The impact of emerging technologies on European real estate

In the last three decades, digital technology has had an increasingly noticeable impact on commercial real estate, indirectly influencing a shift in working and living patterns and giving rise to new business models, including the sharing economy and e-commerce. Technological advancements have also helped to streamline property management processes and improve visibility across business functions and property portfolios, ultimately helping real estate companies to perform more efficiently.

Irina Lenchuk

Irina is a Consultant with RealFoundations. She has 10 years working experience in construction and real estate industries. Throughout her career, she contributed to the successful delivery of diverse projects ranging from technology strategy analysis, data architecture design and IT systems implementations for leading international real estate organisations to large construction and refurbishment projects for high-end property developers.

Today, a new generation of technologies – Artificial Intelligence (AI), blockchain, the Internet of Things (IoT), 3D printing and virtual and mixed realities – is emerging and gaining the attention of the business community. Though still nascent, these technologies are predicted to evolve at an exponential rate and become major disruptors applicable to a variety of use cases across different industries. So, what does this mean for real estate companies?
RealFoundations is dedicated to helping real estate companies navigate technological change across the globe. We strive to constantly track the development of new technologies and explore associated challenges and opportunities that arise. As part of this initiative, we have published a research artefact that explores the impact of emerging technologies on European listed real estate. Our analysis relies heavily on our internal industry expertise, as well as the opinions of industry thought-leaders who work towards understanding and implementing technologies that drive positive change within the property space.
In the coming years, we anticipate the following factors having an impact on the demand for commercial real estate space:

  • The millennial generation – which values experiences over possessions, flexible working environment over large corner offices and connectivity with immediate access to information – will encompass 75% of the global workforce by 2025.

  • The structure of employment will evolve due to an expected increase in the number of small businesses and freelance workers and greater job automation (while low-skilled jobs are getting increasingly automated, the overall impact of automation on employment remains unclear).

  • The speed of technological change will accelerate and result in major shifts across all industries and various aspects of our lives. These shifts are difficult to predict with a high degree of certainty as we have never faced a change of this complexity before.

We expect that the main commercial asset types – office, retail and industrial – will remain relevant, but will be forced to develop higher agility (offer greater flexibility of lease arrangements as well as easier and quicker space personalisation and adjustment, for instance) and the capability to support the digital dimension of tenants’ businesses.
Thus, former ‘competitors’ – in-store and online retail – are increasingly becoming integral parts of the same businesses, working to balance their digital and bricks and mortar presence. This balance is dependent on which retail functions can best be handled online versus in-store and will continue to shift as technologies evolve. For example, today virtual and augmented realities cannot rival the in-store experience when it comes to product demonstration but may do so over time. Technologies such as 3D printing and drones can further improve and facilitate quicker access to goods sold online.
Consequently, assets’ digital infrastructure, including the IoT, as well as the flexibility of building structure and systems are likely to have an impact on assets valuations, alongside factors like location. Building cybersecurity and transparency (i.e. the availability of real-time data and analytics on how an asset is performing, including how much a building is occupied, how occupancy patterns vary over time, how much energy a building consumes, how well building equipment is functioning, etc.) will also be variables that matter.
Furthermore, expect to reconsider income streams as revenue from turnover rent, long-term rent and parking may become less sustainable. Those streams may include:

  • income from more fluid and short-term lease arrangements;

  • income from new services such as data analytics, faster broadband, electric car charging, drone landing hubs; or even

  • income from generating and selling renewable energy (for example, by incorporating solar panels on the roof) or excessive heat from industrial assets.

The good news is that, on the operational front, new technologies present multiple opportunities to:

  • enhance the efficiency of key property functions and asset delivery;

  • offer superior customer focus; and

  • root the strategic direction of a business in better quality and real-time data.

Leveraging these opportunities will be paramount as competition in the industry gains new dimensions as new players with strong technological competencies attempt to enter the marketplace; consider Google and Microsoft getting ever more serious about building smart cities, Google and Airbnb heavily relying on digital to deliver their services, and Amazon and Alibaba acquiring property portfolios.
The question to consider is: can leading technology companies use their technological expertise in AI, IoT, robotics and more to manage property more efficiently and deliver better services than traditional real estate players? Furthermore, it is important to think in terms of new products and new business models, and how technology can make an asset obsolete or eliminate the usual income streams.
Standing out to these challenges will require real estate businesses to acknowledge that technology should become a major function for any modern business. Building a greater understanding of the emerging disruptors within an organisation should be the first step. However, staying on top of competition will demand taking an active stance and driving change, often through partnerships with start-ups and technology firms. While doing so, however, it is important to acknowledge new responsibilities coming from digitisation, including cybersecurity and the protection of user data in line with the EU’s new General Data Protection Regulation (GDPR) that came into force on May 25, 2018.