Commercial Real Estate Industry Research Articles

Climate risk and commercial mortgage delinquency

AbstractNatural disasters such as hurricanes, floods, heatwaves, and wildfires are projected to become more prevalent in the foreseeable future. Climate risk is, therefore, increasingly recognized as an important factor by policy makers, the investment community, and financial markets. Due to the immobility of assets, the commercial real estate industry is especially vulnerable to climate risk, and there is an increasing interest to understand the impact of climate risk on the value of commercial real estate. For commercial real estate lenders, changes in collateral value are only of partial importance. The ability of borrowers to meet their payment obligations is equally, if not more important. By combining historical data on two major climate‐related disasters—Hurricanes Harvey and Sandy—with longitudinal information on commercial mortgage performance, this paper identifies the impact of climate risks on mortgage delinquency rates for commercial real estate mortgages. The results show that both Harvey and Sandy led to elevated levels of commercial mortgage delinquency, with significant heterogeneity based on the extent of damage in the Census block group. Information provided through FEMA 100‐year floodplain maps partially mitigates the effects, an indication that lenders incorporate flood risk information in the underwriting process. An analysis of potential mechanisms indicates a decrease in property income during the 2‐year period following the event for Hurricane Harvey, but no evidence of income effects for Sandy.

Blockchain Technology in Commercial Real Estate: Developing a Conceptual Design for Smart Contracts

Commercial real estate transaction processes are inherently complex, multi-faceted, and multifarious due to multiple intermediaries, a high volume of signed documentation, high costs, and the illiquid nature of these transactions. An emerging area in blockchain technology is smart contracts which hold much potential to transform the commercial real estate industry through the digitalization of decentralized business models that ensure transaction transparency and validity. Despite the potential benefits of smart contracts, their use in the commercial real estate industry is at a nascent stage. In response to this gap, this study proposes a novel approach using Ethereum blockchain technology to enable intermediaries to transact in an informationally symmetrical way within an open real estate in Switzerland. The proposed conceptual model employs tokenisation on the blockchain and is developed using the action design science research methodology. The model undergoes several stages of evolution from pre-design, which is validated through expert interviews, to arrive at the final conceptual design. The study identifies key factors that influence the application of blockchain in real estate transactions, namely adoption, governance and compliance, transaction costs, transparency and immutability, security, and scalability. The results indicate that smart contracts have the potential to significantly reduce transaction costs and improve efficiency in the commercial real estate industry.

Sustainable Ecopreneurship: Solar Energy Solutions in Commercial Real Estate

This study delves into the rapid trend of integrating solar energy into the realm of business operations, providing valuable insights into the readiness of provincial business establishments and commercial building owners to embrace solar energy as a viable alternative power resource. This study examines the landscape of factors influencing the adoption of solar energy. These pivotal variables, namely, the comfort of tenants, competitive advantage, and cost-effectiveness, are all identified as central drivers within the thriving commercial real estate industry, signifying a promising shift towards solar energy adoption in the province of Pampanga. The result from the study affirms the paramount importance of tenant comfort, a factor inextricably linked with enhanced profitability. Additionally, the study illuminates the strategic significance of maintaining a sustainable environment, serving as a formidable competitive advantage. By embracing sustainability, businesses can unlock an array of economic benefits, rendering solar energy adoption inherently cost-effective. In sum, the interplay of these independent variables signals a robust relationship poised to usher in the widespread adoption of solar energy as a sustainable alternative power resource. As a prudent and forward-looking recommendation, this study underscores the compelling case for provincial commercial real estate entities to actively embrace the integration of solar panels into their operations. By doing so, they can champion both environmental responsibility and economic viability, reaping the rewards of a progressive and eco-conscious approach.

Discussion on the Influencing Factors of Housing Prices in Shandong Province

Aiming at the influencing factors of commercial housing prices in Anhui, based on the relevant data of the 2000~2020 Shandong Statistical Yearbook, three explanatory variables of actual GDP, actual per capita disposable income of urban residents and total population were selected, and a multiple linear regression model was established by Eviews software, and econometric test methods such as multicollinearity, heteroscedasticity and autocorrelation were tested and the model was modified. The results show that the per capita disposable income and total number of urban residents have a positive impact on the price of commercial housing in Shandong Province. Based on the research conclusions, it is proposed to provide a reference for the stable development of the commercial real estate industry in Shandong Province.

