Whether they’ll need to incorporate artificial intelligence or respond to unprecedented natural disasters, one thing is for sure: Property managers can expect the upcoming year to be filled with continued rebalancing, optimizing, and learning.
“Management today is, by definition, change management,” says Joe Greenblatt, CPM®, CEO of Sunrise Management Co., AMO®. “Even for people who intellectually embrace the notion of change, internalizing it can be difficult for managers and investors. As leaders in real estate management, we can start by extending our awareness and educating ourselves about the contemporary best practices in this shifting risk environment.”
No asset class will be exempt from having to adjust to the changing environment. Changes in how people work and live will always bring new considerations for managers.
Commercial office in transition
Whether people work in the office, remotely, or in a hybrid capacity, flexible work arrangements will continue to impact office properties.
Mike Mrozek, CPM®, COO of property management in the Americas for CBRE, Inc., AMO®, says CBRE is seeing a rise in office attendance that he expects to continue next year. “About 65% of companies surveyed are now requiring a return to office of some kind,” he says, citing statistics found in CBRE’s Spring 2023 U.S. Office Occupier Sentiment Survey. “While attendance is low now, about 38% more expect an increase in office attendance by year-end.”
Generational preferences will also continue to impact office use. Deb Cloutier, CRE, president and founder of RE Tech Advisors and chief sustainability officer of Legence, says that at her company, younger workers are asking if they can come into the office. “If they work remotely, it is difficult to establish a network or connections at work,” she says. “It can be hard to create a company culture remotely, so employers will continue to be in this rebalancing phase.”
Mrozek also expects 2024 to be filled with discussions about the “workplace of the future,” which will continue to focus on collaborative spaces, such as huddle rooms, for on-site teams to meet with remote colleagues. Offices will need to accommodate the various technologies for seamless collaboration.
“Of CBRE’s occupier clients, about 77% have already invested in enhancing video conferencing capabilities,” he says. “We’re also seeing interest in enhanced office space booking technologies, allowing people to book office space and companies to see who is using them.”
The next year will also be a time of creative thinking for commercial buildings in central business districts, which were some of the most affected by the COVID-19 pandemic. “While we can’t change the location, we can help clients identify the risks and opportunities at these properties and communities around them and come up with a plan to make these properties more dynamic and viable,” says Mrozek, adding that some properties likely will be repurposed for other uses.
“We’ll continue to see dense, walkable, live-work-play districts be a favorite,” he says. “The projects with modern office spaces, high-end experiential offerings, residential, retail, and restaurants are definitely outperforming the local markets in which they reside.”
Multifamily’s solid ground
Driven by the housing supply-demand imbalance and high interest rates, the outlook for the multifamily segment promises to be strong.
Market and political uncertainty—with a major election next year—are causing real estate development investors to pause on the sidelines, waiting to see what plays out. Lenders are also being more cautious. “This is all preventing capital from flowing into real estate development right now,” says Greenblatt. “From a supply-demand standpoint, this portends well for multifamily investors and owners. Broadly speaking, it’s a landlord’s market.”
Lifestyle renters also will continue to be a force in the market. Fueled by increased work flexibility, these renters are anticipated to continue prioritizing location, amenities, work-from-home or flex spaces, security, and green considerations.
In 2023, we experienced devastating floods, wildfires, and other natural disasters, demonstrating the impact of unpredictable weather on properties and warning real estate managers about the necessity of disaster preparedness.
“When it comes to climate change, real estate professionals are required to open their aperture further and gain new expertise,” says Cloutier. “This includes becoming familiar with both the physical and transitional climate risks of your property.” (See sidebar “Climate risks.”)
To do this, property managers must perform physical risk assessments similar to property condition assessments. “They can help the owners and operators move from the question of, ‘What climate risks am I exposed to?’ to ‘What can I do about them?’” Cloutier says.
For example, managers can implement housekeeping practices to improve drainage and manage landscaping.
“Planning, preparation, and training are going to be crucial to mitigating the effects of these events,” says Mrozek. “Site teams should have comprehensive emergency response and business continuity plans for a wide range of emergencies. And you must have a strong vendor network of trusted service and supply partners to support the plans.”
Managers of smaller properties who need guidance can find emergency planning information online, such as IREM’s Emergency Response Playbook, or reach out to a consultant.
Mrozek emphasizes the importance of discussing ESG impacts with all clients, regardless of size. “Some have the view that they can’t afford it. It’s important to show them how they can,” he says. “You have to translate the benefit of projects into language that makes sense to the investor or owner, which is ultimately ROI.”
