Real Estate Solutioneering : The technological disruptions in real estate

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"Seeing around Corners"

  • Canny investors in the real estate industry are “seeing around corners”, espying opportunities in an otherwise moribund and conservative market
  • Convenience, location, technology and the youthfulness of the consumer market is driving disruption in the industry
  • The market is encouraging all sorts of new segments and forms of use, most are supported with technology
  • Investors are no longer prepared to ignore Environmental, Sustainability and Governance ("ESG") issues
  • Benchmarking and property performance are key portfolio requirements

Introduction

  • The global COVID-19 pandemic has forever changed our attitudes, behaviors and experiences―as customers, employees, citizens and importantly, as humans. The impact of the coronavirus outbreak required us to move at an unprecedented speed, shifting to new patterns of work and day-to-day life. We have tried to overcome this challenge with flexibility, resilience and new ideas, to continue working and finding ways to design homes that enhance your living experience.
  • As the Indian government cautiously moves towards relaxing the nationwide lockdown in a phased manner, we have resumed work with in-situ manpower, and put in place stringent measures to ensure health and safety of all workers. We are operating in full compliance with guidance provided by the local government and public health authorities.
  • We are now focusing on securing supplies, resuming manufacturing, and figuring out logistics to ensure we get back on track and continue operations with minimal disruption. As the government further relaxes norms, we will keep you informed with timely updates and progress.
  • These are tough, unprecedented times. Our thoughts are with all those who are affected, directly or indirectly.
  • We will emerge out of this stronger, together. As we turn the corner on this pandemic, we have so much more to look forward to - a new beginning of sorts, and new opportunities to make a difference to the world around us.
  • It is an incontestable fact that the built-form of commercial real estate is changing rapidly. From the high street retail to office blocks, industrial factories to shopping malls and even airports - what had worked for and age before are now not working so well . . could be obsolescence, could be poor management, mostly though, its due to the built-form not keeping up with the (perceived) customer demand. Is 'traditional real estate' at a critical inflection point?
  • OR, are canny investors seeing opportunities and acting upon their research and investment instincts?
  • There is a discernible and tangible array of new global trends converging almost simultaneously to (seemingly) cause real disruption to the (traditional) real estate sector.

Some context

  1. Investment in the sector was historically built around large-scale diversified portfolios of income producing real estate assets usually backed by long 10-year or 15-year leases that portfolios had acquired and were managing on the basis of reliable long-term income.
  2. For 100 years developing, selling, investing, lending, leasing and managing commercial real estate was the perfect way to create wealth. Real estate is not considered to be the bedrock of financial investment for nothing!
  3. Building systems and methods have improved, to the extent that newer buildings are BETTER than their equivalents in all real estate segments. In most cases, the replacement cost of a building, whilst seemingly dearer, creates an investment opportunity.
  4. Predicting the future was never an accurate nor certain pursuit; in this day and age and as modern real estate is concerned, its nigh almost impossible to disregard the changes affecting the sector.
  5. Canny investors in real estate are beginning to 'see around corners' . . .

Some examples (and consequences) where we can see these changes

  1. From on-line retail, to cloud kitchens, to co-working offices to flexible warehousing, to coliving systems; every aspect of the ownership and management of (traditional) real estate assets are now rapidly evolving.
  2. It is clear that lease tenure / the period of leases around the world are getting shorter and this is worrying investors and lenders alike.
  3. Thanks to innovation and new technologies being available, users of space (be it of a retail, residential, commercial or factory nature) have more choice of where and how they can place their operations.
  4. In respect to shopping malls the erosion of investment values has been cataclysmic. So what that a seemingly staggering number of stores shut down in 2019 and in 2020 as a result of the Covid19 Pandemic - consider instead that this is an evolutionary process and that in many cases, many of these shops should never have been opened in the first place and conversely, the shopping centres should not have been built.
  5. Offices are facing an equal disruption . . thanks to the internet, personal computing, cloud services and handheld devices, administrative functions can be dealt with on-line and managers can instantly communicate with their workers and customers, wherever they are. Suddenly, it's quite fun to go to work!
  6. "Real estate is shifting away from being an industry governed by low-touch financial managers that thrive on well-run assets to an industry governed by high-touch operators that thrive on well-run businesses"; does this mean that the basic foundations of property valuation are changing to accommodate these shifts in usage?

On Real Estate valuation . .

  1. Value is increasingly not just about quantity, quality, location or even rental price. "How you manage your property today affects its value tomorrow?!"
  2. Today and going forward, valuations cannot ignore the importance of ESG and aside from the MSCI benchmarks applicable to the financial aspects of property ownership, GRESB offers a terrific service enabling and assisting property owners to maximise their property valuations by introducing and applying ESG principles

How to take advantage of real estate disruption:

Get to know your customers: Get close to them. Really close, making it uncomfortable for them to leave your property!
Know and leverage off your supply and value chains: Real estate thrives off ‘value chains’ and property-related ecosystems; take advantage of these.
Simplify the leasing process: Make it so that the 'one pager' binds them to the deal
Real estate as a brand: Real Estate speaks to the marketeers and to the social spaces and to the people who use, live and work in these environments; make your real estate a brand.
Its more about the DATA and less about the gadgets: There is a lovely short video available on the web speaking to the point "what Google knows about you"; learn to be less scared and more assertive towards using the data!
Select the right and best staff: In a changing business environment, the selection of the 'right' person has never been as important.
Hope is NOT a strategy: Have a clear and actionable plan
EMBRACE technology and find ways to include the latest tech into every aspect of your business.

"How you manage your real estate today affects its value tomorrow"

References:
Said School, Oxford University – "PropTech in 2020"
Harvard Business Report / HSDR "Should we trust algorithms" 2020
ICSC – "The Halo Effect: how bricks enables clicks" 2019
Harvard Business School – "Reinventing Retail", Ryan Raffaelli 2020
Inospace 2020 website
Simon Group 2020 website
Brigade Group (Bangalore) REAP unit prospectus 1999
PWC – Real Estate "Building the future" 2020
Gartner Group – "Digital Commerce" 2019
KPMG – "Real Estate Tech Trends" 2019
MSCI – Valuations subscription service
World Bank – "Unleashing E-Commerce" 2019
Forrester Group – "Predictions" 2020


About the Author

Jonathan Yach, MRICS

Jonathan Yach, MRICS

Jonathan is a 35 year real estate services and management veteran, with hand-on management experience in the complex markets of South /East African and India

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