Introduction

Property valuations remain essential for real estate owners, investors, lenders and insurers throughout the world. However, the valuation and appraisal industry is undergoing a period of transformation in terms of technology, the services provided to clients and even the role of the valuation professional.

Advances in technology, availability and quality of data, evolving client expectations and staffing challenges are all placing new demands upon an industry that continues to provide accurate and reliable property valuations to help clients make informed business decisions. More recently, the COVID-19 pandemic has added further layers of complexity to an already challenging profession.

Valuation & Advisory Services Insights


This report by CBRE Global Research in conjunction with CBRE's Valuation & Advisory group identifies and elaborates upon the top 10 innovations and disruptions we believe will impact the valuation profession around the world in the coming years. These include (in no order of importance) the following:

 

 


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The report also explains how the valuation industry is already adopting and leveraging many of these phenomena - some of which are already pervasive and others that are at a more nascent stage of development - to futureproof its offering while ensuring that the role of the real estate valuer remains more decisive than ever before.

 


1/ EVOLVING CLIENT REQUIREMENTS


Following the onset of the Global Financial Crisis (GFC) in 2008, many industries, particularly the financial sector, became subject to far more rigorous regulatory requirements. As a result, a broader range of financial institutions such as pension funds and insurance companies have sought more comprehensive reviews of their investment portfolios and those of their clients to ensure compliance.

This environment has seen financial services industry regulators demand closer scrutiny of banks and institutional investors' real estate investments, leading to valuations playing a critical role in improving sophistication around risk and mitigation and enhancing the financial stability of markets and industries.

As part of this shift, there has been growing demand from such clients seeking valuations, assessments and advice on the long-term value of buildings, marking a step away from the previous focus primarily on current market value.

CBRE believes this trend will see forecasting take on a more prominent role in valuations as service providers consider a wider range of factors into their assessments of property value and provide more explicit cash flow assumptions.

This trend will kickstart an evolution in how clients select and utilise valuation services, with the standard offering replaced by a broader and more dynamic range of services and product options. Valuation firms will provide value-added services, utilising new and improved predictive analytics and forecasting created by data and emerging technologies to enhance their advice to clients This approach will provide clients with a better understanding of the current and future value of their assets, all while remaining cognisant of regulatory oversight.

New technology and automation applied to the valuation process will also help satisfy clients' demand for faster delivery of valuation products and services to meet their business requirements, with days rather than weeks expected to become the norm. This expedited delivery will exert pressure on service providers to maintain accuracy and quality standards when producing valuation reports within a much narrower timeframe.

Looking at shorter term challenges, the COVID-19 pandemic has necessitated the swift implementation of new technologies. In recent months, industry bodies, clients, insurers and valuation firms have collaborated to create a 'virtual valuation' product involving the undertaking of valuation inspections and reporting via video conferencing platforms.

This technology has ensured the continued provision of an efficient and quality valuation service in situations where physical inspections were not possible due to government restrictions and lockdowns. However, it remains to be seen if this technology will be retained in a non-pandemic environment or deemed acceptable from a regulatory perspective for investors and lenders.




2/ THE ROLE OF THE VALUER


The increasing automation of many parts of the valuation process, the growing importance of data analysis and interpretation, and evolving client requirements all have implications for valuation professionals worldwide in terms of their skill set, day-to-day duties and overall role and responsibilities.


"Valuation professionals of the future will require even stronger analytical skills to understand increasingly complex data sources and accurately assess the various factors contributing to property values."

Tom Edwards, CBRE Global President, Valuation & Advisory Services

 

A far more diversified workforce likely will emerge, with valuers no longer focusing purely on the physical asset, leases and operating costs. Data analysts, statisticians, programmers, accountants and industry-specific specialists are already embedded in valuation teams worldwide—a trend that will accelerate in the coming years.

This new breed of valuation professionals will advise on a far broader range of issues than before, such as opportunities to enhance building value, potential risks to valuation, asset optimisation and sustainability gap analysis.

While the role of the valuer is set to evolve, CBRE believes the human element will remain central to the overall valuation process. New technologies, artificial intelligence, machine learning and blockchain may expedite parts of the valuation process, but specialists will be needed to evaluate and communicate findings and act as trusted advisors to clients.


The diverse nature of commercial real estate—and the frequently opaque data in many markets—will continue to necessitate human judgment and reasoned conclusions from human valuers. The valuer's ability to understand and articulate complex information and assumptions will remain paramount. Human-to-human communication—a process that simply cannot be replicated by technology—will remain key.

 






3/ SUSTAINABILITY

 

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Government regulations and incentives, the potential for cost savings, occupier requirements and the shift towards corporate social responsibility are driving the rapid development of green buildings worldwide. Although many traditional investors have not widely adopted sustainability as a key investment criterion, many global investors are formally including sustainability into new investment strategies or investment committee processes.

