Bricks and mortar in the digital age
Thanks to substantial advances in information and communications technology, we expect new business models to emerge that have significant impact on real-estate demand.
- Innovation will also change the form, function and management of real estate as buildings become more flexible, efficient and sustainable.
- The measurement and reporting of real estate performance is set to improve and bring sustainability issues to the fore.
- Innovations in energygeneration, industrial production, transport, materials, design and biotechnology will impact real estate as they redefine global supply.
While we don’t expect the current pace of technological change to trigger a new industrial revolution, the gradual acceleration of trends already in evidence in numerous industries is destined to reshape the way we people live and work. In doing so, they’re likely to change the face of today’s real estate industry.
Creating new markets
The productivity gains brought on by technological advances should enhance economic growth and real estate demand across many areas. Such advances will also enable new business models to develop and see new consumer markets evolve. Meanwhile, breakthroughs in medical and food science will extend life expectancy and improve the lives of millions of people.
Technological innovation will also change the form, function and management of real estate. New materials will allow buildings to become far taller, more flexible, efficient and sustainable. Similarly, the measurement and reporting of real estate performance will also improve, and bring the relationship between occupiers and owners much closer.
We expect the biggest real estate impacts to come from advances in information and communications technology. This should enhance productivity and drive the continued merging of traditional services and digital business. As artificial intelligence, voice recognition, robotics and computing power improve, more industrial and services sector jobs will be automated. While beneficial for many firms and individuals, these changes threaten the existence of many lower-skilled jobs.
Running in parallel with developments in information and communications we also expect significant impacts on real estate to come from innovations in energy generation, industrial production, transport, materials design and biotechnology. These are likely to redefine global supply lines and logistics practices, alter the form and function of commercial buildings and stimulate the evolution of residential and commercial markets.
The joined-up world
As digital devices become cheaper and more versatile they become ubiquitous. At the same time, a wide array of digital sensors such as motion trackers and monitoring devices like energy-smart meters will become networked. The ‘Internet of Things’ stands to have far-reaching consequences for real estate. Consequently, the buildings of the future will need to be far more adept at managing the online and physical needs of their users.
The emergence of ‘Big Data’, namely the collection, storage and processing of vast oceans of digital data, is also influencing change. It is already helping to drive innovation in science and business by enabling new drug discoveries and improving how companies understand their customers. The advent of the ‘cloud’ is also helping to change business models by enabling digital devices to become more versatile and reduce the need to maintain an expensive, energy-consuming IT infrastructure.
The significant growth we can expect to see in digital businesses should translate into increased demand in core office markets and tech clusters around the world. We expect to see robust demand from both large multinationals and smaller start-ups, as globalisation gathers pace, thanks to the falling costs of IT infrastructure.
The Internet of Things will also usher in a new era in retail property design. The futuristic vision of prime retail sites offering pristine aisles of interactive display screens with individually targeted advertising and promotions is just around the corner. Similarly, as online shopping becomes more prevalent, many stores will find that keeping inventory where they entertain their clients is no longer cost effective.
The ‘last mile’ is one of the most expensive parts of the journey for online purchases but simple options such as standardised packaging, subscription-based (or night-time) delivery models and purpose-built collection lockers, all hold the promise of major gains in logistics efficiency. The same is true of advanced robotics and driverless vehicle initiatives, which are already underway by the likes of Google, Mercedes, Nissan and Toyota.
Reconfiguring the global value chain
Technical advances in manufacturing, material design and robotics are also likely to impact industrial real estate markets. Innovations in these areas should reduce the need for low-wage manual labour and allow products to become more complex. Although in its infancy, 3D printing is one of many new developments in this field that could potentially sever the link between high-value consumer goods and the distant pools of cheap labour that currently produce them.
If global value chains are reconfigured it would have significant consequences for manufacturing in emerging markets and developed economies.
Elsewhere advances in materials design and nanotechnology are leading to the development of ‘smart’ self-healing, low-carbon, energy generating building materials. These hold the potential to reshape parts of the global real estate market. Stronger, lighter, greener materials will allow building design to become increasingly diverse. But it will also introduce obsolescence risk for investors in older, less flexible properties.
A leaner, greener real estate market
In the not so distant future, thanks to the Internet of Things and Big Data, the environmental and social impacts of occupancy will be tracked automatically.
The ready availability of energy usage, waste and sustainability data is likely to drive social investment and sustainability legislation. It will also create greater demand for low carbon building designs and construction.
Occupiers will also be able to monitor and manage their use of commercial floor space far more accurately than today. This will see companies become more demanding of buildings, searching out those that can offer high levels of flexibility and efficiency. Meanwhile, the increasing flow of property data to landlords and building managers should also lead to better asset management decisions.
The impacts of technological innovation on real estate are becoming increasingly influential on fundamental supply and demand. To maximise returns and manage risks, long-term real estate investors will need to understand and adapt to these changes.
Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (“Aviva Investors”) as at 1 March 2014. Unless stated otherwise any opinions expressed are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested.
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