Real estate developers have played a key role in shaping the landscape and character of urban environments over the last 100 years. From the earliest iterations of the contemporary real estate market to the revolutionary changes that have come to the industry over the last several decades, developers are constantly adapting to meet a shifting market. In the past urbanization, innovations in financial institutions, and government policy have pushed development into a new era. Looking toward the future, the rise of sustainable development and groundbreaking technology will continue to drive the industry forward.
Here’s everything you need to know about how commercial real estate development has shifted and changed over prior decades, and how your team can stay competitive as the industry continues to evolve:
The Evolution of Commercial Real Estate Development
Ever since the commercial real estate development industry took form in the early 1900s, the market has been subject to cyclical ups and downs. Real estate companies with multiple agents and listings burgeoned in the 1920s and 1930s, but the economic crash of the Great Depression capped industry growth until the economic recovery of the 1940s and 1950s. After World War II, demand for homes increased and commercial real estate development as it is recognizable today began in earnest.
In the past 30 years real estate development underwent major changes, driven by urbanization, financial innovations, shifts in government policy, and advancements in technology. The global population reached 8.0 billion in 2022, up from an estimated 2.2 billion in 1950, adding 1 billion people since 2010 and 2 billion in the next thirty years. Population growth, in tandem with migration to urban areas, has led to increased demand for housing, commercial spaces, and other infrastructure in cities, driving an expansion of the development industry.
Financial systems have evolved alongside this growth, as real estate investment trusts (REITs) have made it easier for individuals to invest in real estate and for developers to access capital to fund projects. Government legislation designed to boost housing production and address shortages have also empowered developers to pursue complex projects on a larger scale. Policy shifts around zoning and building codes are expected to continue to create opportunities for developers to pursue complex projects and help shape cities.
Real estate developers have also been able to leverage technology to execute complex projects more efficiently and effectively in the last two decades. From GIS technology assisting developers with site surveying or zoning compliance to project management tools that facilitate communication, coordination, and oversight, developers have been able to deliver projects more reliably while reducing costs. Modern real estate development software is helping developers facilitate the project lifecycle with unprecedented efficiency, allowing developers to pursue complex development projects on a larger scale.
Developers, alongside urban planners, have played an integral role in shaping urban environments in the twentieth and twenty-first century. The planning and development of urban areas, including neighborhoods, commercial districts, parks, and other infrastructure is often led by developers and the ambitious projects they undertake. Even the aesthetics of a city skyline are shaped by the modern and innovative buildings developers spearhead. Even now, the iconic and skyline defining buildings executed by developers and architects can speak to an urban area's values and character. For example, the Center for Computing and Data Sciences at Boston University, a net-zero building, redefined the Boston skyline and demonstrated the city’s commitment to a more sustainable future.
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The Rise of Sustainable, Transit-Oriented, and Mixed-Use Development
In recent years urban planners and real estate developers have largely shifted toward creating sustainable built environments that promote walkable, transit-oriented communities and lower carbon footprint. Nearly 40% of global carbon emissions come from real estate, with 70% from building operations and 30% coming from construction. Global and national climate goals require sharp reductions in emissions for both operations and construction, and this will require significant shifts and changes in the development sector.
Sustainability initiatives are likely to continue to shape the next stage of commercial real estate development’s evolution. Investors are increasingly looking to put capital toward sustainable and climate-resilient projects. Residents are also driving demand for eco-conscious real estate - a recent survey found that 83% of residents would prefer to live in a sustainable building, and 59% would pay more to live in a green or sustainable community. Green financing is increasingly available through programs like the Department of Energy’s Commercial Property Assessed Clean Energy, or C-PACE, financing initiative and green bank loans, in which financial lenders offer capital with lower interest rates for sustainable projects.
Zoning laws, building codes, and other legislation will also boost the rise of sustainable mixed-use developments. Projects willing to implement green features or build near transit hubs can be eligible for additional financing sources, such as transit-oriented development community incentives or green construction loans. Many state and local governments are also changing zoning requirements in attempts to boost production of high-density multifamily development. For example, Boston recently changed zoning laws to allow for higher-density housing to be built in areas located near public transit stations. The policy shifts will present more opportunities for developers and will shape the size and scope of projects in the region for decades to come.
How Technology Will Drive the Next Era of Commercial Real Estate Development
Technology has driven a further evolution of commercial real estate development over the past few decades, improving efficiency, driving better decision-making, and improving stakeholder communication. Developers have been able to leverage technology at every stage of the project lifecycle, improving site selection and market analysis, streamlining design and planning, and providing data-driven insights that improve operations.
Real estate AI is also helping transform the industry, helping improve and customize the investor experience, improving the property valuation and market analysis process for developers, optimizing budgets for development teams, and improving the bidding process. AI-driven insights can help developers eliminate any guesswork from the vendor selection process and lower costs at the start of a project. Leveraging AI can also help your team lower bidding costs and eliminate scope gaps before they cost you.
Outdated and error-prone spreadsheets were the industry standard for managing complex real estate development projects for nearly two decades. Amid the challenges developers face today, from economic uncertainty to compliance with environmental standards, these workflows are stopping teams from operating at the highest capacity. Modern real estate development software has pushed the industry into a new era, automating tedious manual data entry or document organization, alerting you to budget concerns or opportunities to reduce costs, helping you to generate critical project reports faster.
Northspyre is a purpose-built, single software solution designed to act as your real estate command center. The platform indexes all contracts, proposals, change orders, lien waivers, and more, organizing your valuable project data into dashboards, Northspyre can also play an essential role in mitigating risk, notifying you about potential exposures, spend forecasting, and remaining contingencies to ensure your project comes in on time ad on budget. Leveraging the platform allows developers to ensure predictable outcomes on complex projects and start lowering costs as early as pre-development.
Download our white paper Maximizing Returns: Operating in a New Normal to learn how your team can keep a competitive edge even amid uncertain market conditions.