At the same time, workplace wellness has risen up the corporate real estate agenda in recent years as landlords and occupiers become more aware of the role of the office environment in attracting tenants and talent. More recently, the COVID-19 pandemic has prompted landlords and occupiers to rapidly accelerate the implementation of wellness measures in their workplaces while introducing additional hygiene and health-related protocols.

As occupiers place more emphasis on building specifications as part of a stronger commitment to employee health and wellness, properties with sustainability and wellness features—particularly those related to indoor air quality, ventilation systems and other indoor environmental features to improve employee comfort—will attract stronger demand.

This emphasis on wellness could ultimately drive tenants to pay higher rents and result in higher property values.

CBRE expects investors to increasingly seek out high-quality properties with these attributes while incorporating sustainability and wellness criteria into their value-added strategies to ensure their portfolios align with this long-term trend. Along with OpEx management and strategies to mitigate obsolescence and prolong asset lifespan, future valuations of properties must take these factors into account.




4/ BIG DATA


Valuation professionals will increasingly use Big Data collected by Internet of Things (IoT)-powered technology to more accurately gauge the present and future performance of real estate assets. Factors such as energy efficiency and foot traffic will take on higher importance. Relevant data will also include information related to crime; environmental hazards such as earthquakes, flooding risks and contamination; education and transport availability.

Building a Smart Future - Sustainability

Much of this data supports cost management such as repairs and issues around functional obsolescence. Beyond simply harnessing this data, valuers will have to apply and interpret how this information will impact current and future value.

Big data will also be used to assess value drivers through greater understanding of human interactions with properties. This will help valuers analyse aspects such as pedestrian traffic by demographic to assist landlords with optimising their tenant mix and similarly benchmark property and asset performance against a wider range of measures.

Along with greater flexibility in leasing structures, this data underlines the potential for a closer relationship between landlord and tenant. However, this partnership will require information to be shared for the mutual benefit of both parties. While this enhanced transparency would instill more confidence into the market, it could reduce the potential for one party to gain leverage over the other—a scenario that many stakeholders would find structurally uncomfortable.




5/ NEW MARKET ENTRANTS

 

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The coming years will see specialist property valuation providers face growing competition from other companies’ stepping into the valuation space. Many of these new players will be powered by software-backed solutions and provide valuation services as a bundled offering to clients. While most of these new entrants lack the first-hand property data, market knowledge and talent possessed by real estate services firms, established providers will be monitoring them closely and may even uncover opportunities to introduce novel methods into their own approaches.

Although real estate services firms have accumulated decades of expertise from property management, project development services, agency, capital markets and other transactional teams—all of which enables them to provide tremendous insights into specific markets where they operate—the challenge from new market entrants cannot be dismissed.

It is therefore imperative for valuation professionals and real estate firms to accelerate their adoption of smart technology and analytics tools to remain competitive and deliver desirable client outcomes. Enhanced quality and risk management will also enable traditional valuation providers to differentiate themselves from emerging competitors through superior quality, standardisation and systems.




6/ INTELLIGENT VALUATION PLATFORMS


Intelligent valuation platforms and end-to-end valuation applications are already rapidly establishing themselves as indispensable support tools for valuation professionals seeking to perform accurate and efficient valuation assignments across markets and asset classes worldwide.

Intelligent valuation platforms and end-to-end valuation applications are already rapidly establishing themselves as indispensable support tools for valuation professionals seeking to perform accurate and efficient valuation assignments across markets and asset classes worldwide.


Intelligent valuation platforms are essentially workflow management software applications that enhance the efficiency, precision and quality of property valuation and enable appraisers to expedite the various stages of a valuation assignment. As these platforms continue to develop, new capabilities are being added, with several emerging technologies set to take on a more prominent role in the coming years.

As more phases of the valuation process are gradually automated, this will benefit the efficiency of the process and allow for the scope of the valuation service to expand. This service may eventually be capable of leveraging the huge volume of current and historical property data collected to factor in a multitude of scenarios such as property market cycles and the likelihood of defaults. Such services could potentially be deployed to support valuation professionals in guiding investment teams.

Intelligent valuation platforms will eventually assist in providing an underlying assessment of of property value and greater clarity to investors on the attractiveness of potential acquisition. However, enhanced transparency could potentially have some negative impacts, such as reduced potential to drive returns through opportunistic purchases.

Finally, intelligent valuation platforms have a role to play in helping valuation service providers homogenise workflows across their networks to reflect the interconnected nature of the global marketplace. CBRE believes they will also improve the general public's confidence in the valuation industry by mitigating risk.




7/ DATA


Data plays a critical role in the valuation process. As the volume of data increases and new ways of processing and analysing it are developed, valuation firms can provide more sophisticated valuation advice.

This volume will place intense demands upon the valuation industry in terms of how it stores, categorises and leverages data to assist clients. While there is a huge volume of data circulating in the property industry, obtaining reliable and validated data can be challenging, particularly in emerging markets, where there is also considerable opacity around data ownership. These trends point to the need to expand on the standards available internationally -— or potentially establish entirely new ones -— and ensure these are aligned across borders.





