Where we live, work, and play is in real estate. Our business leaders have the ability to change how people engage with one another, reshape work-life balance, and contribute to the creation of thriving, long-lasting communities.
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The industry is undergoing a remarkable metamorphosis, redefining the use of buildings by placing the client at the center of its business strategy and employing technology and foresight to predict future trends, behaviors, and the social and environmental values of building occupants. One CEO characterized the change as “disruption by everything, everywhere, and all of the time.”
In a variety of customer-centric experiences, real estate—often referred to as a “tanker” and “traditional”—is growing more inventive, responsive, and agile. The sector is undergoing significant changes, from supply chains and modular construction to e-commerce, from consumer contacts to the design and fit-out of healthy buildings that now need to consider their environmental effect on individuals who live or work there. A tendency toward shorter leases, digital capabilities, and real estate operations are further examples of changes.
Since 2010, the real estate market has seen a remarkable decade. After the global financial crisis, a huge amount of money was raised and invested, and the industry grew as new real estate asset classes including property technology (proptech) and alternatives that are better defined as real estate operating enterprises emerged.
More and more real estate companies are now offering space and amenities as services. Customers now have more control over how they want to be served than in the past. By questioning the conditions and structures that landlords felt compelled to offer, some of these real estate operating companies are tearing down traditional models. Therefore, maintaining this license depends on each real estate company’s connection with the community in which it works.
People are now the center of the sector.
The recognition that people are now at the center of the real estate industry has been the largest shift in the previous ten years. Today, people—employees, clients, and the community—are clamoring for real estate executives’ attention. In 2010, this was less evident. The goals of investors and shareholders are still important, but they are often managed better these days as CEOs have diverse priorities and are not just concerned with making money. Our research indicates that personnel and corporate culture have become more important than investment and earnings. Many CEOs now prioritize the human experience and engagement with the industry, not only the physical space. The longer trends remain constant because they are acknowledged as really sustaining growth and profit, even when the current requirement to aggressively drive development and returns on a daily basis may briefly tip the scales back.
Every CEO knows that investors will only put money into a company if it can turn a profit. Even yet, investors are backing this trend since they have a strong environmental, social, and corporate governance (ESG) agenda, particularly huge pension funds and certain sovereign wealth funds. CEOs are urged to strike a balance, and part of the difficulty of being a leader in the modern world is handling that ever-tinier balancing act.
There will be more changes in the future.
What lies ahead in the upcoming decade? A lot more change. While some adjustments may be transitory, others will be radical, changing people, projects, assets, and companies as values evolve. Unpredictable market cycles and heated geopolitics, such as the Brexit discussions, will continue to fuel a rise in public-to-private transactions, capital inflow from both new and existing investors, generational changes in corporate ownership, and ongoing M&A. The ongoing COVID-19 epidemic makes it particularly difficult for CEOs to be open to new collaborations, funding sources, and business practices, as well as to be prepared for hostile takeovers and digital-first competitors.
I spent more than 150 hours with more than 100 important real estate leaders to better comprehend this wave of change. I learned about their collective strategic thinking in the industry and, for the first time, combined all of their detailed thoughts into a single study. The survey’s objective was to investigate how real estate executives are addressing the numerous issues that 2020 and the upcoming decade will present: how they provide the right teams by locating and hiring the talent required to transform their companies and implement the necessary innovation and changes—all while generating growth and healthy returns.
The crisis has made things more difficult.
Our study’s most evident and straightforward finding is that the COVID-19 situation has not overshadowed the problems that were keeping real estate executives up at night prior to January 2020. Indeed, such fears have been intensified, heightened, and exacerbated by the crisis.
According to our poll, CEOs aspire to have a positive influence in their position for the long-term good of the company, the community, and the person. As a result, the role is changing. According to our poll, 83% of respondents think the real estate CEO’s job will change in the next ten years, and 76% think the desired capabilities of the CEO who would succeed them will change. The boards of real estate businesses have to take a moment to consider if the company has a robust succession plan and enough varied personnel to pick from. Future CEOs in the real estate industry are anticipated to come from both the industry and other related or tangential, asset-heavy, or consumer-focused industries. We have been investing effort in evaluating the talent inside and beyond the industry to reflect this.
The definition of “inclusion” in real estate
Furthermore, according to our analysis, just three women in executive committee positions in FTSE 350 real estate businesses are responsible for P&L. This is a worrying trend because financial responsibilities are frequently a prerequisite for CEO and board positions. This emphasizes once more how important it is to balance gender in the real estate industry in order to build well-rounded and well-represented companies. The fact that more than half of the real estate executives we interviewed think they run an inclusive company is among the most startling statistics in this regard. To assist executives grasp what “inclusive” really means and where the industry is falling short, it is evident that further research and development efforts are required inside the sector.
Culture, teams, and talent
We think that the executives who create a wide network of support for themselves will be the ones who effectively run their companies over the next ten years. This entails hiring a strategic CHRO, thinking about how to structure executive rewards to encourage cultural and behavioral shifts, and making the most of their (hopefully) increasingly diverse boards in addition to having the right executive talent and a solid strategy around talent acquisition, development, and promotion.
In terms of the abilities they must acquire, today’s leaders are prepared to change course fast and effectively. With the understanding that younger executives react favorably to inclusive environments, coaching, and reverse mentorship, they are rethinking talent development to make way for new ideas. Real estate businesses need to spend more in the performance and growth of their employees, and they should not be scared to depart from conventional plans. But change typically starts at the top. It is the duty of boards, executive committees, and CEOs to forward this agenda.
Businesses are increasingly adopting shared responsibility models, which acknowledge that a CEO by themselves may not always know the solutions to all significant issues. This leadership approach fosters a cross-collaboration culture, which is becoming more and more acknowledged as an essential success factor. Businesses that use this kind of strategy frequently have success developing a welcoming, inclusive, and purpose-driven culture. It is, in our opinion, the most effective strategy for sector executives to boost the performance and leadership development of their companies. However, it is crucial to have positions in the executive committee that are well-defined and to make sure that there is a genuine feeling of autonomy in addition to collaboration. As a result, committee debates are prevented from paralyzing activity and decision-making.
Although having real estate expertise at the top will be very helpful at this point, it won’t be sufficient to surpass expectations on its own. To ensure the resilience and success of any real estate organization, it is imperative to start the road toward genuine transformation, even if it will take time.
The timer has begun.
This study and its findings should be useful and thought-provoking to you. We appreciate the senior leaders who spoke with us about these issues.