This article is republished with permission from REITCafe.
Most industries are embracing technology, which is getting better, faster, and more affordable and is profoundly affecting all types of real estate. In the real estate industry itself, one way that technology is being used is to more fully utilize properties, which in turn can enhance property values.
| TREPP-i Survey Loan Spreads (50–59% LTV)* |
| This Week | Previous Week | Previous Month | End 2014 | End 2013 | |
| Industrial | 173 | 166 | 165 | 138.5 | 170 |
| Multifamily | 168 | 161 | 161 | 139.8 | 166.7 |
| Office | 181 | 175 | 173 | 148 | 175 |
| Retail | 173 | 166 | 165 | 139.8 | 175 |
| Average Spread | 174 | 167 | 166 | 141.5 | 171.7 |
| 10-year Treasury Yield** | 2.02 | 2.10 | 2.16 | 2.17 | 3.04 |
In the office sector, technology has changed where and how people work. Tech companies have reinvented office space, making what many consider to be better use of the resource. Their practice of putting more people in less space, while making the space functional and fun, has been adopted by many other office users. Because businesses and technology evolve much faster than real estate, however, design flexibility is critical for new buildings. In addition to creating efficiencies by using less space per worker, businesses like WeWork and PivotDesk offer platforms that make it possible to keep workstations more fully occupied.
Residential spaces also have become more efficient. Like offices, new apartment and condo units have been scaled down in size, but projects are rich with shared amenities, like fitness centers, lounges, and outdoor space. Airbnb has developed a way to further optimize residential use by creating a platform for people to temporarily lease out unused space in their homes—a move that also has profound implications for the lodging sector.
Technology’s impact on retail real estate is evident through the evolution of omnichannel retailing. Stores are becoming smaller and serving as showrooms, as well as locations for picking up or returning merchandise. Retailers supplement their showrooms with a broader array of products available online.
Autonomous cars and trucks are already being tested in markets; and before long, the technology will be available for wider use. The way cities are designed will change because autonomous cars will spend less time parked than cars do today. Fewer people will own a car if they can call one up at will—a model already set in motion by Uber and Lyft. In the future, parking could be replaced by places to drop off and pick up passengers. Transporting goods also will become less expensive and will be done during nonpeak hours because trucks will no longer need a driver.
Building codes adapt slowly and tend to be reactive, rather than proactive, which could create a constraint on the adoption of new technology. Political innovation is important to make laws and building codes adapt more readily to technology-enabled changes. For example, as autonomous cars proliferate, current parking ratio requirements could be lowered.
Real estate investment trusts (REITs) are watching technological developments, many of which are already well underway, and others that are further out, and are considering how they will affect their businesses. Discussion of these trends at the Urban Land Institute’s fall meeting in October provided food for thought, since participants were challenged to envision and plan for a future that is coming quickly and that will look very different from the present.
* TREPP-i Survey Loan Spreads levels are based on a survey of balance sheet lenders. For more information, visit Trepp.com.
** - 10 yr. Treasury Yield as of 10/16/2015.