Step by step: A playbook for AI innovation within commercial real estate organisations

Commercial real estate (CRE) lease agreements contain a treasure trove of untapped insights into one of the world’s largest asset classes. With commercial leases being the legal instrument for executing and documenting the terms and conditions of hundreds of billions of dollars of CRE transactions each year, the aggregate data housed in these agreements has the potential to inform valuable insights across the world’s largest real estate markets. Leases traditionally exist, however, only as paper copies or electronic PDFs, requiring large investments of time and human capital to read, understand, harvest and structure the data from their pages. CRE companies are in a unique position to leverage artificial intelligence (AI) and machine learning (ML) techniques to crack the code on these leases and unlock significant value through digital insights across the marketplace. Pioneering companies will need to surmount several obstacles that have long deterred CRE organisations from embracing these automated workflows. The sheer complexity and variety of the documents’ formats, structure and terms, the disaggregation of these documents among market participants, and the general disorganisation of the participants’ systems for storing them are all serious challenges. Meanwhile, the investment of time and resources necessary to train an algorithm sophisticated enough to navigate these challenges is a significant ask. This paper provides a playbook of best practices for surmounting these obstacles and achieving successful integration of ML–AI techniques in the CRE industry, enabling internal efficiencies and new avenues of value creation. The paper analyses a case where a CRE service provider was able to get buy-in from stakeholders by defining a project roadmap focused on upskilling pre-existing human capital investments, ultimately creating a business case to leverage ML–AI techniques to enhance data structuring workflows. The results of this project showed that the real value derived from these technologies did not come from the outputs or cost savings alone. The test project created a competitive advantage for the company by pairing the technology with a skilled team. The team brought a ‘product mindset’ focused not only on learning and developing the technology, but on continually finding new and better ways to use the technology to create a valuable service offering for occupier clients.

How to survive in an era of lower office space demand , higher supply and shorter leases

The COVID-19 epidemic has brought with it dramatic changes in the commercial real estate industry. Many corporates decided to transit into hybrid working, allowing their staff to work remotely at least part of the week, which is likely to lead to lower demand for office space even in the mid and long term. This situation is exacerbated for office building landlords by the explosion in subleasing activity and is even tougher for retail space landlords, leading to a parallel increase in supply of office space. Adding to that the growing demand for higher flexibility from tenants and likely decrease in length of an average office lease, we see a perfect storm requiring office building landlords to take serious actions to remain relevant and succeed in the new market reality. Improving the safety of their buildings and perception of safety via better direct communication with building’s end users, providing more robust services and utilising technology to streamline operations and to enable more flexibility will be vital to landlords’ and asset managers’ success in the coming years. The likely increase in vacancy rates will not hit all office buildings equally; there will be winners and losers in the new reality. This situation can also become a catalyst for the whole industry to move from being a cost centre and become a value provider for tenants, enabling them to drive talent attraction and retention while keeping their workforce safe and informed.

Rapidly changing landscape: Commercial real estate and the new perspective

This paper discusses how the commercial real estate industry has been heavily affected by the changes experienced during 2020 as result of the COVID-19 pandemic. Businesses and employees have been unable to work in their regular locations; retail stores and other sectors have been shuttered for extended periods of time; student housing, logistics and warehousing, life sciences have all faced the unknown. The paper stipulates that the future survival of the physical environment hinges on an acceptance that change is needed, that a new approach must be taken. The need to evolve buildings physically has never been as urgent. It discusses how owners have recognised that they must adapt their buildings or increasingly face challenges in attracting and retaining the tenants they want.

