The CDO Stack: 2025 CRE Tech Outlook

I’ve written about this over the years, but this is a special time of year for the real estate geek in me. One of the things I am privileged to do at Deloitte is participate in the review and editing of our annual commercial real estate outlook for the year ahead. If you’re not familiar, Deloitte conducts a mid-summer survey that includes nearly 900 responses from C-level real estate executives and their direct reports across the globe. We then analyze the input received from that survey along with conversations with clients and subject matter experts within Deloitte’s global real estate practice and publish a report highlighting trends in the industry for the year ahead.

Thematically, what struck me as interesting from our research this year is that some old themes are repeating, and a handful of new ones are accelerating at a rapid pace. Notably, CRE executives are more optimistic about the future than they have been in each of the last two years. In Deloitte’s 2023 commercial real estate outlook, 48 percent of respondents expected revenues to decline in the year ahead and in the 2024 report 60 percent expected the same. This year, however, only 5 percent of respondents expect revenues to decline, and, importantly, those expecting revenue to increase in 2025 shot up to 88 percent. This optimism appears to be fueled by interest rate cuts already seen by the European Central Bank, Bank of Canada and The Bank of England between June and August, with the Federal Reserve also enacting a significant cut in September.

We also asked respondents what they’re worried about. Predictably, persistent inflation causing interest rates to stay at current “elevated” levels ranked top among the dozen concerns our respondents force ranked. Cyberrisk moved from No.1 on the list last year to No. 2 this year, consistent with conversations we continue to have with our clients and in particular, their boards. Concerns about employee retention ranked last, a stark contrast to just a few years ago during the Great Resignation.

Given optimism about revenue growth in the year ahead, it makes sense that our survey showed a big drop in those who expect to reduce spend next year, moving from 40 percent of respondents in 2023 to just 7 percent this year. When asked on what they expect to invest in, 81 percent of respondents identified data and technology as areas of focus for spend in 2025.

Clearly one of the ways our respondents plan to invest in their business is in artificial intelligence-related initiatives. While AI adoption in CRE is clearly still in early stages, 76 percent of respondents indicated they are either researching, piloting or in early-stage implementation of AI solutions. The primary focus of companies in this early-stage group falls in three categories—leveraging AI for accounting and reporting (37 percent), financial planning & analysis (36 percent) and risk management/internal audit (34 percent). For those who report being either in early-stage production or fully in production with AI solutions, property operations is a focus (35 percent), in addition to FP&A (43 percent) and risk management and internal audit (37 percent). Having said that, when we asked about risks or barriers that AI and GenAI initiatives would face, only 14 percent of respondents reported confidence that their data is currently fit for purpose and ready to fuel AI solutions.

There are a number of additional insights from our survey, and I’m encouraged by most of them. Thematically, it appears that the market and our commercial real estate clients are poised to turn the corner. I’ll poke into tech predictions for the year ahead in the next column. In the meantime, read our full report for additional information about the state of the market and CRE firm sentiment.

John D’Angelo is a managing director with Deloitte Services LP and the real estate solutions leader, designing solutions to address client challenges and push the industry forward. With over 30 years of experience as a management consultant to the global real estate industry, John has helped some of the biggest names in real estate leverage technology and use data to optimize and transform their operations.

Read the November 2024 issue of CPE.