"The development of platforms that effectively and efficiently collate and interpret data – as well as training professionals capable of operating such systems – will be critically important to deliver reliable appraisals."

Tom Edwards, CBRE Global President, Valuation & Advisory Services





8/ AUTOMATED TECHNOLOGIES

 

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Large increases in data-processing capacity, combined with massive data sets, are enabling the development of algorithm-based Automated Valuation Models (AVMs). AVMs are data-driven models that, with limited human intervention, estimate the value of real estate assets using property, transactional and socio-economic data. This stream of valuation can be leveraged with artificial intelligence and machine learning.

Mainstream AVMs are limited to multifamily assets, as a relatively high volume of data pertaining to this sector is commonly available in most markets through online property portals. Commercial real estate services firms possess a much deeper knowledge of commercial (non-multifamily) real estate markets, both in depth and breadth, including transactional data of a very wide range of asset classes—placing such providers at the cutting edge of property intelligence for models of this nature.

The introduction of AVMs will require considerable effort on the part of valuation providers in the commercial (non-multifamily) real estate sector to help clients understand the robustness and reliability of this technology. While users will need to feel just as comfortable with AVMs as they do with "traditional" valuations, the role of the human valuer will remain essential as lenders and investors require assets to be inspected to verify form, condition and occupancy as part of their oversight and regulatory obligations.

Other emerging technologies expected to see greater adoption include blockchain—a digitalised, distributed and decentralised ledger that can be used to register transactions and enable all participants to view records. While blockchain may or may not come to be regarded as an industry solution to storing or standardising property data, it could play an important role in tracking and providing a clear record of when a valuation assignment is instructed, acted upon and returned to the client. Tracking these processes via a blockchain would create a perpetual and immutable record of every stage of the valuation process, an offering that would hold considerable appeal to regulators and governing industry bodies.

Building a Smart Future - Sustainability

Other mooted innovations include digital visualisation outputs to display valuation information and the use of drones or robots to conduct building inspections. While it is feasible for drones to perform certain elements of such tasks, they would still need to be controlled by human operators, while detailed site examination and analysis would undoubtedly still be required to be performed by valuers.

 

COVID-19 restrictions have made it challenging for valuers in many global markets to physically inspect properties, creating a pressing need for automated technologies to assist them in conducting remote or "contactless" valuations.




9/ SPECIALISATIONS


CBRE expects the coming years to see a growing interest in alternative asset classes, which will open new areas for the development of valuation services. With yields for traditional property classes such as offices and retail standing at low levels in many markets, an increasing number of core investors are evaluating and investing in coworking, data centre, cold storage, self-storage, student housing, senior housing and multifamily residential assets.

Building a Smart Future - Sustainability

This growing interest will require investors, lenders, occupiers and valuers to better understand new sets of parameters and measures. A deeper understanding of the key drivers, players and nuances within each alternative sector will be required, and those with the relevant knowledge and experience will be best able to take advantage of these new opportunities. This trend is already visible in several markets such the United Kingdom, where leading service providers already have dedicated valuation specialists for these emerging property types.




10/ GLOBAL CITIES


While recent years have seen growing talk of deglobalisation and the rise of isolationist movements, the pandemic has highlighted just how closely individual economies are interlinked and the fluidity of capital movement across borders. Despite an abrupt slowdown in transaction volume resulting from travel restrictions, lockdown measures and other steps to contain the pandemic, real estate development and investment will continue on a global scale.

However, the economic focus will shift from countries to cities, which are being transformed by urbanisation, driven by technological innovation and the clustering of industries.

As more investors reach beyond traditional regions and build global portfolios of properties, valuation service providers must be able to service global clients with local data and detailed on-the-ground knowledge that is of consistent quality across borders.

CBRE also foresees the need for standardised reporting and terminology due to the wide variation in practices across different markets. Valuers must continue to work with regulatory bodies globally to ensure that their reporting is in compliance.

 

 



 

Conclusion


With the innovations and disruptors identified in this report set to exert a significant impact on the valuation industry worldwide in the coming years, valuation providers must harness these influences to create a service offering that keeps up with the times.

The valuation industry is already capitalising on technology to improve its service and product offerings but must strengthen data standardisation to continue providing flexible services to clients and ensure staff are equipped with the requisite skills.

Although the valuation profession is intelligently adapting to this new reality, governments will also need to evolve in terms of how they police the industry, which remains a regulated function that must meet compliance in individual markets. This will require innovation on behalf of the relevant authorities, particularly around the introduction of global standards.

Technology is undoubtedly impacting the valuation process and will continue to do so. However, human skills and expertise remain critical. The role of the valuation professional is set to become more decisive than ever before in the years ahead as valuation experts shift towards providing higher-value tasks such as analysing complex data sets and serving as trusted advisors to clients.

 

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