“Alexa, what does the future hold for the commercial real estate industry?”
It would be splendid if it was that easy to get answers to the countless questions that we all undoubtedly have regarding the real estate business. While we don’t (yet) have a crystal ball (or a Watson) to accurately predict the future, one thing is unquestionably certain: disruption is inevitable.
Our industry is on an accelerating disruption curve primarily driven by technology. Data access, artificial intelligence, and automation are quickly reinventing the entire premise on which we do business. And this fast-track is not slowing down any time soon.
In fact, it’s said that the real estate industry is the largest and ripest for disruption via technology and that we are actually lagging behind in innovation. During a recent conference, I heard a presentation from a group of young men heading up venture capital funds specifically focused on technology startup companies that would disrupt some aspect of the real estate world. They noted that more than $7 billion was invested in the last four years alone in such companies—and this is only the beginning.
As real estate is a long-term, capital-intensive, lease encumbered asset, it is critical to attempt to predict the future implications of this disruption. In my opinion, five significant influencers will disrupt the real estate industry.
Big Data drives the world. Everything we do, buy, see, browse for online, and every single place that we go is being captured and collected. This shared data enables machines to learn and predict human behavior, which leads to artificial intelligence, and eventually, to the Internet of Things. From our houses and offices to our bodies to the light poles in the parking lot, everything will be connected to the internet.
Data will literally impact every aspect of how we live, work, play, interact, and thus, affect every facet of real estate. As I said before, these things are reality NOW. We’ve already witnessed incredible technological advancements like geofencing and proximity marketing in retail, facial recognition features, and digital healthcare—all powered by data. It’s mind-blowing, and it will continue. From mobile platforms to smart buildings and virtual technology, access to data is going to change the face of commercial real estate.
#2 Jobs of the Future
Because of technology and automation, it’s estimated that ⅔ of all jobs will be at risk over the next 10-15 years. Entire industries will be eliminated or fundamentally changed, including many in real estate. For example, 38% of the retail workforce is vulnerable to elimination. Cashiers, fast food cooks, truck drivers, medical professionals—you name it—all face the probability of elimination.
Ultimately, real estate is driven by where people live and work. In my day, an employer’s location drove most of the decisions on where the workforce would live. The skilled workforce of the future—mostly made up of millennials—is very different. Skilled workers are now driven by quality of life, cost of living, culture, entertainment, the “coolness factor.” They place more importance on where they want to live and then find employment. We see examples of this in millennial magnet markets across the country. For companies to recruit and retain talent, they must follow the skilled workforce.
This workforce evolution is also impacting work and office environments. Those with open floorplans, collaborative spaces, green features, fitness options, and artisanal food choice are the types of working environments that this demographic is attracted to.
#3 Autonomous Vehicles
Experts predict cars will be basically obsolete by 2030—currently, there is a 95% inefficiency of use. It’s crazy to think that some of my grandchildren will probably never drive their own vehicle (thankfully).
Autonomous vehicles (AV) will be the biggest disruptor of real estate because this has long been an industry designed and built primarily around transportation, access, and parking. When you take those factors out of the equation, you are fundamentally changing the entire industry. The AV’s potential to reshape real estate, development, and city planning will rival that of the introduction of the automobile itself, and will destroy and create massive wealth in real estate assets.
Right now, there are 500 million parking spaces in the U.S. and 260 million vehicles. That’s almost a 2:1 ratio. (Houston is the winner at 30:1 ratio.) It’s projected that AV could reduce the need for parking space by more than 61 billion square feet.
“Alexa, what can I do with my empty parking lot?”
#4 Retail Renaissance
I would be remiss if I didn’t mention retail and the myth that brick and mortar is dying. It’s not dying; instead, it’s more like a renaissance. Yes, many stores have died and some will still die because they could not adapt to the disruption of e-commerce and shifting consumer demands.
However, many stores are thriving and seeing increased sales numbers. They are using e-commerce to their advantage and learning to adapt to online tools and technological platforms. Today’s consumers are digitally empowered, relentlessly distracted, and time constrained. Also, successful retailers are determining that the future of shopping is not just about shopping. It’s about dining, entertainment, experiences, leisure—with shopping as an adjunct. New retail uses are evolving every day. Those retailers that adapt to this changing landscape will come out on top.
I’ve heard a quote along the lines of, “Retail will change more in the next five years than it has in the past 50.” The retail renaissance is just beginning.
#5 Industrial is the new darling
Industrial real estate is one of the hottest real estate assets for two principal reasons. First, in retail, the last-mile phenomenon is driving an increased demand for industrial space to manufacture, sort, store and distribute goods in the race to get products to consumers in the fastest and most efficient manner possible. Statistics show that 90% of the U.S. is now within range for next-day delivery. Logistics and supply chain decisions are now a dominating factor influencing store locations, distribution facilities, and even mergers and acquisitions.
E-commerce is growing at over 16% per year. It’s projected that every $1 billion in e-commerce sales creates demand for another 1.25 million square feet of warehouse space in the U.S. You do the math—industrial real estate will continue to be a major influencer in our industry.
Another important factor driving industrial demand is the concept of “local is the new global.” Consumers are choosing local products and services over big-box models. We see the conversion of old, industrial spaces into innovative food halls, microbreweries, and cool office co-working spaces. In many cases, these conversions are transforming entire neighborhoods and communities. It’s exciting to see this asset evolution.
So there you have it—the top five influencers that I believe will have the most impact on the commercial real estate industry. While I do wish I could ask Alexa precisely what’s in store for us, we can be sure it involves more disruption.
One of my favorite quotes is, “You either see the future coming, or you chase it after it comes.” The moral of the story is that it’s critical we are thinking about the impacts of all of this and how it’s going to affect our business moving forward. Disruption should not be considered a threat, but rather an opportunity. I would be happy to hear your thoughts and open dialogue on these topics. Feel free to reply with your comments.
Now, “Alexa, where can I get a robot?”