In a time when the commercial real estate industry is undergoing exceptional change, industry leaders gathered for the recent SIREAS webinar “State of the Industry: Past Reflections and Future Projections,” to discuss the evolving landscape.

As a panelist, I had the opportunity to share some trends that are shaping the industry. The group discussion focused on four of the key areas: flexibility, flight to quality, sustainability, and artificial intelligence.

Flexibility

One of the prominent shifts highlighted during the webinar was the growing emphasis on flexibility, particularly related to offices and workplace. With the rise of remote work and changing tenant preferences, companies are increasingly seeking office solutions that can adapt to changing needs in terms of layout and lease terms.

The solutions for flexibility have come a long way but have also become much more complex, requiring more data. Based on Colliers’ latest survey findings, most occupiers will reduce office footprints through 2026, emphasizing the importance of this topic. Flexibility can be viewed in at least two lenses, transactions and space.  On transactions, we’re seeing a significant increase frequency and amount of built-in flexibility into transaction structures, including specifics around complete exit strategies.

On space design, this is of course in a constant state of change and innovation, to keep up with and even lead the business.   Some of the more important considerations included company culture, leadership and management style, technology integration and digital transformation of the business, hospitality and employee experience, and productivity.

Companies are looking at impacts of more day-to-day scalability, and also providing more private spaces to showcase the value of the office beyond collaboration and meetings.  Recreating some of the benefits of the home office has been successful in many cases.

Flight to Quality in the Office Sector

The office space leasing market is witnessing a “Flight to Quality.” Despite not being a new phenomenon in down cycles, this one is unique because of the materially more significant spread between top-tier, “trophy” buildings and traditional Class A or B buildings, in terms of rents and vacancy.  Occupiers are leveraging the opportunity to get the highest quality experience for their people (and clients in some cases), help attract employees to use the office, while also optimizing and reducing space, to get these benefits without significantly increasing costs.

This dynamic has also required a change to occupiers’ strategic planning and business case approval approaches, as the C-suite at many companies is expecting the office market is “on sale”.  If these clients see the trophy asset class as best for their business and talent strategy, to the contrary they will need to be educated on the limited options in most markets, the competition for these spaces, and the economic conditions.  For example, in Manhattan, the number of transactions at rents at or above $150 per square foot reached its highest level in over a decade.

This flight to quality is also pushing owners to invest at a new level and in unique amenities and perks for their tenants.  Cafes and gyms are table stakes, as now 4 and 5-star hospitality style and quality is becoming more common.  Examples are elaborate, high-end fitness centers and food and beverage options, concierge services, “house” car services, and free access to spaces across the country within a portfolio of buildings that are owned by a common landlord. 

Sustainability Takes Center Stage

Another focal point of the discussion was the increasing importance of sustainability. With a growing focus on environmental responsibility and energy efficiency, sustainable design and operational practices are becoming the baseline.  One unique dynamic is that for some occupiers/companies the CRE executive is being given ownership of corporate sustainability, signaling the growth opportunity and additional leadership visibility for many people in the industry.  For many companies, sustainability is no longer optional, and is integral to portfolio strategy, transactions, projects and facilities management decisions.

Ensuring indoor air quality continues to become more important, also tied to bringing people into to the office, and employee attraction and retention in general. Common initiatives include LEED and WELL certifications, green cleaning practices, supporting EV mobility, and a heightened focus on construction material and practices used and associated carbon emissions.

The Role of AI

While technology continues to advance our industry, with AI now front and center, we are seeing even more potential for game-changing innovation, and even disruption in some areas. 

As it is still early, we have already seen AI making a difference in areas such as space visualization, portfolio strategy and analytics and lease administration. It has also brought to the forefront the importance of harnessing high-quality, robust data which as the foundation for AI to be most effective, but carefully managing the risks and governance.

A key opportunity for us is using AI to augment our advisory services, to provide the best insights even faster for clients, and to create new tools and offerings, expanding capabilities and ultimately the value proposition for our clients and our people. We’ve seen significant improvements in the cycle times and cost efficiency in lease administration, and we have active pilots using AI to enhance portfolio strategy and business intelligence for our clients. AI has also improved efficiency for our teams the realm of space and occupancy planning, and 3D visualization.

The Path Forward

My thanks and appreciation to SIREAS’ Ingrid Fenn for the opportunity to come together and collaborate once again this year with a distinguished group of industry leaders.  I hope our audience found the interaction valuable, enlightening and encouraging. Across the industry we are seeing occupier clients prioritize collaboration, and even “coopetition”, optimizing their operating models to leverage two or more primary CRE service providers and advisors to maximize the outcomes while minimizing risk. At Colliers we’re thriving in this environment and leading by example as an integral part of this team with our clients. 

You can watch the recording here: