Global Real Estate Risk Outlook 2024

Overview

In an era where real estate has traditionally been a secure investment, recent times have seen it evolve into a more challenging industry. Transformations in work and shopping patterns have diminished the demand for office and retail spaces.

Simultaneously, inflation and interest rate hikes, implemented to curb it, have escalated the costs associated with both conducting business and securing capital.

Navigating through this prolonged period of uncertainty requires a combination of resilience and strategic foresight. To gain insights into how real estate managers are managing these challenges, we conducted a survey involving 350 companies globally. This diverse group, ranging from property investors to asset managers and pension funds, shared their perspectives on the current landscape.

We delved into their perceptions of imminent risks, identified potential growth indicators, and explored their strategies for addressing climate change and the expanding regulatory and reporting obligations.

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Many view the ongoing proptech revolution and the advent of innovations like smart buildings as opportunities to not only overcome challenges but also gain a competitive edge. ”

Ben MacCarthy | Head of Casualty, Asia &
Head of Real Estate, Hospitality & Leisure, Asia

Despite prevailing market headwinds, our findings reveal a surprising level of optimism among firms. Many view the ongoing proptech revolution and the advent of innovations like smart buildings as opportunities to not only overcome challenges but also gain a competitive edge.

However, this optimism is tempered by the acknowledgment of a complex landscape, featuring issues such as heightened cyber risks, economic fluctuations, and political uncertainties.

Real estate entities, adapting to ESG standards and climate regulations, express concerns about current capabilities and data readiness as legal deadlines approach. Despite challenges, the industry remains dynamic, with firms actively pursuing innovative solutions to thrive in the evolving environment.

About the survey

Our survey was carried out by our research partner, Coleman Parkes, in September-October 2023 using phone-to-web methodology.

We received 350 responses from senior executives responsible for risk strategy across their organization. Respondents were based in more than 20 countries across Europe, North and South America, Asia Pacific and the Middle East.

Key findings

1. Optimistic outlook and growth expectations:
   • A majority of surveyed firms, 55%, anticipate an increase in their overall assets within the next two years.
   • Despite a significant real estate market downturn, 68% express confidence in the improvement of rental rates.
   • This optimism suggests a resilient industry perspective amidst challenging conditions, with firms envisioning growth and recovery.

2. Technological opportunities and digital transformation:
   • Proptech emerges as a significant opportunity, with 62% of respondents identifying it as a key factor in the next two years.
   • Artificial Intelligence (AI) is recognized by 68% as a pivotal tool for digital transformation, suggesting a belief in technology's potential to enhance efficiency and prospects.
   • The emphasis on technology indicates a proactive approach to leverage innovation for competitive advantage and operational enhancements.
3. Growing concerns in cybersecurity and geopolitics:
   • Cybersecurity is a mounting worry, with 72% considering it one of their greatest insurable risks, reflecting the increasing digitalization of buildings.
   • Geopolitical risks, reflecting current instability, concern 65% of respondents, highlighting the broader external challenges.
   • The recognition of cybersecurity and geopolitical risks underscores the need for heightened vigilance in an interconnected and uncertain global landscape.
4. Economic factors dominating risks:
   • Inflation and economic stagnation are identified as significant risks by 57% of respondents.
   • Concerns revolve around potential impacts on rents, vacancy levels, and the cost of capital, which could ultimately squeeze investment returns.
   • Economic factors take center stage as pivotal concerns, indicating a keen awareness of the impact of macroeconomic conditions on real estate performance.

5. Challenges in ESG compliance and data collection:
   • Energy trends (80%) and ESG and climate considerations (66%) are acknowledged as top global trends impacting risks in the real estate sector.
   • Despite recognizing the importance, 68% of firms struggle with a lack of data, and only 31% have robust processes for collecting necessary environmental and emissions data.
   • The industry grapples with environmental, social and governance (ESG) along with climate challenges, facing obstacles in data acquisition and compliance, emphasizing the urgency of enhancing sustainability practices.
6. Climate preparedness and insurance gaps:
   • 66% of firms report significant impacts from climate-related losses.
   • Despite these concerns, only 10% are confident in having sufficient insurance coverage to protect against the impact of extreme weather events.
   • The significant gap in climate-related insurance coverage highlights a potential vulnerability in risk management, urging a re-evaluation of strategies to mitigate climate-induced losses.

What you’ll learn from this report

Embarking on this report will provide valuable insights into the dynamic realm of risk management, particularly within the context of the real estate sector. The analysis not only uncovers the evolving significance of risk management practices but also delves into the contemporary challenges and opportunities inherent in the real estate business landscape. Here's an overview of what you can expect to learn:

Rebuilding confidence in real estate investment: Real estate has faced a turbulent period with changes in work and shopping habits, inflation, and rising interest rates. Learn how successful real estate managers are demonstrating steady nerves and long-term vision in the face of these challenges.

Market overview: seeking positives in a turbulent market: Delve into the market overview to understand how commercial property is performing globally. Despite challenges, a surprising number of respondents express optimism, with a majority anticipating an increase in the value of their assets and improvements in rental rates.

Real estate risk alerts for 2024: Discover the key risks identified by real estate firms, including climate risks, sustainability considerations, the rise of AI and smart buildings, growth in digital and alternative occupancies, and the impact of hybrid working on traditional office spaces.

Risk landscape: managing uncertainty in economic and political contexts: Uncover the top risks identified by real estate companies, from economic and political instability to global trade tensions. Gain insights into how these external factors could impact recovery plans and profitability.

Risk management and insurance: addressing poor visibility and challenges: understand the challenges real estate managers face in obtaining comprehensive data for effective risk management. Learn about the implications of poor data visibility and discover strategies to enhance risk management frameworks and secure adequate insurance coverage.

For specialist guidance in discovering smarter ways to manage your risks in the real estate sector, reach out to us today.

For more information, please contact

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Victor de Jager

Head of Property for Europe
Direct and Facultative, WTW

email Email phone +31 06 2111 6250

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