Global Property Development Trends Report - Altus Group

Global Property Development Trends Report

Building resilience in the wake of global uncertainty

This year’s Altus Group Global Property Development Trends Report examines the current challenges facing the global development industry and delivers insight into the key business imperatives required to build resilience in the ‘new normal’.

Read on for key findings, insights and strategies of industry leaders who are contending with the risks and opportunities delivered by the global shock of the pandemic.

Full report includes detailed results from full survey, region by region breakdowns and deeper executive commentary

Overview

The global survey that formed the initial basis for this report asked development executives a variety of questions about how they were responding to industry market forces, their challenges and strategies to deal with them, their approach to using data and technology, and preparing for a potential downturn.

However, the initial survey was conducted during the early days of COVID-19, before the virus gained global traction and created a worldwide domino effect of market slowdowns and shutdowns. To provide an understanding of how developers are responding to the impacts of COVID-19 and the future implications of the pandemic on the development industry, we augmented the original survey with a series of in-depth interviews with senior development executives.

Key findings

The COVID-19 pandemic has been a catalyst for change in the global property development industry – accelerating trends, intensifying challenges and renewing the urgency for digital transformation and technology adoption.

Current market forces, combined with COVID-19, creating significant uncertainty

60% of development executives said the global economic outlook has a major influence on development planning, highlighting the stress on the industry from the pandemic’s economic impact

67% said tenant/occupier expectations and preferences have a major influence on development planning. This is compounded by the role the pandemic is currently playing in the built environment

74% said public sector infrastructure investment has a major influence on development planning. While shorter-term pandemic support is a current priority in many regions around the world, this suggests future economic recovery plans stemming from new government investment in public infrastructure will continue to be a major factor in development planning

Pandemic intensifies top challenges facing development firms

73% of development executives said project cost escalation is a significant challenge facing development firms, followed by environmental regulations (70%), government policies and processes (65%), and trade/labour shortages (65%)

COVID-19 has amplified existing challenges due to increased trade and labour shortages, physical distancing requirements on construction sites impacting productivity, construction site halts in certain regions, and the complexity of government policies and processes

Recognition that adoption of digital transformation and technology must be fast-tracked

52% of development executives are considering or planning to use digital transformation strategies to mitigate business risk, and 37% are already doing so

56% are considering or planning to use data analytics to mitigate business challenges, and 28% are already doing so

65% of developers said their biggest impediment to collecting or using more data is subscription costs, followed by lack of normalized data formats (54%)

39% said that manipulating or transforming data is a hindrance because it requires significant time and effort to manage

Development industry sees a mix of risk and opportunity in downturn but takes a ‘wait and see’ approach

68% of development executives said that the risk of a cycle downturn has a significant impact on their decisions regarding new construction investments

57% view distressed asset acquisitions as more of a risk than an opportunity

74% view acquisitions of non-distressed assets as an opportunity during a cycle downturn

63% believe there is opportunity in asset repositioning during a downturn

66% saw a change in asset/portfolio mix as a risk

Market forces

COVID-19: A new dominant market force intensifies key business challenges

While the market forces that significantly influence development planning (e.g. infrastructure, tenant/occupier expectations and the global economic outlook) remain broadly the same as those prior to the pandemic, there is one new overriding force – a global health crisis. The novel coronavirus and ensuing pandemic have amplified every market force impacting development planning, and consequently, intensified the key challenges that stem from them. Decision-making now requires a notably higher level of due diligence and risk assessment.
George Soros said his expertise as an investor is not necessarily knowing the rules of the game but knowing when the rules of the game change. So when you think about a category like multi-family you have to ask, how are long-run urbanization trends affected by the pandemic? Do people still have a strong preference for the city center or is it better to be in suburban locations? Or when we think about different product types like student housing, traditionally the number one factor you would look at would be the quality of the institution. Now, we have to focus more on the solvency of the institution and unit configuration.
Nigel Allsopp

Greystar

The most important thing governments can do to encourage and attract real estate development investment

