By Billy Fink | Shared post from the Hightower Blog
Over the past 30 years, the commercial real estate industry has transformed from a “mom-and-pop” industry to an institutional asset class where owners manage massive, complex, and global portfolios.
Although this development is good news for many CRE professionals, it is not without its consequences. As more money flows into the asset class, competition has worsened across the entire industry.
Competition for Deals
The most significant rise in competition has been on deals. Over the past few years, billions of dollars — from institutional and foreign sources — have flowed into real estate and driven up prices for desired assets across primary, secondary, and tertiary markets. This flow of capital has far outpaced new construction and new development, leaving commercial owners in a classic supply and demand challenge: there are more dollars in the industry chasing each deal.
To handle this rise in competition for deals, many commercial owners have sought investors with deeper pockets, developed a clear specialization in their investment strategy, or sought secondary markets.
Competition for Capital
Many GPs are fighting a two-front war, feeling pressure on both the deal side and the fundraising side. According to a recent survey of owners across the industry, 67% of commercial owners feel that competition for investment dollars is increasing. Institutional investors are not cavalier with their money. They want to pick the firms with the absolute best yields. Limited partners are placing greater emphasis on better tools, real-time reporting and visibility into performance.
Many proactive owners have decided to adopt new technology to help them better report and analyze their portfolio.
Competition for Talent
The industry is also beginning to realize that firms are in a war for talent. The next generation of CRE leaders expect a different work environment with mobility, modern tools, and data at their fingertips. The companies that lag behind are finding it increasingly difficult to recruit top CRE employees and are suffering from a growing talent gap. This next generation of CRE professionals is demanding change in its employers, encouraging new ways of working, and new technologies to drive the business forward.
Competition for (the best) Tenants
The last major area of competition is for tenants. Although many believe it is an owner’s market — after all, office leasing activity is strong — that doesn’t mean competition for tenants is not still increasing as well. As a matter of fact, 80% of owners indicated in our survey that competition for tenants is increasing.
Over the past couple of years, low interest rates and a recovering economy encouraged billions of dollars of transactions, and many owners are now trying to find the right tenants to satisfy their specific ROI strategies. As a result, they’re waiting to satisfy certain returns, even if it means a short-term loss. Competition is heating up for tenants.