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
K-12 Schools | Mar 18, 2024
New study shows connections between K-12 school modernizations, improved test scores, graduation rates
Conducted by Drexel University in conjunction with Perkins Eastman, the research study reveals K-12 school modernizations significantly impact key educational indicators, including test scores, graduation rates, and enrollment over time.
MFPRO+ News | Mar 16, 2024
Multifamily rents stable heading into spring 2024
National asking multifamily rents posted their first increase in over seven months in February. The average U.S. asking rent rose $1 to $1,713 in February 2024, up 0.6% year-over-year.
Market Data | Mar 14, 2024
Download BD+C's March 2024 Market Intelligence Report
U.S. construction spending on buildings-related work rose 1.4% in January, but project teams continue to face headwinds related to inflation, interest rates, and supply chain issues, according to Building Design+Construction's March 2024 Market Intelligence Report (free PDF download).
Contractors | Mar 12, 2024
The average U.S. contractor has 8.1 months worth of construction work in the pipeline, as of February 2024
Associated Builders and Contractors reported that its Construction Backlog Indicator declined to 8.1 months in February, according to an ABC member survey conducted Feb. 20 to March 5. The reading is down 1.1 months from February 2023.
Market Data | Mar 6, 2024
Nonresidential construction spending slips 0.4% in January
National nonresidential construction spending decreased 0.4% in January, according to an Associated Builders and Contractors analysis of data published today by the U.S. Census Bureau. On a seasonally adjusted annualized basis, nonresidential spending totaled $1.190 trillion.
Multifamily Housing | Mar 4, 2024
Single-family rentals continue to grow in BTR communities
Single-family rentals are continuing to grow in built-to-rent communities. Both rent and occupancy growth have been strong in recent months while remaining a financially viable option for renters.
MFPRO+ News | Mar 2, 2024
Job gains boost Yardi Matrix National Rent Forecast for 2024
Multifamily asking rents broke the five-month streak of sequential average declines in January, rising 0.07 percent, shows a new special report from Yardi Matrix.
K-12 Schools | Feb 29, 2024
Average age of U.S. school buildings is just under 50 years
The average age of a main instructional school building in the United States is 49 years, according to a survey by the National Center for Education Statistics (NCES). About 38% of schools were built before 1970. Roughly half of the schools surveyed have undergone a major building renovation or addition.
MFPRO+ Research | Feb 27, 2024
Most competitive rental markets of early 2024
The U.S. rental market in early 2024 is moderately competitive, with apartments taking an average of 41 days to find tenants, according to the latest RentCafe Market Competitivity Report.
Construction Costs | Feb 22, 2024
K-12 school construction costs for 2024
Data from Gordian breaks down the average cost per square foot for four different types of K-12 school buildings (elementary schools, junior high schools, high schools, and vocational schools) across 10 U.S. cities.