The real estate industry is big – and capital is flowing into it. But it is vulnerable, too, says Dror Poleg, author of “Rethinking Real Estate” and the co-chair of the Urban Land Institute’s Technology and Innovation Council in New York. Poleg shared his stimulating outlook on how technology is transforming commercial real estate with the NAIOP board of directors at CRE.Converge 2019 in Los Angeles.
Venture capital has a growing appetite for real estate and funds are increasingly backing the industry. But more recently there’s been a tremendous surge in traditional real estate companies that are becoming more eager to experiment with venture investment, like JLLSpark, Brookfield Ventures, Hines, Tishman Speyer and more.
Technology is undermining the foundations of real estate value – and the defenses of traditional operators. The core elements of location, accessibility, visibility, zoning, information, capital, fungibility and scarcity that have traditionally underpinned the industry are all undergoing extreme change thanks to technology.
Digital and physical delivery methods mean more people now have access to services that were previously exclusive to specific areas. Work is becoming increasingly flexible, reshaping how and how often people need to commute. The Society of Human Resource Management reports that 70% of organizations allow some sort of telecommuting and 57% of organizations allow some sort of flextime.
Meanwhile, technology can evoke people’s desires for other physical and communal experiences that impact where they choose to live and work. People have an ideal vision of where they’ll spend their time, often ones that incorporate cultural preferences, and they’re choosing their home and workplace real estate with those considerations in mind. This results in a growing focus on specific tenants and uses, making assets and operators less fungible — they are more integrated, less interchangeable.
Poleg cited Kin, first-of-its-kind housing operator, driven by community, and powered by technology. Kin’s mission: helping families thrive in today’s cities. Kin is backed by a partnership between Tishman Speyer and Common. The Kin app’s innovative technology connects users to curated family programming and events that facilitate meeting neighbors and sharing resources like nannies and toys, setting up playdates, or using the childcare concierge to book a last-minute babysitter for date night.
New and autonomous mobility solutions are redefining accessibility and commute times. For many, accessibility is no longer about a single location, but about flexible access to a network. Perhaps we’ll see more movement in how goods are moved via autonomous vehicle before we see how people are moved, said Poleg.
Capital is abundant and is available to finance asset acquisitions by emerging operators who have the brand(s), technology and know-how to attract and retain tenants and maximize the value of underlying real estate assets. Traditional lenders are initially wary of assets with management-intensive operating models such as co-living, home-sharing, flexible office, flexible warehousing, and others. As these models become ubiquitous, lenders will look at their operators more favorably and even require their presence.
Zoning is also undermined by the blurring boundaries between uses. Former shopping malls are turning into distribution centers, apartments and hotels hybrids are emerging, and industrial parks are adding amenities like restaurants and retail.
So what does this reimagined real estate world mean for companies like WeWork? Poleg says human work is moving from the Industrial Age through the Information Age to the Conceptual Age. Flexible office as a share of total inventory is exploding, from 1.6% in 2018 to a projected 30% by 2030.
There is a growing gap between what landlords offer and what tenants want in terms of lease terms, move-in ready space and amenities. Landlords and traditional players are starting to respond. Poleg cited Studio, workspaces designed to optimize productivity, innovation and wellbeing — seamlessly integrating company culture into the versatile offerings of select Tishman Speyer properties.
Poleg touched on Airbnb and its business model, which while profitable, growing and run by an idealistic team, leaves an opening for competitors as it neither owns (nor technically leases) its supply. Poleg pointed out that the company is now adding hotel inventory in order to continue to grow, partnering with developers for more exclusive supply, and trying to grow revenue from other sources such as tour and experience bookings.
Kathryn Hamilton, CAE, is Vice President for Marketing and Communications at NAIOP Corporate.