The trends shaping European real estate

As we are seeing with almost every other industry worldwide, the Commercial Real Estate (CRE) industry is being revolutionised by change, with no area immune. The global real estate market has seen a tremendous shift; the green transition, growing urban populations, as well as demographic and technological changes - all creating fresh opportunities for investors in both traditional and emerging asset classes.

Big data and data analytics have transformed real estate by enabling businesses to gain valuable insights into customer behaviour, preferences, and trends. The industry puts its best foot forward by utilising multiple data science functions, creating valuable advantages such as risk mitigation, improvement of stakeholder engagement, accurate valuations, better market strategies, data-driven insurance and AI support in the decision-making process. 

In the modern world, property valuations based on data science are changing the game. With the help of data science models, investors can make informed decisions based on high-quality data and insight. These models can combine data from hundreds, if not thousands, of sources to produce accurate valuation forecasts that can optimise investment and the development process. 

Despite the excitement of new opportunities, CRE has faced some challenges in recent years that have softened demand while raising operating and financing costs. Higher interest rates, an economic slowdown, the hybrid work environment, a tight labour market and more are all contributing to the pace of change that shows no signs of easing despite economic headwinds. In the current real estate market, the challenge is more on the supply side: the market is in need of actual project availability in all sectors. Due to the complex web of legislation and tax issues in many countries, these projects often need more time to become available to the market. Yet, the demand on the investment side is still robust; the money is available, and investors are now well aware of the fact that yield expectations need to be realistic. 

The impact of remote working on real estate 

The last few years have seen a monumental shift in the modern workforce as remote working has become a mainstay. The change has not only transformed how we work but has significantly impacted the dynamics of the real estate market as more companies embrace flexible work policies and employees seek adaptability in their work-life balance. The increasing demand for ‘location independence’ (the ability to work from anywhere) has directly impacted the real estate market, altering housing preferences and reshaping office demand across different regions. 

This shift in demand has prompted urban centres to adapt and reinvent themselves to attract businesses and residents. We are seeing commercial spaces being repurposed into mixed-use, creating vibrant live-work-play environments, as well as a focus on amenities and services that cater to the evolving needs of remote workers and residents seeking a better work-life balance. 

With hybrid and remote work here to stay, office attendance has dropped dramatically. The office space of the future is set to be more flexible, designed to accommodate a mix of in-person and virtual collaboration, with more open spaces and fewer individual workstations. Additionally, collaborative workspaces are on the rise, with a new ‘workplace as a service’ model becoming ever more popular in a bid to attract digital nomads and remote workers, offering incentives and creating infrastructure that supports remote work lifestyles. These changes are also creating ripple effects through the CRE markets, with many defunct offices being redeveloped into residential housing in an effort to tackle housing shortages in large urban areas. 

Innovative technologies 

Real estate technology is a broad, expansive area that encapsulates a vast array of various emerging technologies – from property management software to smart home devices to the range of connectivity-related tools enabled by the Internet of Things (IoT). The common denominator between all of these technologies is that they are designed to make sourcing deals, processing transactions, managing properties, and delivering customer services exponentially easier and more optimised. Real estate technology benefits a wide range of users, including owners, investors and tenants alike. 

Augmented Reality (AR) and Virtual Reality (VR) experiences are still in their infancy. Yet, their ability to simplify the property viewing experience has made it easier for architects and engineers to model how a project might feel upon completion. On the consumer side, rental/buying apps have skyrocketed in popularity in recent years, allowing people to get a better feel for properties in a given area. The sheer volume of properties people can scan through to find the right one for them is astounding. Many apps (or properties within the apps) include features that allow potential buyers to view and navigate through a 3D model of their potential new home, expanding on the use of a floorplan model and allowing people to explore a property before ever stepping foot in it. 

There is also the emergence of technical tools like Building Information Modelling (BIM) that essentially act as shared knowledge platforms that allow for better, real-time decision-making during the lifecycle of a construction project. BIM allows the project team to make various simulations (such as construction, design changes, and power consumption) and it can also be used upon project completion to facilitate repairs and maintenance. BIM software helps property developers minimise waste, control costs, coordinate workflows and optimise labour needs, making it an attractive tool for the investor market by keeping a close eye on the so-called ‘life cycle cost’ of real estate. 

What are the key benefits driving the surge of sustainable and eco-friendly properties? 

Pressures are mounting for industries to act more environmentally responsibly, and society is demanding sustainable and eco-friendly working and living environments. Sustainability has become as popular in the business world as it is essential, driving changes throughout various sectors, with real estate being no different. Eco-friendly and sustainable housing is better for the environment and can be financially beneficial for developers and investors. Sustainable buildings typically have lower operational costs due to energy-efficient systems and often have a longer lifespan than non-sustainable buildings. Benefits also include: 

• Reduction of natural resource consumption. 
• Energy optimisation and reduction of energy consumption. 
• More efficient water usage that can help to reduce water usage and costs. 
• A smaller environmental footprint during construction than traditional buildings reduces the amount of pollutants and emissions typically created. 

In today's real estate landscape, it is imperative for real estate professionals to possess a comprehensive understanding of the broader Environmental, Social, and Governance (ESG) factors that influence the market. Staying up to date with the various certification systems for real estate properties is vital. These certifications serve as a tangible demonstration of a property's commitment to sustainability and responsible development. Two globally recognised certification systems that hold a prominent place in the real estate arena are BREEAM (Building Research Establishment Environmental Assessment Method) and LEED (Leadership in Energy and Environmental Design). These certifications represent benchmarks for excellence in environmental performance, energy efficiency, and overall sustainability in real estate development. 

As the real estate sector continues to evolve and adapt to the evolving demands of an environmentally and socially conscious world, real estate professionals who remain well-informed about ESG drivers and certification systems will be better positioned to navigate the complexities of the market while simultaneously contributing to a more sustainable and responsible future for the industry. 

What is the future of real estate? 

Currently, real estate is being defined by investors prioritising long-term stability and a renewed focus on the industry's operational dynamics. One notable facet of this transformation lies in the evolving financing landscape for real estate, which has undergone significant changes in recent years. 

The year ahead promises to continue this trajectory of innovation, presenting a multitude of intriguing developments. Emerging financial strategies, such as crowdfunding and peer-to-peer lending, are gaining traction as individuals seek fresh avenues to finance their real estate ventures. Simultaneously, the traditional mortgage market is undergoing a metamorphosis, with ongoing innovations that encompass new loan products and shifts in interest rates. As a result, the real estate industry will closely monitor these advancements throughout the year. 

The overarching goal of real estate investing has always been to maximise Return on Investment (ROI). I expect several of the key trends we have seen in 2023 to continue into 2024 that will significantly impact the ROI of real estate investments. Investors will show a heightened interest in high-growth markets as these regions continue to rebound. Cities boasting robust job markets and expanding populations are poised to attract increased investment, thereby elevating property values and bolstering ROI. Additionally, multifamily properties are rapidly gaining favour among investors, offering a compelling avenue for maximising ROI while mitigating risk. The year ahead promises to be a dynamic one for real estate, marked by investors' pursuit of stable returns in a rapidly evolving landscape.