Contract Management for real estate. The real estate sector is feeling the pressure as the market reinvents itself. Those firms that get their contract management in order will be agile and informed enough to make successful decisions.
While there are no areas of the economic, social, or political spheres that have remained unaffected by the pandemic, some areas have been hit harder than others and real estate is one of them.
Back at the start of 2020, the UK real estate market was feeling cautiously optimistic; the recovery from financial markets was settling and investment and property organizations were beginning to feel confident in what the year might bring. Until March hit.
The challenge for real estate is that it is impacted heavily by many other industries – knowledge work, investment, retail, housing, manufacturing, logistics – every business that requires space has had an impact on the real estate sector.
But, as PWC notes in its Future of Real Estate report, many of the key trends affecting the sector now were already established before the pandemic hit. And, like many other industries, the agile organizations that know their businesses well and can adapt quickly are taking this opportunity to reshape and reinvent what they do and how they do it.
But how to attain this in-depth business knowledge? One place to start is by using the data within your contracts. This data, often ignored by many in real estate, can prove invaluable to understanding everything from occupancy and yield to enabling sales teams to conduct deals seamlessly from anywhere, to identify potential business risks and opportunities.
For example, one of the most dominant trends of recent years affecting real estate has been home working. But this is nothing new; homeworking (or WFH) was a trend so established before 2020 that it already had its own acronym. While the pandemic has accelerated and expanded the trend, research states that it’s unlikely people will WFH full time.
According to the UK’s Office for National Statistics (ONS), of the 46.6% of people in employment who did some of their work from home in 2020, 86% stated that this was because of the pandemic. This hardly signals the death of the office. In fact, according to Gensler, 67% of UK workers are looking to return to a hybrid environment with only 12% wanting to WFH full time.
Closely tied to the move to increased home working is the trend for reverse urbanization. Without a city commute, many individuals are moving out from urban areas and in rural spaces or secondary cities for greater affordability and more living space. Once again, this was a well-established trend pre-2020.
Reverse urbanization is already having a profound effect on all aspects of the real estate sector – residential, commercial and investment. However, according to PwC, over 80% of global GDP is generated in cities, and once the vaccine rollout is widespread, life will thrive again in urban areas.
After all, PwC states, numerous studies found that despite the mounting cost of living in cities and the pandemic, many employees continue to gather there because they offer the best professional opportunities as well as serving as cultural hubs.
With the hybrid working model here to stay and continual movement in and out of urban areas, it will mean empty offices, less requirement for dedicated office space and more likelihood of regional changes. Adaptable real estate companies will be looking at their contract data to discover where they can be more efficient and trim costs where possible.
Having a centralized searchable contract repository means smart real estate firms can, even at a basic level, quickly discover their costs and occupancy rates on various sites, in specific regions or sectors. More advanced real estate firms will be conducting vendor analytics and see where they could renegotiate contracts with everyone from IT support to facilities management companies.
Also, occupiers will likely want clauses included in contracts around possible future lockdowns and with more people-orientated open spaces, more clauses around community hygiene and possible change of use. Strong contract management can search and find clauses that need altering quickly and efficiently.
And it’s not just about streamlining and increasing efficiencies. While the need for pure-play office space may be reducing, other sectors such as logistics and supermarkets are booming as shoppers turn to online shopping and grocery sales increase.
Traditional retail, like offices, has felt the pinch, as lockdown forced them to close and consumer buying behavior turned online. However, for supermarkets and food retailers – the only stores allowed to remain open during the UK’s three lockdowns – it’s a different picture. As consumers stockpiled various goods, they saw profits surge, leading to an increase in demand for more logistics centers for online shopping habits.
This change in consumer buying behavior from in-store to online has been the driving force behind the boom in logistics and warehousing space. For example, according to Logistics Manager magazine, by June of 2020, Amazon had already acquired more warehouse space in the UK than it did in the whole of 2019. And Brexit has only compounded the issue as companies try to store goods and supplies they may not be able to readily acquire post-Brexit.
According to global real estate and investment giant CBRE, the trend for retailers to move online will put further pressure on bricks and mortar stores, and change lease agreements for good. Having a robust contract management for real estate processes will help manage those changes across a portfolio.
Not only that but because demand is outstripping supply (CRBE says 80% of the development pipeline for logistics is already taken), real estate firms are going to need to move quickly to secure and achieve sales. This could mean more regional commercial sales, salespeople heading further afield to chase deals, and having all of the contract details ready in one place, easy to access on the move could be the difference between winning and losing a sale.
By having structured, centralized contract management, real estate firms can better manage their entire portfolio and streamline their business to handle the market reinvention. Having clear insights into yield, occupancy rates, and costs will help identify areas at risk, or areas that need additional focus.
In addition, having the ability to quickly draw up standard contracts, spot anomalies in contract negotiation language, and hit compliance requirements with alerts on obligations, will further help reduce costs and accelerate business.
Most commentators and analysts believe there are new opportunities and new untapped areas for growth in real estate. While there are currently few certainties, what experience has shown us is that it’s the agile and adaptable firms that have business insight and can make quick decisions, that are already capitalizing on these trends.
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