Read our issue of Voices on InfrastructureExplore the issue
The global real estate market has reached an inflection point, with the changing demands from customers and emerging technologies having profound impacts across real estate asset classes and the project lifecycle. The roundtable explored the critical issues of:
- Understanding market forces creating opportunities and challenges in real estate investment today
- Anticipating millennials’ behavior in residential, office and retail real estate
- Embracing new technologies in construction and property development
- Addressing the affordable housing challenge
- Preparing for smart cities and districts of the future
Changing consumer preferences are disrupting demand for traditional retail real estate, while opening new opportunities elsewhere
Across consumer categories, millennial consumers expect to make 50 to 75 percent of their purchases online, according to new research from McKinsey & Company. This growth in online retail continues to have a profound impact on demand for “traditional” retail assets, but is also creating new growth opportunities. For example, 50 percent of time spent in malls is now on entertaining and dining, with only 30 percent on shopping. This creates significant revenue streams for retailers who focus on creating and curating an environment where shoppers want to stay, eat, and play.
Customer-centric office space does not stop at flexibility
New entrants such as WeWork have shifted customer expectations on experience, quality, and flexibility of office space, forcing incumbents to shift from a focus on square metres to customer experience. A customer-centric focus could mean moving from the traditional reception desk to a concierge-style welcome service, or providing a variety of zones with different functionalities and moods within one floorplate. And although the demand for flexibility is growing—research indicates that up to 25 percent of office space will be a flexible solution by 2020—industry leaders still expect to see strong demand for traditional long-term leases as large corporate customers still need the stability afforded by such arrangements.
Incumbent developers are making the shift to new operating models, particularly in emerging markets
The trends in retail and commercial real estate are most rapid in emerging markets, where developing countries are “leapfrogging” traditional structures to embrace new models. Incumbents are responding with fundamental shifts in their business models: for example, Vanke, one of the largest real estate developers in China, now conducts acquisition, delivery, and operation in a single online environment. They are also investing in digital skills, with a team of more than 700 technology specialists, and use social media platforms to track consumer patterns and adjust their offerings. Leaders in developed markets will need to make similar changes or risk losing ground to the new entrants.
The public and private sectors must work together to deliver quality, affordable housing at scale
Around the world, countries are facing a shortage in affordable housing. This is, first and foremost, a social imperative. But it is also an economic imperative: a shortage of affordable housing in the right places acts as a brake on economic growth, and both the public and private sector must take an active role in developing the solution. The public sector can improve the supply of land in the right locations, by both relaxing planning regulations where appropriate and by freeing up useable land that has not been developed for some time. The private sector must use new technologies, new materials, and new construction techniques or consider modular and offsite systems of construction, including both buildings and the utilities that serve those buildings, to reduce build costs, shorten time to market, and improve quality. As the industry overall shifts to greater use of modular and flexible building space, it may also help unlock housing supply. Today we have a massive oversupply of commercial square footage and loss of big-box stores. The potential for future spaces like these to be adapted from retail to housing with relative ease could have significant benefits.
Disruptive technologies will create significant value for developers across construction and operations
Technology is changing the real estate business at every stage of an asset’s life, and the companies that do not invest now risk being left behind. The construction process is slowly moving towards a production system, driven by digitization and modularization. This creates significant opportunities for developers. First, time to market will decrease because digital and modular will help shrink construction time and increase predictability. Second, moving to a production system will create procurement efficiencies, as contractors standardize building elements and move to global sourcing arrangements. Third, digitization will allow contractors to optimize the ecosystem. Data on usage patterns will be analyzed and overlaid on a digital twin of a building to continuously optimize operations and provide insights to building occupants to help optimize their use of the space. For example, occupancy patterns can be used to adjust the time at which heating systems fire up. Similarly, desk usage rates can be analyzed by developers to optimize layouts of future buildings.
Technology is allowing us to reimagine cities for a better quality of life
The “Smart City” is a concept that has been around for some time, but we are reaching a point where technology is now allowing us to optimize cities to promote better living. Smart Cities overlay a technology layer on the bricks-and-mortar infrastructure layer to link assets and improve connectivity. For example, modular building systems allow us to repurpose and reconfigure city blocks as usage patterns change. Similarly, smart signage and lighting means roads can be repurposed and prioritized for pedestrians, as mobility patterns change. Machine learning can be applied to zoning parameters and building configurations, capturing data on demographics, population density, economic trends, and weather patterns, and cycling through millions of permutations of location, orientation, height, form, and materials to optimize the early stage design of a new city block.