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Changes in the residential real estate industry from 2023 and beyond
Explore the changing landscape of the real estate industry, from the rise of 'living as a service' to the growing importance of sustainability. Learn how modern tenant expectations are reshaping the market, and why outsourcing property management is becoming standard practice. Overcome barriers to change and thrive in this dynamic industry. Dive into the future of real estate in our latest blog.
These days, there are few parts of everyday life that aren’t undergoing some kind of change. That change may be abrupt and disruptive, or subtle and gradual.
An industry's ability to keep up with those changes says a lot about its rate of success. Those who fail to keep up, quickly get left behind.
An example of this is the prevalence of tenant-centricity in real estate - and the role of proptech is helping to implement this approach.
In this blog, we explore some of the changes taking hold in real estate, and how these changes relate to tenant-centricity.
Living as a service is the new norm
Customer service hasn’t always been the focus in real estate, but it's becoming more important due to external pressures.
“It’s no longer about signing a contract, getting the keys, and never hearing from your landlord again,” says Bert Van Lunteren, CEO of Schep Vastgoedmanagers, a full-service property manager in the Netherlands. Real estate is becoming a service, not just a product, hence the term “living as a service”.
But how has this shift come about?
- Higher expectations in customer service. The rise of technology and the ‘uberisation’ of traditional industries mean that B2C consumer expectations are finding their way into real estate.
- The economy. Economic realities mean that houses are getting smaller. Real estate companies are focusing more on providing shared spaces and additional services to compensate for less living space.
- A psychological shift. Modern tenants value experience over things. In this context, housing has become more about usership instead of ownership. Therefore, real estate companies must take user experience into account.
The growing focus on improving the customer experience is leading property managers to implement amenities such as fitness centres, lounges, and on-site shared space to attract and retain tenants.
For example, Van der Vorm, landlord and developer of an international portfolio of residential and commercial real estate, have incorporated communal spaces into their properties where tenants who are working from home—or who just feel like socialising—can drop by, have a cup of coffee and make some friends.
Van de Vorm does not charge for the coffee. They know the value that these communal spaces can bring through combating loneliness, building community and boosting retention.
ESG is taking on ever more importance
As the climate crisis takes hold, modern tenants are becoming more environmentally aware.
To align with the sentiment of modern tenants, as well as reach their own sustainability goals, property managers are implementing energy-efficient features in buildings, promoting green transportation options, and encouraging tenants to reduce their carbon footprint.
More broadly, real estate is also experiencing a push towards compliance with ESG frameworks. Real estate investors are required to demonstrate proof of compliance with ESG standards to banks, and many ESG frameworks include some element of occupier feedback, especially about health and wellbeing.
Financial institutions view companies with robust ESG practices as lower risk and more likely to generate long-term value. By pursuing a coherent ESG policy, real estate companies can demonstrate their commitment to mitigating environmental risks, addressing social issues, and maintaining good corporate governance.
This, in turn, can improve their creditworthiness and attractiveness to lenders, leading to better interest rates and financial terms.
Here real estate can take a leading role, it’s already the largest sector in the Sustainably Linked Loan market with $97 billion worth of issuance as of May 2022. (Source)
Tenants and their expectations and attitudes are evolving
Today’s economic and cultural realities mean that many of the life ‘milestones’ that would have been normal 20 years ago simply aren’t accessible to a lot of people.
We see this most clearly in the difficulty that many young people experience when trying to buy property. As a result, more people are opting to rent.
“Attitudes toward renting have changed a lot,” says Bert van Lunteren. “Years ago if you couldn’t buy a house, you weren’t doing good. That’s just no longer true in 2023.”
“The younger generations value mobility and flexibility over more traditional markers of success like owning a home and a car. They want to easily move around and not be tied down to one location”.
For Kelly Scott, there’s one particular trend of recent years that is changing the landscape of real estate companies, and changing business models.
“We’re dealing with inflation and economic downturns,” she says. “That means everything is more expensive, including the housing market and that means more people are renting. That’s an example of a major cultural change.”
