Obsolescence is the process of something becoming obsolete: not as needed or devalued. This impacts more areas of our lives than you might think and CRE is no exception.
Commercial real estate obsolescence, though, is a risk that comes with the territory. Properties decline, markets fluctuate and technology changes. Does CRE obsolescence look any different in light of events from the past two years? Let’s take a look.
Types of CRE Obsolescence
First, let’s cover the types of obsolescence in commercial real estate. They generally fall into these three categories:
- Physical obsolescence: The one you might be most familiar with, physical obsolescence is the devaluation of a property due to depreciation or mismanagement.
- Economic obsolescence: This type of obsolescence, on the other hand, is the depreciation of a market or property due to economic factors out of the owners’ control.
- Functional obsolescence: This type is when the function or a property goes out of taste or another feature is more convenient and makes the property functionally obsolete. Examples include poor internet capabilities, dated designs and old elevators.
How CRE Obsolescence Has Changed
Have these obsolescences changed in recent years? Well, one could argue that the entire year of 2020 was an example of economic obsolescence (for the most part). Entire states saw the majority of commercial buildings left unused for most of the year. There was also plenty of functional obsolescence, with so many employees working remotely and employers recognizing the benefits of a remote workforce. While there were definitely exceptions to the rule, many commercial property portfolios suffered. The good news is that smart commercial real estate professionals can take advantage of these changes for success moving forward.
The Ideal CRE Pro Reaction
Investing in CRE technology to address obsolescence and other industry changes is more important than ever. In the 2021 commercial real estate outlook, Deloitte had “200 industry leaders weighed in on how their companies are recovering from the COVID-19 pandemic.” Among them, “only 41% of respondents said their company has stepped up efforts to redefine business processes, job roles, and skill requirements to include the use of technology and tools.” To identify the biggest opportunities for your portfolio and stay ahead of the competition, investing in the right CRE software is the appropriate reaction.
If you’d like to see how CRE software can help you with obsolescence and other industry challenges, request a demo of Quarem today.