FM newsroom – global real estate market, office. The real estate industry is currently facing many challenges and changes on a global level, 2024 may be crucial for real estate market players to get back on their feet, according to the global study by Deloitte. In order to increase business efficiency and in accordance with EU regulations, sustainability is in focus, while compliance with ESG is a significant challenge for 54% of respondents.
The next 12-18 months can be decisive
Deloitte’s global real estate market survey examined the opinions of property owners and investors in North America, Europe, Asia and the Pacific region. The survey found that after the pandemic, the world of work changed, new geopolitical tensions arose and financial markets became unstable. These factors have created significant uncertainty in the industry, in response to which real estate leaders must reshape their real estate ownership and investment strategies.
„The next 12-18 months can be decisive in terms of transformation. The status quo has proven to be unsustainable, we can expect a combination of critical realizations and strategic reorganizations, as a result of which real estate companies will have to reposition themselves”- Gábor Kohári, MRICS, head of real estate consulting at Deloitte
Globally, concerns about increased interest rates and capital costs are in focus. In addition to higher financing costs, the volume of real estate transactions in the first half of 2023 fell by 59% globally, by 63% in the United States, and by 62% in Europe. Company managers still expect that it will be more difficult to raise funds for their planned real estate purchases in 2024 due to tightening credit conditions and higher credit costs.
The office market is the most vulnerable
In terms of real estate segments, the situation of the office market seems to be the most vulnerable. Property owners continue to struggle with the reduced space requirements due to hybrid working. In the United States, the actual utilization of office space stabilized at a lower-than-expected level and remained below 50% of the pre-pandemic level, compared to the level of 70-90% in Europe. These significant differences also stem from different forms of housing and commuting habits.
At the same time, the underutilization of offices increased in all major regions, and globally the value of office real estate decreased by about 5% – with significant geographical differences. According to industry estimates, in the coming years, nearly 60% of the existing American office stock will require modernization, and 20% will not be usable at all in their current function.
Deloitte’s survey looks at alternative sectors beyond the classic commercial segments, such as those developed for rental. The multi-apartment condominiums show a significant rise in popularity. The perception of the segment jumped five places to second, followed by the nursing home segment. In most regions, the needs and market opportunities of real estate users related to housing and the ageing society have come into focus.
The imperative of sustainability compliance
Sustainability regulations are developing rapidly around the world. In the not-too-distant future, all companies operating in the EU will have to disclose detailed ESG metrics similar to their financial reports. At the same time, many real estate companies are not yet ready to comply with environmental, social and governance (ESG) regulations: in Europe, 54% of respondents see ESG compliance as a significant challenge.
According to Deloitte’s analysis, several factors should be considered for more sustainable construction, operation and use. First of all, it is important to identify those factors that have a significant impact on operational effectiveness and the achievement of sustainability goals. From 2024, large real estate companies operating in the EU must prepare a report on non-financial areas. More than 46% of survey respondents said they had already completed an assessment to identify the main factors, while another 40% said they would do so in the next year.
Means of decarbonization
Transformation involving new technologies and innovative business solutions aimed at reducing carbon dioxide emissions is a strategic priority to preserve the value of real estate. 45% of respondents identified investment in IoT devices and smart technologies to be the most important tool for sustainability.
A successful decarbonization strategy also includes the transition to clean energy sources. The energy consumption of buildings is global and currently accounts for about a third of energy consumption. In 2021, the real estate sector was responsible for only 26% of global energy emissions, of which around 7% was related to the use of fossil fuels in buildings and 19% was related to the production of electricity and heat used in buildings.
By 2030 the real estate sector must achieve a 50% emissions reduction, while by 2050 total zero emissions must be achieved. More than a third of respondents (38%) said their company will install renewable energy sources on their property or purchase energy from such sources in the next year.