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Five Challenges Affecting Commercial Real Estate Development

Commercial real estate (CRE) development has seen digital innovation and technology adoption grow over the years, especially lately. And although tech had spread across much of the real estate continuum by 2019, according to Deloitte’s annual report, the industry was still relatively slow to adopt tech compared with other industries. The global Covid-19 pandemic in 2020 hastened CRE developers to shift their focus on digital innovation and adoption into overdrive.

State-of-the-art tech is helping the CRE space deal with current and emerging issues expected to have the most significant impact. The COVID-19 pandemic remains a top concern of the 1,000-member Counselors of Real Estate® organization.

1) Pandemic

Even in normal times, real estate lags behind the larger economy in its response to change. It remains to be seen exactly how far reaching, or long lasting, the impact of COVID-19 will be on the CRE space.

Virtual offices and home entertainment may reduce real estate demand as a result of the pandemic. Or, the powers that be could impose lower densities everywhere, thus requiring larger spaces and higher costs to accommodate the same functions.

Other issues of concern to the Counselors include:

2) Economy

Even before the pandemic, the economic climate in the U.S. was heading toward a turning point, and the economy and real estate industry continue to face deep and persistent challenges. Several segments of the economy will remain weakened for an extended period of time. Leisure and hospitality, retail, air travel, and construction can expect slow and partial recoveries through 2022 and beyond.

It has been evident over the past several months not only how volatile capital markets are in real time, but also how quickly liquidity can dry up when risk and returns are hard to measure. In addition, commercial real estate may be influenced by local indebtedness funded by local taxes.

Moreover, there is an immediate need for affordable housing throughout America, where there is a well-developed “Not in My Back Yard” (NIMBY) agenda. It is estimated that more than 7.2 million low-income renter households—those whose incomes are at or below poverty level and below 30% of their area median income—are in need of affordable rental homes. Rents and investment property prices rise as a result of the lack of affordable for-sale homes.

3) People flow and use of space

Reduced migration and behavioral changes stemming from the pandemic will hurt demand for residential, hospitality and retail real estate. A May Harris Poll reported that nearly 40% of urbanites are thinking about leaving cities.

COVID-19 will change the way real estate space is designed and used, with a level of reconstruction and transformation not seen since WWII.

4) Workflow and technology

As companies migrate back to the office, change operating methods, and work remotely, technology adoption is gaining momentum.

5) Infrastructure and ESG

Infrastructure affects land use and the built environment, and is vital to life and commerce. U.S. infrastructure gets a D+ from the American Society of Civil Engineers. By 2040, global infrastructure investments will be underinvested by $15 trillion. If needs remain unmet, real estate development and values will be greatly impacted, as more underserved areas become less livable.

Project and finance perspectives deserve equal weight

Nearly all job costing software emphasizes the subcontractor or general contractor perspective where the detail level drives the reporting. But success in the developer market comes from its ability to go beyond the details and show management top-level project status and the various detail levels that support it. The software solution must address the complete life cycle of a real estate asset: from project inception to project completion, and from pre-development to property management, in order to minimize budget debt and maximize profit, efficiency and client satisfaction.


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