Why Every Real Estate Developer Should Pursue Fit-for-Purpose Design

Commercial real estate developers are known to pursue new projects based on community demographics and demand trends. When there’s a low apartment or vacancy rate in a community with rising rents, it’s generally agreed that the market can absorb a new apartment community, for example. While the actual analysis is a little more complex than looking at those two metrics alone, developers usually don't go beyond a general analysis of local demographics—and the property design and configuration changes little based on that analysis. An affluent area might warrant a higher-end property with nicer finishes, or a younger market might allow for smaller unit sizes, but developers don’t spend as much time thinking about the end user as they should.

Focusing on the end user can give your development firm a unique advantage. Other industries focus tirelessly on the customer, but in real estate, the user experience is often an afterthought. It shouldn’t be. Focusing on the end user can be tremendously beneficial in creating a successful property with faster stabilization, better rental rates, and market longevity. Known as fit-for-purpose real estate, the trend is beginning to change the way industry leaders conceptualize and design a project. 

Here are the answers to some of the most common questions about fit-for-purpose real estate development.  

What Is Fit-for-Purpose Real Estate?

Fit-for-purpose real estate is a project that is intentionally designed for a specific demographic group. In every step, from the initial acquisition of the site to the concept of the property, the design and the ultimate tenant selection, the developer should consider the end user’s experience. The concept is similar to placemaking, although it can apply to a broader range of asset types and strives to create an end product that meets both the functional and cultural needs of the end user. PwC called fit-for-purpose real estate one of the leading trends for 2024. 

Why Is It Gaining Attention?

In the last few years, demographic patterns, population trends, and lifestyle choices have shifted dramatically, and with it, the way that people use physical spaces. Fit-for-purpose real estate addresses those changes by forcing developers to think first about the end user and design targeted spaces for a specific demographic group. PwC called the trend “a tangible manifestation of demographic and technological shifts that are having major ramifications for real estate.” Likewise, a report earlier this year from the Urban Land Institute said, “more progressive players [are] taking the opportunity for a radical rethink of what will make real estate fit for purpose in the long term.” By taking a user-first approach and making occupier-led changes, developers can deliver more competitive properties that respond to evolving and emerging user preferences.

What Asset Classes are the Best Candidates?

Fit-for-purpose real estate is similar to the concept of placemaking. Placemaking is most common in mixed-use properties, where developers are seeking to create a synergy between the different tenant groups and the community, and create a space that becomes a third place in the community. Fit-for-purpose incorporates a similar set of goals, but it can be applied more broadly across commercial real estate asset classes. PwC sees the trend most applicable to office assets today because the property type has seen the most dramatic shift in user demand, but any type of property can benefit from the user-first approach. Fit-for-purpose is also related to the concept of a real estate ecosystem and property as a service, but takes these ideas to the next level.  

How Can Developers Create Fit-for-Purpose Projects?

To pursue a fit-for-purpose project, developers must begin at the end, or in other words with the end user or occupier. In a build-to-suit project, this is the automatic approach, because the end user is actively involved in the project every step of the way. In a speculative project, developers should take a similar approach by creating a property for a specific tenant or occupier profile that meets the complete needs of that user. “It explores how building owners can work more closely with occupiers in response, with the relationship ideally becoming much more of a partnership,” according to the report from ULI. This includes how the property performs functionally (does it have enough power or the right floorplates to accommodate the occupier’s needs for example) and culturally (do the design, style and tenants mixture meet the needs of the people that will utilize the space). 

Are There Risks Associated with Fit-for-Purpose Projects?

The fit-for-purpose model is an opportunity to create real estate spaces that are user-driven and completely fulfill their intended purpose. For that reason, they typically outperform competitors, but they aren’t without some risk. Creating a specific property profile can limit developer options and narrow the property’s appeal. For this reason, it is essential to conduct a thorough market analysis to understand the types of properties needed by user groups in the area and what they want in a property. 

Much like changing your development approach, developers are also incorporating new technology tools to streamline project management and optimize investment performance. Modern real estate development software like Northspyre leverages advanced new technologies like predictive analytics, automation, and artificial intelligence to help guide project planning and budgeting and give project managers more time to focus on essential tasks. As a result, developers reduce budgets, prevent overages, and keep to schedules while achieving targeted investment outcomes. 

Real estate is evolving to meet new lifestyle choices and user demand, and developers need to evolve in step. Whether adopting new technology tools or shifting development planning to be more user-focused, developers who adapt to meet the modern market will find success. 

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