The Rank-Size Rule and Challenges in Diversifying Commercial Real Estate Portfolios

The strategy of geographically diversifying a portfolio of commercial real estate assets is an intuitive approach for risk management. However, due to high concentrations of these assets in major metropolitan areas, investors may face additional constraints in the portfolio optimization process. The rank-size rule, a log-linear relationship between city rank and size, provides one of the greatest empirical regularities in regional science. As such, it serves as a possible theoretical guide to the weights given to properties by location in a commercial real estate portfolio. This paper sets forth some ideas relating to the concentration side of portfolio variance and the limiting effect that large concentrations may have on the ability to diversify risk. Two variants of the rank-size relationship – the Zipf distribution and the parabolic fractal distribution – are fitted to a variety of datasets to provide a sense of the degree of concentration in the commercial real estate industry. These empirical findings suggest the presence of limitations to geographical diversification that have varying degrees of severity across different property types or sectors of the commercial real estate market.

Smart Contract for Real Estate Using Blockchain

The commercial real estate (CRE) industry appears to take pride in keeping several aspects of its operations private, such as comparable lease rental rates, property prices, and valuations, to create a possible competitive advantage. However, secrets are hard to keep and may not even be desired in today’s hyperconnected and digitized world. In response to greater demand for ​transparency, ​technology advancements and the disintermediation by startups are gradually making some of this information public. As a result, property-related information is increasingly available in digital and paper form. However, a significant portion of the digitized information is hosted on disparate systems, which results in a lack of transparency and efficiency, and a higher incidence of inaccuracies that creates a greater potential for fraudulence. This paper aims to present the Blockchain and smart contract for a specific domain which is real estate. Currently, the real estate business online is at risk of fraudulence. The main objective of this project is to create a platform to maintain transparency in the real estate world so that no fraudulent activities can happen due to false contracts. Goal is to create tamper proof systems and to remove third party reliability for transactions. Consensus algorithms such as Proof of Work and Proof of Authority can be used to achieve consensus in the network. Blockchain uses Proof of work concept to ensure transaction denial thus helping remove denial of services. Proof of authority on the other hand ensures only authorized smart contracts pass the system.

How far behind the curve is the commercial real estate industry? The growth of ‘flex’ space and its implications for CRE

Flexible workspaces and technology are driving considerable growth in the commercial real estate sector, with more than 35 per cent of office activity driven by flex space in London last year, for example. But is it really representative of systemic change and what can we learn from other sectors? This paper looks at examples from other sectors to assess a move from businesses focused on asset management to the provision of services, driven by customer demand and increasing digitisation. This paper debates whether flex space is CRE’s own transformative moment, which will demand that landlords becoming increasingly service-orientated and operators more sophisticated in their market offer.

How do women maximize the value of mentorship? Insights from mentees, mentors, and industry professionals

PurposeThe purpose of this paper is to explore the perceptions of women working in the commercial real estate industry to assess how they approach mentoring relationships and take steps to maximize the value derived therefrom.Design/methodology/approachThrough thematic analysis of 39 interviews conducted with women serving as local chapter presidents of CREW Network, the paper offers insights as to how women position themselves to receive mentorship throughout their careers and engage with mentors to address their evolving needs. In particular, three themes of commitment, reciprocity in the mentoring relationship and mentee motivation emerged.FindingsThe results suggest that this is a strategic process and one in which many women are proactively engaging to ascend to leadership positions in the corporate world. While the study is limited to those working in commercial real estate, clear implications exist for other industries.Originality/valueBy identifying and exploring these themes, the paper serves as a starting point for future research considering how women inside and outside of the commercial real estate industry can more strategically pursue mentorship and use it to attain leadership roles.

Exploring the business logic behind CSR certifications

Research shows that CSR certification motives span from being symbolic to substantive. Prior studies have mainly focused on the differences between firms that hold and do not hold CSR certificates. This study explores if the extent of CSR certification is related to different business logic amongst firms who hold CSR certificates. The study utilizes full sample data from the Swedish commercial real estate industry to analyze the variance in motives and performance among firms with CSR certificates. The results indicate that firms that have a substantive CSR commitment have a business logic that entails a holistic and long-term perspective on both financial and CSR performance. However, substantive CSR commitment comes with greater staffing costs and lower financial returns as opposed to those of firms that obtain CSR certificates based on symbolic motives.

