Setting the foundation for success in the commercial real estate sector in SingaporeBy Michael Velten and Junwei Han
Across Singapore, every industry has experienced fundamental transformation in the last two years – and the commercial real estate sector (CRE) is no exception.
Increasingly, the real value of property will no longer be defined solely by the space and its location, but the convergence of infrastructure and technology-enabled real estate service models.
This complexity is further compounded by the profound impact of the pandemic on specific elements of the real estate sector – in particular, accelerated digital transformation, and an intensified demand for companies to tackle environmental, social, and governance (ESG) issues – that will likely require a lasting course correction.
In this article, we explore three trends that CRE leaders in Singapore should deliberate on as they proceed into 2022 – and some of the considerations that they should take to set the foundation for their success over the next several years:
- Trend 1: Accelerating digital transformation
With guarded, if not solid, expectations for revenue growth in 2022, many CRE leaders are looking to accelerate their investments in technology and innovation. Based on our observations, key digital priorities include, amongst others, portfolio analytics, artificial intelligence (AI), robotic process automation (RPA), geospatial insights, and the use of alternative data.
For a significant number of CRE companies, however, implementation of these advanced capabilities remains in the early stages, not least because legacy systems continue to hinder adoption. To move ahead, CRE companies will need to focus on their transition to the cloud as a clear top priority, and work to develop a well-defined digital transformation roadmap – one that redefines business processes, job roles, and skill requirements to embed the use of technology and tools.
Other common roadblocks faced by CRE companies also include issues relating to the complexity of technology implementation, and lack of necessary talent. To overcome these challenges, CRE leaders could consider leveraging the use of partnerships with third parties, including technology providers or PropTech players, as the way forward.
- Trend 2: Delivering experiences with REaaS
In a digital world of bits and bytes, the value of real estate for businesses will increasingly be determined by a different yardstick, and CRE leaders will need to consider a mindset shift in the way they engage with tenants, end users, investors, and developers. Enter Real Estate-as-a-Service (REaaS), an approach which combines strategy, technology, and data to deliver digital and physical services – not just spaces – to tenants and users.
Broadly, an REaaS model is one that combines and cross-leverages smart building capabilities across systems, enabling a flexible yet comprehensive infrastructure to support end-user requirements under one roof. This fundamentally changes the business model of property owners, who are now in the position to become service providers as custodians of physical and digital infrastructure.
In order to fully exploit the potential offered by REaaS, however, CRE companies will need to double down on their investments in smart building enhancements, including sustainable and energy efficient properties, dynamic building designs, and flexible leasing models.
To avoid the common pitfall of implementing separate, point solutions that provide limited benefits out of their core functionality, CRE leaders should also consider the development of a digital roadmap and platform strategy – one that can act as the architectural design for the implementation of cohesive, customisable, and scalable solutions within connected smart building ecosystems.
- Trend 3: Stepping up to ESG
ESG issues have emerged as a top focus in recent years, and CRE companies need to step up to meet investor, tenant, and employee expectations. Given the carbon-intensive nature of the sector, climate change, in particular, has become an urgent matter of priority: according to the non-profit environmental advocacy group Architecture 2030, buildings are responsible for nearly 40% of annual global carbon dioxide emissions.
Across the board, CRE companies are exploring a number of different options to make an impact. These include, but are not limited to, collecting and assessing data on the environmental impacts of building operations, investigating and implementing resource efficiencies, and collaborating with developers on the use of sustainable practices and materials.
Such ESG-driven initiatives are not only the right thing for CRE companies to do, but are also a means to drive new business opportunities and create a competitive edge. For example, recent statistics from a survey conducted by JLL revealed that about seven in 10 companies in the Asia Pacific region are now willing to pay a premium for rental leases in sustainability-certified buildings.
In Singapore, momentum for change is already well underway. With growing investor demand to integrate ESG criteria into investment portfolios, we have observed rising interest in sustainability-linked real estate investment trusts (REITs) on the back of the launch of the world’s first green REIT derivative and first Asia Pacific green REIT exchange-traded fund on the Singapore Exchange (SGX).
From a regulatory perspective, notable recent local developments also include the Singapore Exchange Regulation’s (SGX Regco) proposed roadmap for climate-related disclosures to be made mandatory in issuers’ sustainability reports, as well as its consultations with stakeholders on the requirements for assurance of sustainability reports and one-time sustainability training for all directors.
With the move towards more regulated disclosure, CRE companies will need to consider more rigorous governance and controls around their ESG accounting and reporting. These include, for instance, designing and implementing processes to track progress and accountability for target metrics, creating a roadmap that establishes and documents ESG strategy as part of the broader business strategy, and conducting a robust climate risk assessment to mitigate overall risk.
As we look towards the year ahead, the to-do list for CRE companies seems endless. For a start, players will need to retrofit and realign buildings to make them smart, connected, and energy-efficient; better understand tenant behaviours through the use of data; strengthen partnerships with technology companies to incorporate smarter offerings; and build trust with multiple stakeholders.
To deliver on these imperatives, leaders will need to master the art of walking on a tightrope – balancing business recovery, seizing new opportunities, and engaging tenants and employees. This, in turn, requires a combination of different elements: breaking down functional siloes, enhancing leadership and organisational agility, increasing levels of collaboration and communication, and engaging in open and transparent decision-making.
The writers are Deloitte Southeast Asia Real Estate Sector Leader and Deloitte Singapore Financial Services Tax Senior Manager, respectively. The views expressed are their own.