Future of real estate: Shift to phygital

The foundations of Canada's commercial real estate are shifting. Technology, innovation, and decarbonization are just a few of the disrupters transforming the industry blueprints. As we move away from the traditional mantra of location, location, location, modern tenants seek more than just a physical space to occupy; they are looking for environments that improve productivity, sustainability, collaboration, and flexibility.

In such a dynamic market, how can professionals ensure a future of sustainability, innovation, and enhanced tenant experiences? We surveyed commercial real estate (CRE) owners and tenants across Canada to find out.

Physical meets digital and product meets service

Real estate isn’t just a brick-and-mortar business anymore. As Canada's real estate landscape evolves, real estate owners need to adopt a more service-oriented approach instead of just being a traditional space provider. In other words, from physical space providers to phygital service providers.

Phygital services
The blending or integration of physical and digital environments or experiences; combining the convenience and accessibility of digital technologies with the personalized and tangible aspects of physical spaces.

These phygital services enhance productivity, promote sustainability, and ensure personalization for tenants.

As this hybrid model gains popularity, the idea of real estate as a service (REaaS) is revolutionizing the industry. Rather than selecting properties as a space to occupy, REaaS provides both landlords and tenants with the opportunity to reshape the way people live, shop, and work. In fact, tenants have expressed interest in landlords providing new-as-a-service models—such as subscription-based services—to optimize spaces and analyze where resources are being used.

How do we get there?

• Shifting from product-centricity to systems-centricity : Owners need to think of the building not as an end-state but as a scalable, living prototype that can be enhanced by incorporating user needs as they evolve. This can help owners to capitalize on the growing demand for innovative solutions and generate new revenue streams.

The phygital frontier

Enhancing tenant experiences is just the beginning of phygital real estate. Tenants expect a more digitalized user experience—think data analytics and digital twin technology providing better operational efficiency and security for your building. Embracing this digital outlook will help industry leaders drive innovation, streamline resource allocation, and make informed decisions to stay ahead in this competitive market.

Smart buildings are becoming a renewed area of interest for tenants, as advancements in technology continue to change what buildings can do. Our survey shows that only 8% of tenants have more than half their leased portfolio in smart buildings. However, they expect this figure to rise to 46% in the next five years.

How do we get there?

• Adopt building information modelling (BIM) and digital twin technology: BIM helps in aggregating all the data at one reliable place and enables savings in time, money, and resources. Digital Twin uses AI and machine learning to create a live digital version of a building to manage the design, construction, and operations of a building in a more dynamic way. Digitalizing the building life cycle unlocks greater efficiency, sustainability, informed decision-making, and building performance analysis for leaders.
• Foster a systematic approach to digitalization: This allows real estate owners to enhance and streamline the digital infrastructure, create a digitally advanced environment that enhances operational efficiency, and improve the overall tenant experience.

Data-driven success

Numbers do talk. To harness the advantages of digital real estate, CRE owners must gather and combine real-time building data to improve operational efficiency and explore new revenue opportunities. This will result in a more robust data strategy for their digital real estate initiatives.

• CRE owners control less than one third of the data generated in their buildings
• More than half of the data (52%) is controlled by facility managers and third-party service providers, such as equipment vendors

How do we get there?

• Build shared data environments: To make the most of available data and improve service performance, CRE owners should collaborate with building stakeholders and create a shared space where all building-related information is stored and managed. Owners can analyze, identify, and improve patterns and services in real-time by integrating all this data into one central system. This can help optimize performance across different domains such as lease administration and accounting, space utilization, indoor mapping, inventory monitoring, building maintenance, safety and security, energy usage, and occupant experience.

Sustainability by design

Prioritizing environmental, social, and governance (ESG) goals isn't just an organizational responsibility. It's a strategic decision that can drive profitability, enhance reputation, and attract the right investors and tenants. Despite the benefits, our survey found that only 26% of real estate owners have a decarbonization strategy in place and just 34% of owners use sustainable materials. As owner and tenant expectations continue to evolve, forward-thinking leaders must integrate new initiatives and frameworks into their practices to fulfill the sustainability demand.

In fact, when it comes to ESG goals in the real estate realm, modern tenants are starting to seek more environmentally sustainable buildings and services as a whole.

• 92% are willing to share their ESG data with landlords in return for better insights on their space usage, resource efficiency, and carbon footprint
• 56% would be interested in paying their landlord to monitor renewable energy or water usage and reduce waste
• 48% would seek early lease termination if their landlords fail to meet decarbonization goals

How do we get there?

• Monetize ESG data insights while promoting sustainability: Embracing digitalization and prioritizing data-centric approaches will be crucial for driving ESG initiatives. As tenants seek sustainability data, owners must cooperate and demonstrate a tangible commitment to meet net-zero emission goals.
• Establish ESG as a long-term value driver: As tenants become more conscious of their environmental footprint, they expect their landlords to do the same across the phases of property design, build, and operation. Owners must embrace social equity, promote diversity and inclusion, and ensure accurate measurement of ESG metrics—all while establishing consistent data and reporting practices.

Get phygital

The line between physical and digital real estate is starting to blur. It's time for owners to act now. From committing to sustainable initiatives to embracing digital innovation, let’s build a future where real estate, technology, and sustainability go hand in hand.