Leading Innovation

Far from the provincial sector that once leapt from deal to deal with little thought for data or strategy, commercial real estate has grown into an analytical, sophisticated and accomplished industry. The signs are unmistakable. Public REITs’ aggregate capitalization now exceeds $600 billion, more than double the total in 2003. Real estate firms appear in the Fortune 500 and are included in industry-specific exchange-traded funds.

Service providers have offices around the world, and new contenders are emerging.
Moreover, the industry has shown maturity in the way it has bounced back from the recession. By mid-May, Real Capital Analytics Inc. had recorded $187 billion worth of property sales for the previous six months, fully one-third of the $556 billion in worldwide sales during that period. Landlords, too, are more than holding their own against formidable odds. Corporate customers have yet to take back the space they returned during the recession and are using less space per employee than ever. Meanwhile, the job market’s recovery is painfully slow. Despite these conditions, vacancy rates across property sectors hover in the single and low double digits.

The industry is also at the forefront of far-reaching innovations. Take sustainability as a case in point. On one hand, it is fair to say that research remains narrowly focused on environmental performance, and that the industry’s grasp of environmental and energy issues varies widely, as Tom Paladino observed during our conversation this spring (see April’s New Visions Q&A, “Green Measures”). That said, larger investors and developers are early adopters of practices that are then embraced by corporate America, local municipalities, smaller developers and consumers. The industry is making similar contributions to security, demographics, finance and workplace issues.

Such companies, and their visionary leaders, continue to inspire larger commercial real estate players, as well. Their efforts have lifted the industry out of the recession, revived the CMBS market, minimized distress and offered new ideas for achieving triple-bottom-line growth. In evaluating candidates for this month’s special report on the Most Influential People in Real Estate, we realized that inspiration and success come from all corners of the investment, development, service and government worlds. Far-sighted lenders kept the investment market alive after many financiers had dropped out. Industry executives are advising policymakers on the future of Fannie Mae and Freddie Mac. Research is sparking creative strategies and guiding complex deals. And nimble new firms are invigorating the service sector by challenging industry giants.

There can be no doubt. More than just a well-established industry, real estate has proven to be a resilient, innovative, forward-thinking contributor to the U.S. economy.

Suzann D. Silverman