Though public regard for technology is in flux, no one can deny the wide-ranging effects tech is having on every aspect of society, including the real estate market. In a number of sessions at the ULI Europe Conference in Berlin, investment and development leaders shared their thoughts on the tech issues that they think hold the most promise to disrupt the industry—and the ones that keep them up at night.
In response to a straw poll asking what has disrupted the domestic real estate sector the most in the past five years, 45 percent of conference participants named the sharing economy/coworking, closely followed by digital communication/remote working, with 41 percent.
“The era of industrial capitalism is behind us,” said Robin Chase, cofounder of the car-sharing service Zipcar and 2017 ULI Nichols Prize laureate.
Whereas extracting value from resources once involved creating barriers around assets and companies, the collaborative economy has revealed a different path, she said. The two biggest wins in the sharing economy have been housing and cars, the most expensive assets that people own. Whether the collaborative economy will eventually work with smaller assets remains to be seen.
The commercial real estate industry has taken more time to figure out its place in the sharing economy, said Ryan Masiello, founder of VTS. The coworking and white-label office company WeWork is the first great example of what is possible when commercial real estate shifts its focus from property to user experience, he said. The next step from shared office space is logistics warehouses and fulfillment centers that are not owned by a giant like Amazon but rather shared by many smaller companies.
Regulations have yet to catch up with the collaborative economy, Chase said. Tax structures and government social safety nets are designed with the idea that a person works full time for one employer. Regulations need to be adjusted to reflect the new economic reality.
The way people work has not changed in 30 years, said Barbara Knoflach, global head of investment management at BNP Paribas Real Estate, but now technology is starting to push the real estate business to change. The traditional model of ten-year leases has gone the way of the horse and buggy, she said, and developers are interested in flexible layouts that let tenants arrange the walls themselves.
Housing created by three-dimensional printers, also known as additive manufacturing, remains in the experimental stages. But the possibilities for personal 3-D printing could change import and export markets, and with it the need for logistics and fulfillment centers, speakers said. If it is possible to print products locally rather than ship an item halfway around the world, that is good news for the environment, but possibly bad news for emerging economies.
Global trade could become a thing of the past if 3-D printing reaches a tipping point, said Maxime Alimi, head of investment strategy for AXA Investment Managers in France. If a product can be created from digital specifications sent to a local printer, the need for international trade would be greatly reduced.
“The digital economy jeopardizes the development model of emerging markets entirely,” he said. If the export model is no longer available, it will become a lot more difficult for a market to emerge in the next decade—an issue that would greatly affect still-emerging countries in Africa.
Artificial Intelligence and Big Data
When asked in the straw poll what will disrupt the real estate sector most in the next five years, nearly half of respondents said it would be artificial intelligence and big data. Software capable of performing work better than people, fueled by massive amounts of real-world data, stands to improve efficiency and profitability, but also change people’s relationship to work.
Of all the middle-class jobs lost in the past decade, 88 percent went to machines, said Michael Power, strategist at Investec Asset Management. Robots could replace 800 million more jobs by 2030, according to the McKinsey Global Institute. At the World Economic Forum in Davos this year, Alibaba chief executive officer Jack Ma stressed the importance of rethinking the knowledge-based approach to education. To be able to compete with machines, children must learn soft skills such as teamwork, independent thinking, and empathy, things robots cannot learn.
Algorithmic pricing powered by big data, such as that exercised by Amazon, will only increase in importance in the next decade, Alimi said. If the price of a common good, such as a pack of batteries, varies wildly over the course of a day and from customer to customer, it creates profits for companies, but at the macroeconomic level, inflation no longer has a collective meaning. That raises many questions for policy makers and analysts of how to control for inflation, or protect against it, or even measure it.
As technology-fueled unemployment rises, it will lead to even more populism, Power predicted. Countries that can create wealth with little human intervention are considering the institution of universal basic incomes, and the world is watching as Finland enters its second year of a pilot welfare experiment. Real estate investors should consider how developments can foster social inclusion in the future.
Though crowdfunding remains on the minds of real estate leaders in Europe, it does not seem to have made a large-scale impact on investing yet. Blockchain and cryptocurrencies were also mentioned in multiple sessions at ULI Europe, but no one yet knows how the distributed ledger technology can be applied to the real estate market. The long-term question, Knoflach said, is “are we the ones changing our industry or will we be changed?”