Learning about Networking from Women in the Commercial Real Estate Industry

Drawing on concepts of network centrality, closeness, and status, this article examines the networking practices of women in the commercial real estate industry. The data were obtained through semi...

Does the commercial real estate industry need “more pussy on the block?”

PurposeIn a controversial 2018 interview, commercial real estate mogul Sam Zell insinuated that companies should promote their employees based exclusively on merit and avoid purposefully taking steps to get “more pussy on the block” in the name of gender equality. The comment was criticized not only for its crassness, but also for its failure to recognize the challenges many women working in the commercial real estate industry face in their efforts to obtain the same opportunities, compensation and status as similarly-qualified men. In an effort to overcome these disparities, the purpose of this paper is to focus on the pervasiveness of second-generation gender bias and stereotyping in the field through a qualitative analysis.Design/methodology/approachSemi-structured interviews were conducted with 39 women serving as local chapter presidents of a prominent commercial real estate trade group to explore the impact of gender on their career advancement and their experiences with second-generation gender bias.FindingsThe findings suggest unintentional discrimination often influences women’s careers by drawing their communication skills, professional credibility and commitment to the organizations for whom they work into question.Originality/valueThe research contributes to the existing literature by offering additional evidence that unintentional discrimination is common in male-dominated industries, such as commercial real estate. It also provides clear examples of social cues women perceive to heighten tension along gender lines and impinge upon their ability to ascend to leadership positions.

Positive psychology meets real estate : The positive built workplace environment

This paper explores the complex relationship between the workplace environment and the organisation’s and individual’s experience through the lens of positive psychology. Drawing on positive psychology concepts and research conducted at International Towers in Sydney, the paper introduces the concept of the positive built workplace environment (PBWE). This is defined as a built environment that is designed and operated in a way that provides the optimal physical and psychological conditions and resources to enable employees to consistently deliver high performance and maintain personal and organisational well-being. A PBWE is one that promotes sustainable high performance and thus promotes both high performance and employee well-being. The current authors believe that the PBWE can provide the solutions to many of the problems facing those in the commercial real estate industry. Such problems include those associated with increased pace of change and complexity in the world of work, and the fact that organisations and employees are demanding more from their workplace environments. In addition, the increased use of activity-based flexible offices and coworking spaces demands a new style of relationship between corporate property managers and their individual and corporate tenants. Drawing on Maslow’s Hierarchy and Self-Determination Theory, the paper presents several models and measurement tools that can be freely used to help commercial real estate agents, property managers and developers utilise the principles of the PBWE and help create better developed positive workplace environments — environments that will support future organisational and individual growth and development in a humanistic, sustainable fashion.

Outsourced property management: the regulations of the property manager

PurposeThe purpose of this paper is to identify factors on property management level for analysing incentives for an effective property management in an outsourced setting.Design/methodology/approachThis research is based on an interview study of a set of three real estate-owning companies and their contracted facility management companies’ property management teams.FindingsThe study concludes that the property manager within the facility management company is highly controlled by the contract between the real estate owner and the facility management company. However, this contract does risk the individual property manager to prioritise the wrong work tasks as she/he has to know exactly what to prioritise in each contract and consider in whose interest she/he performs each task, the real estate owner, her/him employer or the tenants.Research limitations/implicationsThe research in this paper is limited to Swedish commercial real estate sector.Practical implicationsThe insight in the paper is regarding how real estate owners create incentives for the facility management companies’ property management organisation and how that are perceived by the individual property manager.Originality/valueIt provides an insight regarding how the commercial real estate industry prioritises different work tasks and how incentives are created to enable effort.

Changing dynamics of corporate real estate: The rise of coworking spaces

The past three years have seen a dramatic increase in coworking spaces across Asia, including India. The concept of coworking was triggered in the West by the global financial crisis of 2007–08, while Asia has just begun to embrace the change. There is an excessive focus on creating more efficient and cost-effective solutions for start-ups, small and medium enterprises (SMEs) and corporates. These flexible, technology-smart, state-of-the-art facilities attract millennial occupiers who like to work together in a vibrant environment. This paper explores the evolution of coworking space in India and discusses its impact on corporate real estate strategies in the present age of digital disruption, as the concept is likely to progress towards becoming a subset of the commercial real estate industry in the coming years. From the advent of the idea among start-ups and freelancers, these workspaces are attracting the attention of larger organisations as well. As operators and developers experiment with various business models for best efficiency and cost optimisation, the coworking era is likely to be an interesting period.