While some upgrades are capital intensive, such as facade treatments, others are more affordable, such as upgrading cooling systems or increasing tree cover around buildings to reduce surface temperature.
Many investors have begun to prioritize ESG. “Institutional owners who traditionally looked at sustainability as a utility cost-reduction strategy before 2010 have shifted their focus to include ESG. Within the last few years, it became a fundamental shift that incorporates decarbonization, climate risk, and resilience risk,” Cloutier says.
Owners and investors are increasingly placing new requirements on asset and property managers to confirm they’re assessing and addressing material risks. Even if 2024 were to bring an economic downturn, investors expect that their asset and property managers will maintain or increase the value of their investments.
“Owners need to have buildings that are competitive even in difficult times. Not only are sustainable features beneficial to the environment, but they’re also some of the most desired tenant amenities. If increased building sustainability means tenant retention or increased desirability in the market, that’s something owners and investors can justify spending money on, and they will,” Mrozek says.
Still, other investors may need education and recommendations before funding risk-mitigating CapEx projects. “A core value of the CPM designation is to lead investors to make good decisions and help them understand the choices within the current best practices,” says Greenblatt.
Preparing for regulations
To achieve climate targets, an increasing number of states and municipalities are enacting benchmarking ordinances and building performance standards (BPS). “The impact of those policies reaches over 15 billion square feet of space,” Cloutier says. “Real estate professionals need to understand these regulations and plan for their impacts.” Failure to comply can result in fines or alternate compliance payments, which can be costly.
“Because of this, we’re seeing investors take a more engaged position to assess the managers and operators and their capability to comply with these regulations,” she says.
All experts agreed that more regulations are coming, and the time to prepare is now.
“Even if an investor today does not demand ESG strategies, it takes time to build skillsets, and there is a lot of complexity to integrate climate risk precautions into day-to-day operations and decision-making,” says Cloutier.
Mrozek says one way to help owners prepare for reporting requirements is to establish a strong system for data collection. “This is inexpensive, and it puts owners in the best possible position to model solutions and be ready to act as requirements are introduced,” he says. “Second, engage a partner with strong expertise to help bridge the gap from reporting to action.”
Tech in 2024
Unsurprisingly, more advanced technology is expected in 2024, and property managers should be prepared to implement it—after properly vetting it.
Mrozek believes that technology will continue to be key to the success of property managers and their experience as employees. Technology that can simplify tasks such as generating forms, billing, inspections, and work orders will undoubtedly garner more attention in the coming months. “We’ll be looking for ways that technology can lighten managers’ loads so they can focus on working with people to drive retention and value,” he says. “We will always be in the people business. While there are tools like artificial intelligence (AI), it’s important to remember that the best product that we have is our people.”
To make sure it’s useful for the team, CBRE uses a proprietary platform designed in part from employee feedback. “We’re constantly engaging our teams in discussions to understand what capabilities would make their lives easier,” says Mrozek. “It really benefits the teams, and they know they’re heard.”
Property managers are also keeping their eyes on the latest drone, camera, and video analytic technology, planning to deploy them where it makes the most sense.
In the multifamily space, Greenblatt says they’re thoughtfully considering uses for AI. “With technology, there will always be problems. Our job is to ask if the problems the technology presents are better problems than the ones we are trying to solve,” he says.
Cloutier says her company is investigating ways to use large language models and analytics to identify, predict, and quantify opportunities. “We’re also looking at the installation of solar-plus-storage and sensors paired with real-time metering and analytics to learn and predict usage to drive efficiencies and improve overall performance,” she says.
With a major election in 2024, policy changes, such as those related to taxes, incentives for climate change and energy initiatives, and other areas impactful to real estate management, are possible at the local, state, and national levels.
To advocate for the interests of the real estate industry, Mrozek urges other property managers to collaborate with industry organizations like IREM. “Working together helps express the industry’s collective view on what we see as sensible and achievable regulations,” he says.
Amid the many changes and uncertainty that lay ahead, experts expect the most successful managers to be the ones who embrace continued education, collaboration, and creativity.
“I’ve experienced many cycles in commercial real estate over the past 30 years, and in economic downturns, the savvy investors and owners return to folks like us to help them identify opportunities to reduce costs, operate their properties more efficiently, and invest in novel approaches to differentiate their assets from the competitors,” says Cloutier.
Through continued education and by preparing for changing conditions, property managers will continue to deliver on these expectations.
“Whether they’re political or environmental, there will be many distractions in the coming year,” Greenblatt says. “One of the best things we can do is be thoughtful about our priorities, continue to learn, and focus on bringing value. The world we’re going to live in 2024 will be different. That’s the one thing we know for sure.”