1. Reduce taxes or development charge

2. Partner with private developers

3. Expedite approvals/reduce regulations

4. Support new or more innovative development

5. Implement blanket rezoning

6. Invest in new public infrastructure

7. Release more land

In a post-COVID world, certainly the biggest player in the overall economy is government. And I don’t just mean that in terms of economic support and the liquidity they’re providing markets through central banks. Governments are also responsible for immigration, social programs and policy, healthcare policy, implementing lockdowns and alleviating lockdowns. You cannot dispute the fact that government, in all of its forms, is by far the biggest actor in terms of the trajectory of the country and economy at the moment.
Michael Turner

Oxford Properties

Solving the data dilemma

The renewed urgency for digital transformation

Digital transformation and data strategies that enable developers to tackle their biggest challenges and gain a competitive advantage are gathering momentum.

Accurate, timely information is a potent tool for enhancing productivity, supporting critical decisions and avoiding costly errors. While the pandemic hasn’t changed the type of information required, the growing dilemma is the degree of inefficiency there is in gathering and manipulating information to make it useful – at a time when it is imperative to transform and interpret data quickly to manage project costs, build financial models and run frequent scenario analyses. Data and platforms now need to be cloud-based to enable better collaboration and efficiency.

Like other industries, COVID-19 has also impacted traditional ways that information and business ideas are exchanged. With most face-to-face meetings and conversations now occurring through a computer screen, it’s creating a new dynamic for collaboration, relationships and building trust.

Data analytics and digital trans­formation of business processes are inevitable. The evolution has been accelerated and importance elevated by COVID and its effect on work norms. There’s reason why share prices of technology companies (e.g. Microsoft and Amazon, being major cloud computing providers) have shot up in the last six months. The question for all businesses is how to extract value from the data and the analytics.
Soo Hwa Ng

City Developments Limited

Degree to which organizations are using the following strategies to mitigate business challenges
Biggest impediments to collecting or using more data to drive decision-making in the development process
  • Subscription/acquisition costs of accessing relevant data 65% 65%
  • Lack of normalized formats of data 54% 54%
  • Lack of internal expertise/capability 51% 51%
  • Issues around veracity or accuracy of data 47% 47%
  • Lack of appetite from the company to invest in the required technology 45% 45%
  • Lack of tools to assist with data capture & analysis 34% 34%
  • No impediments – we are already implementing data-driven decision-making 3% 3%

Executive insights on the human factor – and what digital and technology can’t replace:

When you are able to meet face-to-face it is much easier to get agreement. Now it is more difficult to convince all the people on the cameras instead of around the table. So we are obliged to give them more information, more reports, more studies to convince them. In this way for us, I will say communication is more difficult because of technology. But this is 50/50 because technology like our management application provides us with remote management capability between all the different people in our company so the technology gives us significantly more flexibility.
Geoffroy Bertrand

Besix Red

The information gathering process has evolved. General information is more readily available, but the opportunities to obtain specific information are not so available. For example, at conferences, you could meet an acquaintance and within a short conversation, find out about certain specific insights on a subject matter. A lot of people will say that they are more productive now, but (unfortunately) no technology will be able to replace personal relationships.
Soo Hwa Ng

City Developments Limited

Download full report with a breakdown of regional results

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Detailed results from full survey

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Region by region breakdowns

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Deeper executive commentary

The PropTech tsunami

The wave of adoption accelerates

The survey asked development executives about technologies that relate to construction methods, and technologies that become part of, or a feature of, buildings themselves. The findings revealed a significant percentage of major property developers have already adopted, or are considering to adopt these technologies over the next few years. The feedback from the follow-up executive interviews indicates the rate of adoption may be accelerated by ongoing pandemic considerations around labour shortages and efficiency, as well as end-product design and function. With continuing uncertainty in the global economy, technologies that help deliver site-level operational efficiencies, as well as those that generate data that can be used in operational decisions or to help address market demand for COVID-derived human environment needs, may be more widely considered for implementation.

