The real estate industry has experienced significant disruptions in recent years, and the public and private sectors can collaborate through these strategies to tackle the challenges ahead.

Real estate shapes our lives and is crucial for the future.‍‍‍‍

Image source:Getty Images/iStockphoto

Kalin Bracken

Head of the Real Estate Sector at the World Economic Forum‍‍

Sam Chandan

Professor at New York University's Stern School of Business

In recent years, the real estate industry has experienced significant disruptions, driven by shifting demand and dramatic transformations in capital markets.
Real estate plays a critical role in shaping a shared future. Now, more than ever, it’s essential to ensure that properties are livable, sustainable, resilient, and affordable.
It is essential to establish public-private partnerships to address multiple challenges—such as housing shortages, climate risks, and financial market pressures—while ensuring value creation and shared prosperity.

Real estate profoundly influences nearly every aspect of our lives—everyone encounters or enters various spaces daily, forming connections with them. Yet, the immense importance of real estate for individuals and businesses is often overlooked and underestimated.

From innovation to the business cycle, countless features of the social and economic landscape are linked to real estate—directly or indirectly.

Facing an increasingly complex global outlook, we must focus on the role of real estate and strive to create buildings and cities that are more livable, sustainable, resilient, and affordable.

Liveability means healthy, smart, and people-centric public and private spaces that enhance the experience of everyone who interacts within them. Sustainability focuses on improving energy efficiency and resource utilization, with the goal of reducing carbon emissions throughout the entire lifecycle.

Resilience involves not only withstanding physical climate risks but also requires real estate to adapt to challenges such as outdated building functions, loss of competitiveness, public health crises, and imbalances in local fiscal policies.

Affordability reflects the widespread housing shortage and the adverse impact of high housing costs in cities around the globe.

The World Economic Forum’s report, "Reimagining the Real Estate Industry: A Blueprint for the Future," calls on industry players and governments to take decisive action in realizing this vision—working together to ensure value creation for all stakeholders, including investors, developers, and lenders.

Reasons for Public-Private Partnerships

These calls to action require unwavering determination. In recent years, people have embraced new ways of living, working, and engaging with technology, often leading to significant shifts in spatial demands—and as a result, the real estate industry is facing considerable challenges.

Meanwhile, real estate developers, investors, lenders, and other stakeholders across the value chain are also grappling with the new challenges brought about by the reshaping of the capital markets landscape.

Especially, the aggressive measures taken by central banks across the board to tackle persistent inflation have reshaped the risk-reward landscape, prompting a reevaluation of several priorities within the real estate sector—even as monetary policies in most parts of the world begin to ease.

"When stakeholders reshape and invest in a thriving real estate sector, they must recognize that these efforts will only succeed if the corresponding investments can attract capital and deliver competitive market returns."

The public sector also faces numerous pressures, such as a severe housing shortage, extreme weather events, and economic, social, and climate-related migration patterns—while simultaneously grappling with the challenge of managing increasingly tight budgets.

These budgets often rely partly on property tax revenues, highlighting the mutually beneficial relationship between property values and the broader functionality of the urban environment.

Despite the challenges, economies at various stages of development must continue to uphold their commitment to fostering cross-border and cross-regional public-private partnerships, as no single sector can achieve success on its own.

How the public sector raises investment funds

The public sector can support and mobilize private investment in real estate by prioritizing the following measures:

1. Clear and Standardized Regulatory Framework:The government must establish and enforce transparent laws and regulations to protect property rights, streamline zoning and approval processes, and reduce bureaucratic hurdles. This will lower investment costs and risks, making the market more attractive to private investors and diverse capital providers.

2. Information-Rich Market:The government plays a critical role in ensuring transparency in the real estate market and reducing information asymmetry. By enhancing data accessibility, encouraging standardized reporting practices, and mandating disclosure requirements, public institutions can foster a more level playing field for investors, developers, and lenders.

3. Infrastructure Development:The public sector enhances the investment returns of nearby real estate by improving infrastructure—such as transportation, public amenities, and communal spaces.

4. Stability of financial markets and access to capital:The government is implementing policies to encourage various capital market participants—such as banks, private lenders, and institutional investors—to support a resilient financial ecosystem capable of thriving through all economic cycles.

5. Fiscal Incentives:Strategically leveraging tax incentives, subsidies, and concessional credit instruments can help enhance the risk-reward ratio of projects and stimulate private real estate investment.

6. Economic Stability and Growth:Local and central government policies are driving job creation, boosting incomes, and improving overall economic health, which in turn is helping to increase demand for residential and commercial real estate—and ultimately attracting private capital into the property market.

How the private sector can meet investor goals

While policies and regulations form the foundation for shaping capital market structures and other factors that drive real estate investment, ultimately it is the private sector that must have the capability to achieve these goals. The private sector can accelerate progress by prioritizing the following measures:

1. Leadership and Accountability:Leadership must prioritize clearly communicating core messages and integrating them into the specific performance metrics for the entire team. Ensuring alignment between teams’ interests and incentive mechanisms will foster stronger internal collaboration.

2. Information, Measurement, and Disclosure:Private companies can leverage advanced analytics, proptech, and AI insights to enhance decision-making and boost transparency. Detailed reports on property performance, sustainability, and market trends help build investor confidence while enabling smarter resource allocation. By sharing information and establishing industry standards, we can create a more transparent, efficient, and lower-risk marketplace for everyone.

3. Technology:Commercial real estate investors should adopt technologies such as smart building systems, AI-driven energy management, and predictive analytics to foster sustainability, decarbonization, and enhanced efficiency. These solutions not only improve user experiences but also help reduce carbon footprints, optimize energy consumption, and lower operational costs.

4. Capital Markets:Combining traditional and alternative debt, along with equity capital stacking, is crucial for managing cash flow and mitigating valuation volatility. Lenders and borrowers can effectively manage risks by maintaining higher reserve levels, adhering to conservative loan-to-value ratios, implementing stringent reporting requirements, and setting interest rate caps. Diversifying across multiple loan types, asset classes, and markets helps reduce default risk and enhances overall financial stability.

5. Toughness and Sustainability Standards:The private sector plays a critical role in enhancing resilience and sustainability through investment decisions—even in politically challenging environments. By prioritizing assets that meet high environmental standards and can adapt to evolving market demands, investors can build more sustainable portfolios that are not only more attractive but also more liquid over the long term.

The role of real estate in the global economy and society is evolving. As stakeholders reshape and invest in the thriving real estate sector, they must recognize that these efforts will only succeed if the corresponding investments can attract capital and deliver competitive market returns.

Practical strategies that benefit market participants and the communities they serve should be guided by this understanding.

The above content solely represents the author's personal views.This article is translated from the World Economic Forum's Agenda blog; the Chinese version is for reference purposes only.Feel free to share this on WeChat Moments; please leave a comment below the post if you’d like to republish.

Translated by: Sun Qian | Edited by: Wang Can

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