Top 3 real estate accounting trends to watch in 2022

December 27, 2021 2:15 PM

As 2021 comes to a close, high levels of economic and public health uncertainty persist as they have for the past two years, but there’s plenty of reason for optimism about the year ahead. In a recent Deloitte Insights piece, 80% of surveyed commercial real estate professionals said they expect their organization’s revenue to pick up in 2022.

As they have for the past two years, real estate accountants will continue to play a pivotal role in how their companies perform in 2022. Some of the commercial real estate patterns observed in 2021 will likely continue in the year ahead, but COVID-19 isn’t in the rearview mirror yet. Developing a post-pandemic strategy will be the key to future success for real estate accountants. Here’s a closer look at three real estate accounting trends for the year to come:

The pandemic will continue to have an outsized effect on demand

Luke MacGregor/Bloomberg

It was a no-brainer even before the emergence of the Omicron variant that COVID-19 will impact commercial real estate demand across the board in 2022, including both office and retail space. Organizations are centralizing operations and downsizing their commercial real estate footprint in response. One prominent example of the latter is

PwC’s

recent announcement that its 40,000 U.S. staffers can continue to work remotely on a permanent basis.

One of the consolidating effects of this trend is the growing harmonization between real estate and lease accounting teams, which has the positive effect of breaking down silos, both in terms of data and operational alignment. Property leases have shown higher impact in the amount of material modifications than they’ve had in the past (more on that in a moment), amply impacting real estate management and lease accounting compliance. As such, aligning lease accounting with broader business objectives is key.

In addition, private companies will have to manage the challenges of going live with the ASC 842 lease accounting standard in 2022 now that the pandemic-induced implementation delay is ending. Furthermore, public companies will be tasked with streamlining operations, issuing timely reports and ensuring compliance. Both will need a clear operational framework with proper digitization of data and technology to drive compliance and cross-functional efficiency. This will ensure sustainable success as they manage their current complex lease arrangements and respond to events that lead to mass lease modifications worldwide.

Accountants will need data from all corners of the business to manage assets effectively, and they’ll use creative strategies like executing complex sale-leaseback arrangements, such as the method

Delta Airlines

used earlier in the pandemic, or find other ways to drive efficiency. In all cases, access to data and technology will be essential.

Strong proptech growth will continue in 2022

Electric lights illuminate office workers inside PwC's building in Dublin

As PwC notes, property technology (proptech) growth surged during the pandemic, with

51%

of property management organizations reporting new technology adoption. The rise of proptech began well before the pandemic, but there’s room for growth. Real estate professionals report that performance measurement, tracking and data management are still significant pain points.
The demand for proptech will remain strong to address those pain points as real estate accountants look for new ways to drive efficiency. The best approach to selecting the right technology is to assess current processes and determine what can be automated to scale. For example, accountants who are handling large portfolios can drive efficiency in a number of ways with technology, including real estate solutions with a built-in budgeting process to decrease delays and integrate data across teams to improve operations throughout the business.

Specific tasks that can be dramatically streamlined include impairment calculations, which can be very complex as they involve changing the depreciation method for ASC 842 Operating Leases. Lease modifications are another example; they are complex because the process involves remeasuring assets and liabilities. But with the right solution, modifications can be executed on a mass scale, streamlining the process.

Real estate accounting teams will develop a post-pandemic lease accounting strategy

A post-COVID strategy will be a must for success in the year ahead, and related to the previous point, more teams will adopt proptech to better control their leasing portfolio. They’ll also need to stay current on the availability of pandemic-related relief and have a comprehensive view of leasing event timing, including reassessments and modifications.

A centralized platform that serves as a single source of truth can streamline data collection not only for compliance purposes but also for operational and financial planning and analysis. Accounting teams that use a systemic approach to month-end activities will be best positioned to integrate accurate data into the ERP.

One through-line that’s represented in all three trends is the need for greater agility. Real estate accounting teams must be nimble to respond to the changing landscape. They’ll need better technology to create more efficiency. And they’ll need to work more closely with the business team to drive strategy.

Real estate operations have not traditionally been seen as a profit center, but that’s changing as real estate accountants play an increasingly central role in saving their organizations money. Proptech is part of the equation, helping accounting teams streamline complex lease audits and perform reconciliations. In the coming year, look for real estate accountants to demonstrate even more value in uncertain times.