A post-global financial crisis (GFC) framework for strategic planning, assessment and management decision making for US sustainable commercial real estate

PurposeThe purpose of this paper is to understand both the facts and the values associated with the breadth of issues, and the principles related to sustainable real estate for institutional investors. Sustainable real estate is a growing sector within the commercial real estate industry, and yet, the decision-making practices of institutional investors related to sustainability are still not well understood. In an effort to fill that gap, this research investigates the post-global financial crisis (GFC) motivations driving the implementation of sustainability initiatives, the implementation strategies used, and the predominant eco-indicators and measures used by institutional investors.Design/methodology/approachThis paper presents the results of a three-round modified Delphi study conducted in the USA in 2011-2012 investigating the nature of performance measurements and reporting requirements in sustainable commercial real estate and their impact on the real estate decision-making process used by institutional investors. Two rounds of in-depth interviews were conducted with 14 expert panelists. An e-questionnaire was used in the third round to verify qualitative findings.FindingsThe key industry drivers and performance indicators influencing institutional investor decision making were associated with risk management of assets and whether initiatives can improve competitive market advantage. Industry leaders advocate for simple key performance indicators, which is in contrast to the literature which argues for the need to adopt common criteria and metrics. Key barriers to the adoption of sustainability initiatives are discussed and a decision framework is presented.Practical implicationsThis research aims to help industry partners understand the drivers motivating institutional investors to uptake sustainability initiatives with the aim of improving decision making, assessment, and management of sustainable commercial office buildings.Originality/valueBuilding on the four generations of the sustainability framework presented by Simons et al. (2001), this research argues that the US real estate market has yet again adjusted its relationship with sustainability and revises their framework to include a new, post-GFC generation for decision making, assessment, and management of sustainable real estate.

Socially Responsible Property Investment in Cities – Between Economic Reasoning and Social Obligations

AbstractThis article focuses on socially responsible property investment (SRPI), which is an investment estimated not only to bring financial gain but also social and environmental benefits. The theoretical part of the paper draws on existing literature on responsible investment. The empirical part discussed in this article is based on original research conducted by the author. Starting with a global and regional overview, the query was narrowed down to a national level (Poland) with a case study of the capital - Warsaw. The overarching research problem was described as follows: How are SRPI principles manifested and implemented by investors in the commercial real estate market? Additionally, investigation was supported by numerous questions regarding the interest in SRPI and an understanding of its principles and benefits among investors. Research goals were pursued based on primary and secondary data sources regarding existing and planned SRPI projects within the commercial real estate industry. Results indicate that there is a disparity between declared support for SRPI and market practice. At the conceptual level, there is an understanding of responsible investment principles and will to conduct such projects. However, commercial property practice proves a different reality with primary focus on green buildings, while the social factor is missing.

The Real Estate M&A and Private Equity Review, 2nd Ed., United States Chapter

The covid-19 pandemic that began in 2020 has continued to have a profound impact on the commercial real estate industry, including REITs and real estate private equity. In general, companies with assets that service the digital economy – cell towers, logistics and industrial properties, and data centres – benefited from the pandemic’s acceleration of the digital economy. Conversely, several traditional sectors continue to confront difficult issues involving liquidity, rent collection, dividend payouts, disclosure and guidance, as well as navigating the uncertain and sometimes shifting guidance from regulatory authorities regarding the timeline of reopening. However, with the introduction and distribution of vaccines in the United States, a robust, if uneven, recovery has begun to take hold within the commercial real estate industry. As always, strategic planning and risk management have been, and still will be, critical in order to adjust to changing times, to adapt to the resulting acceleration of technological change in the real estate industry and beyond. Only time will tell with respect to how soon and to what extent people will return to their offices and resume traditional offline shopping and travel, and which of the many other changes in real estate usage will become permanent or semi-permanent.