, adding that the government would promote duty-free building and automatic mortgage qualification for applicable targets of the development.
The Bahamas Real Estate Association’s (BREA) president Christine Wallace-Whitfield has spoken in support of the proposal which would put homeownership within reach for more Bahamas residents. This would also likely create development opportunities down the line which is a positive for the construction and CRE industries.
On a slightly lower note, there is currently a robust debate around plans recently proposed in the House of Assembly (during the 2021-22 annual budget presentation) that the government could potentially recoup outstanding property taxes directly from the tenants of commercial office and retail properties. The Tribune reports that this would involve paying monthly rentals directly to the Department of Inland Revenue (DIR) rather than the “delinquent landlord – until the debt is settled”. A collection of prominent CRE professionals have spoken out in criticism of the proposal, and it is an ongoing matter.
Also among the budget updates were new tax provisions that would see VAT on realty transactions increasing. The BREA said that the “sector would accept the tax hike if it was accompanied by an improvement in the ease of doing business”.
These are the kind of legislative and regulatory matters that require robust local knowledge, which is why NAI Global always advocated dealing with regional experts, like NAI Bahamas Realty Commercial.
In a recent announcement, LightBox principal analyst Dianne Crocker predicted that as many as 25% (a quarter) of America’s malls can be expected to close down within the next three to five years.
This is, obviously, a trend that commercial real estate (CRE) professionals – like us within NAI Global – have been aware of and tracking for many years, but the LightBox prediction goes on to offer some idea of what we can expect to see filling these spaces in future and what investors see as the opportunities created by this trend – both projections worth exploring.
The “death of retail” has been hanging over the industry’s head for the better part of a decade, but what is more likely – Crocker and NAI agree – is a move away from brick and mortar towards e-commerce, with a hybrid model in future. This trend was merely heightened by the Covid-19 pandemic.
The Amazon effect
This is in line with what trend analysts and futurists like Doug Stevens are forecasting. Stevens told RetailDive last year that by “2033 the majority of our daily consumption will be transacted online”.
“In the future, all but the most convenience-based retailers will begin to use their stores as media to acquire customers and their media platforms as stores to transact sales…” – Doug Stevens, author of “The Retail Revival: Re-Imagining Business for the New Age of Consumerism”.
This tracks: Our most recent Real Estate Outlook study, Q42020, found that over half of the survey respondents (57%) said the “Amazon effect” was expected to have an even larger impact on their CRE markets than the pandemic itself.
A buyer’s market
Crocker argues that the slowdown in deal volumes initiated by the pandemic has left a supply gap, and described the demand from investors as “pent up”.
“Institutional capital right now is focusing its repurposing investments on the safest benefits, the suburban metro areas that have seen meaningful growth in the past year…” – Dianne Crocker, LightBox principal analyst.
Multifunctional malls with a lifestyle component are not only the darling of consumers, but of investors too including private equity firms looking to score a bargain on a distressed CRE asset.
We are seeing this interest spiking too, and not just for straight sales. There is much interest in reusing these generously sized spaces in novel ways.
There are many such developments on the cards around the country. In Benton Harbor, Michigan, plans have been suggested to reconfigure the Orchards Mall with some 116 luxury two-bed apartments, with six-month leases to attract business travelers. Chapel Hill Mall in Akron, Ohio – which was foreclosed – expects to see new life as a business park.
There are also some less-traditional buyers in the market for malls these days. Gaming giant Epic Games recently bought up an almost 90-acre defunct mall in Charlotte, NC, that will be refitted into their new international headquarters.
Repurposing and extended life
The malls that outpace the trend will be those with a strong anchor tenant and those that offer the live-work-play balance. Crocker argues that malls that are grocery-anchored, or those “featuring medical services, pharmacies, gyms, and lifestyle amenities are more likely to survive in their current forms.” This is the kind of mall that will become a hub of urban life, she says.
An anchor tenant with a multichannel presence and a pandemic-proof loyalty is a gamechanger for mall and retail leasing.
Malls also have, we believe, a long life ahead of them as places to showcase goods and establish brand experiences. Raydiant makes digital experience tools for real life spaces. Writing for Forbes in 2020, Raydiant CEO Bobby Marhamat wrote that “in-store experience defines retail for people”.
“Touching products is part of that experience, but helpful staff, well-organized showrooms, unexpected activities, smart technologies and other components all combine to create exceptional experiences…” – Bobby Marhamat, Raydiant.
These factors combined are why smart money is betting on not ‘a death’, but ‘an evolution’ for our malls.
We all know the old real estate adage – “location, location, location” – but economies in the 21st century are tending towards “as a service” thinking, a trend characterized by a handful of big-name disruptors like Uber (transport-as-a-service) and Airbnb (accommodation-as-a-service).
In this model, the hassle and upkeep, the peripheral add-ons, are all rolled into the cost for clients and can make a compelling ‘sales pitch’ for would-be buyers.
“The other downstream effect of this is the emphasis on service itself – the quality thereof, more than its existence,” says Cliff Moskowitz, EVP, NAI Global. “Commercial real estate (CRE) professionals and firms that offer competitive, value-adding services can set themselves, and their listings, apart.”
A partner in time
For the owner and occupants of a retail property, having access to smart, speedy services as part of your property contract is a game-changer.
Services for occupiers include the obvious (like group marketing, facilities management, and lease administration), and then superior service offerings (such as omnichannel real estate solutions and supply chain advisory).
With services for investors, this category might include property marketing, valuation, and advisory services, and project management, which all exceed the traditional-but-still-essential landlord representation and leasing, and property management.
Next generation services
Retail properties can now include considerable benefits to occupants and tenants on the “as-a-service” model, including technological infrastructure, security, renewable energy generation and management, event management, and even click-to-collect services.
The increasing availability of these kinds of options means that retail property managers can offer far more for their clients without intense capital expenditure on their part or the client’s part, as these are now shifting to the operational expenses column in the books.
X marks the spot
When we pivot to thinking of ourselves as CRE service providers, we shift from a “sales first” approach to one of “service first”, and we also see the corresponding language shift from “renter” to “customer”.
This encapsulates the contemporary approach to business which centers the customer experience (CX) above everything.
With CX as a guiding principle, CRE professionals can position themselves for longer-term partnerships with their retail clients, and as premium providers, achieving both better numbers for themselves, and a higher return on investment for their clients – and that is the definition of a win-win deal.