The real estate industry is one of the worst industries where adoption of digitalization and technology is extremely slow, especially at the construction site.
Contractors who are delivering construction on site need to move away from the high dependence on labour, and start looking at more industrialized, as well as robotized systems of construction. Whether or not this will happen in our lifetime remains to be seen. But I think COVID will be both been an accelerator and a great leveler at the same time.
Gurjit Singh

PropSherpa

Development related technologies organizations have adopted, or intends to adopt in building design, planning, construction and/or business processes in the next 2-3 years

Weighing risk vs opportunity

When asked in early 2020 about strategic investments and decision-making in a downturn, a significant majority of executive respondents saw opportunities – not risks – in acquisitions, asset repositioning and joint ventures. By mid-year, the follow-up interviews revealed that the desire to make acquisitions hasn’t changed, but macro uncertainty due to the pandemic has resulted in “lots of dry powder,” or cash reserves, waiting on the sidelines. Developers expressed surprise that significant distressed asset opportunities have not yet emerged. They are focusing on continuously evaluating conditions, being prepared – and waiting attentively for more opportunities to emerge.

Areas where respondents see opportunity or risk in a cycle downturn

Extent that the risk of a cycle downturn is affecting decisions with respect to

We’re definitely active. We definitely have been making acquisitions. We definitely are making dispositions. Certainly we’re always looking at the opportunities and the risks that present themselves, in any environment. And, right now, it’s no different. I think that when you’re in down market, you have to be open and ready to explore new opportunities. So we’re evaluating all of those things.
Jeff Thomas

KingSett Capital

Key takeaways

As the development industry continues to operate in a volatile, uncertain and complex global environment, leaders need to focus on key business imperatives that transform their operations and processes to build resilience and adapt to the ‘new normal’.

Ability to adapt and respond to market forces

Accelerated trends and intensified macro-economic factors require a higher degree of analyses and due diligence to evaluate opportunities, deal with key business challenges and manage project risk. Firms that can quickly interpret the impact of evolving market forces, anticipate what’s ahead and adapt their plans accordingly, will be well-positioned to successfully manage through this period of uncertainty.

Aligning data strategies with business goals

Accurate and timely information is critical for identifying and solving problems, capitalizing on opportunities, and ensuring project success. While many firms continue to struggle with making data useful, those that are prioritizing data analytics, digital transformation and upskilling staff to better leverage the potential of data will gain a competitive advantage.

Upscaling with technologies that have transformative power

The consideration and adoption of construction and smart building technologies have been accelerated by the impacts of the pandemic. Using technology to achieve site-level operational efficiencies and address market demand will lead to better performance and generate new opportunities for strategic growth and competitiveness.

About this research

Results of a global quantitative survey and in-depth qualitative interviews with senior executives

Quantitative survey

Leading international research firm IDC conducted a global quantitative survey for Altus Group in early 2020. The research involved surveying 404 C-level and senior property development executives in both front and back office positions at property development firms, and owner operators and owner investors with property development divisions in North America, Europe, the Middle East, Asia Pacific and Latin America. All participating companies had a development pipeline equivalent to at least $200 million USD under development at the time of the survey.

Qualitative interviews

In late July, IDC conducted in-depth interviews with the following senior executives to gain greater perspective on COVID-19 impacts, and how industry sentiments may have shifted since the initial survey was conducted.

Special thanks to our contributors for their participation and valuable insights:

  • Nigel Allsopp, Senior Director, Investment Strategy & Research – Greystar (UK)
  • Geoffroy Bertrand, Country Director – Besix Red (Luxembourg)
  • Nigel Edgar, General Manager, Development NSW – Frasers (Australia)
  • Soo Hwa Ng, Vice President, Asset Management Division – City Developments Limited (Singapore)
  • Gurjit Singh, Chief Executive Officer – PropSherpa (formerly SVP – Real Estate at Dubai World Trade Centre) (UAE)
  • Jeff Thomas, Group Head, Development – KingSett Capital (Canada)
  • Michael Turner, President – Oxford Properties (Canada)

Markets where respondents are active

Download the full report with a breakdown of regional results

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Detailed results from full survey

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Region by region breakdowns

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Deeper executive commentary

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