President’s Message: Chasing the Future
“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.
#1 Data
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?”
First Steps for Property Services and Information Technology
We’ve received a lot of feedback from an earlier Stirling post (Property Management, Information Technology and the New Paradigm) about the amount of work required to update Information Technology Infrastructure for today’s world. A few people keyed in on the amount of work required when their Information Technology Projects had taken a back seat to other priorities in the last five years, ten years or forever.
Some had asked for a cheat sheet on what they should do first or what questions they should be asking their property services company about their Information Technology Systems. This list is far from comprehensive – merely first steps, but if Stirling had just taken over a new property or if I was starting from scratch, this would be my initial list of things to check or you can hit your Property Services company up to find out what they were doing in regards to Information Technology:
Do I have a next generation firewall at my offices?
Are my automation systems firewalled and segmented away from my office computers (i.e. postage machines, hvac systems, video directories, card access systems)?
Not very effective anymore, but still a first step, do all my computers have anti-virus protection?
If my computers haven’t been running anti-virus, who will format the hard drive and reset it back to the factory default image, then add anti-virus protection and load all my documents back?
Do we have, at the very least, basic spam filtering to try and eliminate the ZeroHour emails and do we have Sender Policy Framework (SPF) setup?
And finally, this really isn’t about security, but to offer up some lagniappe for the New Year, check into finally getting rid of your old analog telephone system to see what features you would gain and how much you would save with a Voice over IP (VoIP) System. Check into either a legitimate cloud provider or see if your property services company can add you to their system – adding your property to their system should be simple.
Obviously this is a very basic list, but whether your property is managed by Stirling or not, feel free to shoot me an email if you have questions and I’ll try to point you in the right direction. When it comes to Internet Security, we’re all in this together.
Property Management, Information Technology and the New Paradigm
Used to be that technology was an afterthought, if it was a thought at all, when it came to property management. No one thought twice about putting file servers, telephone systems, sharing the office Wi-Fi with the public and having each management office a self-contained island unto itself. We’re long past the days, when we could put a desktop at a managed property office and simply forget that the computer was there until the computer died or a user complained. While the most important element of property management is still the right property manager, with the advent of Internet-connected building automation, Voice Over IP (VOIP), cloud offerings, server virtualization, software as a service (SaaS), desktop as a service (DaaS) and the well-publicized complete lack of security on the Internet, it’s time to pay attention to how property management offices are utilizing technology, how the offices are secured and how we are maintaining the infrastructure.
Here at Stirling we’ve taken over a lot of management contracts in the last few years and the thing that strikes us from the IT-perspective is how little attention has been paid to the automation and the office systems. Even from the large, national property service companies, we’ve seen file servers and desktops systems at managed properties that are past end-of-life such that the manufacturers are no longer providing security updates. We’ve seen automation systems, directly connected to the Internet with no firewall and still running default system credentials, leaving not only that system, but the entire office vulnerable to attack. Accounting or Point of Sale Systems on the same network as the HVAC or Automation Systems without network segmentation or firewalls is simply asking for trouble.
While other industries have been quick to embrace technology, it sometimes seems that Commercial Real Estate as an Industry has gotten a half-step or two behind where we need to be in maintaining our technology. Overhauling systems doesn’t necessarily have to be a large expense. In a lot of cases, the savings from removing the maintenance costs associated with outdated systems will go a long way towards modernizing and securing your infrastructure. Just as everyone knows and can do the calculation on a commercial real estate’s return on investment, there’s also a return or a savings with Information Technology deployed and maintained correctly.
- Still have an outdated DSL connection to the Internet? Fiber has proliferated in the last couple of years. Look at dedicated bandwidth with a Next Generation Firewall.
- Sharing your Internet with the public? Stop! Or at the very least, make sure your management office network is segmented to protect your critical systems.
- Same with automation. If your HVAC, access card or automation systems are connected to the Internet, change the default credentials and segment away from your office computers.
- Are your servers on the same network as your Wi-Fi? Segment and firewall the network so if your Wi-Fi gets hacked, they don’t have a clear path to the rest of your equipment.
- Still running Windows Server 2000 or 2003? Server 2000 was retired on July 13, 2010 and Server 2003 is ending on July 14, 2015 which means no security patches and a huge vulnerability for you. It’s time to ditch the server and connect to your back office virtually.
- Still have a Windows XP computer or a POS with embedded Windows XP? XP’s end of life was April 8, 2014, leaving your systems vulnerable. It’s time to upgrade your systems or virtualize your desktops.
- Still have an analog telephone system with roll over lines? With dedicated bandwidth and quality of service, you can take advantage of Voice Over IP – sometimes at a substantial savings to what you’re paying for your system now.
- Do you have separate banking computer that you use only for banking? Absolutely no general Internet surfing? Might want to consider dedicating a computer to banking.
- Are you setup with Positive Pay with your bank? This is an important first step.
- Still using an old POP service for email? It’s time to switch to an Exchange-style email system. Setup with your management company or contract online for hosted Exchange or Zimbra email.
Contracting with a property services firm that has a dedicated technology staff makes your life easier and allows you to take advantage of the economies of scale inherent in that relationship, but if you have the time and the wherewithal to work through the vulnerabilities, you can go a long way to securing your systems and leveraging technology for the value it will bring to your property.
Forbes ranks New Orleans #3 for Information Technology Jobs
In a recent Forbes article, “The Cities Winning the Battle for Information Jobs,” author and researcher Joel Kotkin ranks Greater New Orleans as #3 in the USA, behind only technology heavyweights Silicon Valley and San Francisco. In the article, he states “Perhaps the most dramatic player is third-place New Orleans-Metairie-Kenner, where information employment is up 28% since 2009”. The information sector in metro New Orleans “is very broad-based, including companies in digital effects, videogames, software development as well as a burgeoning film and television industry,” writes Kotkin. “The recent decision by General Electric to place its new technology center and its 300 new technology jobs in New Orleans is another sign of the Crescent City’s emergence as a viable information hub.” Additionally, when you consider the recent announcement of IBM in Baton Rouge, it is even more impressive for our super region in general.
Based on the employment growth in the IT sector over the long-term (2001-2012), mid-term (2007-2012) and the last two years, as well as momentum, the Top Ten Tech metros are:
- Silicon Valley
- San Francisco
- New Orleans
- Bostom
- Austin
- Atlanta
- San Antonia
- Raleigh
- Phoenix
- Nashville
You can read the entire article, including more detail on the methodology, here.