“For instance, in the UK, the conventional norm has been the purchase of houses. However, there's a growing trend where first-time buyers are encountering difficulties in entering the property market.“
“This is prolonging the process, resulting in a rise in the number of people resorting to renting. This highlights the factors prompting real estate companies to modify their business models.“
“This adjustment is reflected in the increased prevalence of co-living arrangements in major European cities. However, to effectively achieve business success, you must guide the individuals within these businesses through an understanding of the broader macro-environmental trends and their relevance to the business, their teams, and themselves as individuals.”
Outsourcing property management is now standard practice
Many property managers are outsourcing certain functions, such as maintenance and repair, to third-party service providers to reduce costs, and improve efficiency and increase the level of service.
“In the past, technical managers were able to handle simple tasks such as maintaining lifts and boilers, but the current environment requires more technical knowledge and expertise.” says Bert van Lunteren.
“An organisation needs to decide whether to handle everything in-house or outsource some tasks to specialised companies. While having a large in-house team can be beneficial, it is not always practical or cost-effective.”
“An organisation should act as a pivot between the users, customers, and the various service providers to ensure the best living experience. This means that the organisation needs to be more engaged in connecting and directing the different parties involved.”
What can you do?
Knowing is half the battle. Now you know what’s changing, it’s time to act. But how?
Understand your barriers to change.
Many real estate companies are resistant to change due to a lack of understanding, fear of failure or reputation damage, and limited support from upper management. Other barriers to change include,
- The cost and time investment required to implement new technologies, as well as an overreliance on inefficient and fragmented legacy technology.
- Regulations within the industry that hinder innovation and make it difficult to adopt new trends and technologies that fall outside of the traditional regulatory framework.
- A struggle to find the talent they need to keep up with modern tenant trends and create properties that meet their evolving needs.
Bert puts this down to where real estate focuses its resources.
“In the real estate industry, there has traditionally been a focus on the physical properties themselves and less on the customer experience or digitalization.”
But all that is about to change. Asset and property managers must innovate and embrace new technology if they’re going to adapt to the changes in tenant needs and expectations. They must become tenant-centric.
Distinguish between “change” and “transition”
When industries undergo significant changes, it's important to understand what you can and can't control. According to Kelly Scott, distinguishing between 'change' and 'transition' is crucial for digital transformation.
“'Change' refers to external factors like mergers, technology advancements, or shifts in trends that affect businesses. These changes can be sudden and disruptive, requiring adaptation for survival and success.
'Transition,' on the other hand, relates to the psychological process the individuals within the business need to work through to effectively adapt to the change. It involves adjusting mindsets, behaviours, and work methods to the likelihood of the change being a successful one. Unfortunately, businesses often overlook the importance of transition, considering it time and resource-consuming.”
“Even relatively small tactical changes, have the potential to unsettle teams. Being proactive in recognising and managing these ‘organisational emotions’ can establish the basis for a smooth and effective transition. Neglecting to foresee and manage these (understandable) emotions may result in subpar business outcomes and the departure of essential talent.
“A basic problem is the tendency for management to prioritise changes that directly contribute to the bottom line, often overlooking the transitions required to sustain and improve the general health of the company.”
“Subtleties of ‘how’ individuals respond to change are frequently overlooked until challenging problems manifest. Unfortunately, by that point the business may have already incurred setbacks, valuable talent could have explored external prospects and the realisation of the upside from the change might have grown more complex.”
Real estate is undergoing significant changes driven by technology, economics, and societal trends. The focus is shifting towards customer service, with the concept of "living as a service" becoming prevalent.
Modern tenants expect better customer experiences, leading to a transformation in the industry. Sustainability and ESG practices are gaining importance, with property managers implementing eco-friendly features and complying with ESG frameworks to enhance creditworthiness.
Changing expectations and attitudes, particularly among younger generations valuing mobility and flexibility, have led to an increase in renters. Property managers are also outsourcing certain functions to specialised service providers to improve efficiency and service levels.
However, barriers to change exist, including resistance to new technologies, regulatory challenges, and a lack of association with innovation. To thrive in this evolving landscape, real estate companies must embrace innovation and become tenant-centric.