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Future Trends in Real Estate

Future trends in real estate are tied up with wider transitions happening in the global economy and society. The forecasting of those trends are, inevitably, subject to much uncertainty and caution.
© HBS and RREF

Future trends in real estate are tied up with wider transitions happening in the global economy and society. The forecasting of those trends are, inevitably, subject to much uncertainty and caution.

In this Step, you will explore some of these issues and reflect on what they mean for property management. Both of these areas of practice might seem relatively mundane, but the changing socio-economic and environmental landscape mean that each will need to adapt and respond to some quite significant changes that will affect all aspects of property.

Real Estate Business is Changing

On the economic front, the nature of business is changing and has been for some years and the need for flexible space to run businesses has intensified. A useful graphic based on research at the University of Reading shows the continuum between property as a product and property as a service. Companies will often manage their property portfolio to include a mix of these different types of property. They may, for example, own their headquarters as a freehold building and rent other property as the company expands or contracts.

Property as a Service and Property as a Product

Arrow with with 'Office as a Product' and ';Office as a service' at the bottom. Then in order from top to bottom: 'Second-hand office purchased freehold from a private seller', 'New office freehold on a business park acquired from developer (service level payments related to management of private roads, landscaping, and other central services)', Dedicated serviced offices (flexible lease, maybe developed in partnership with developers)', 'Leased office space (terms of lease will determine the level of service provided)', 'Serviced offices available on an as-needed basis'.

Property Technology

This drive towards flexible ownership and use of property and the dramatic rise of new information technology has spurned a whole new set of arrangements, broadly called ‘Property Technology’ or ‘PropTech’ for short. PropTech covers:

  • new financial technology (closely linked to the globalisation of real estate investment and called ‘FinTech’),
  • smart building technology (predominately focused on property management),
  • and technology facilitating the ‘shared economy’ (which has impacted the marketing of property covered in the next Step).

The diagram below comes from a report by Professor Andrew Baum which explores the emerging world of PropTech and how it’s affecting real estate investment, development, management and sales.

Venn diagram to show PropTech and Fintech as overlapping circles with 'Real estate FinTech' in the centre. There are additional ovals over the PorpTech side stating 'Smart real estate' and 'Shared Economy'

Venn diagram to show PropTech and FinTech to be separate groupings, sharing one overlap which is Real Estate FinTech © Andrew Braum.

 

Smart Real Estate

Smart Technology is the area of technology that is likely to transform the management of property into the future. The term ‘smart real estate’ has been coined to describe technology-based platforms which facilitate the use of property for owners, managers and occupiers. As you can guess this is closely related to the wider concept of ‘smart cities’.

Examples of ‘smart real estate’ include platforms and applications that are used for tenant management, electronic payment of rents and tools for landlords and tenants to communicate. They are also being used in building management for quantifying, monitoring and controlling the use of energy and water, inspecting buildings for faults, security, cleaning and space use. Similar technologies are now making their way into the residential sector and just about all sectors of property are now subject to building management systems of some kind.

James Dearsley has produced a useful infographic which maps out the companies and applications operating in the world of PropTech. About 20% of available PropTech apps are targeted at the control and management of buildings and much of this technology is responding to calls to improve the environmental efficiency of buildings to make them more sustainable.

An infographic to show key logos of companies broken down into their specialism

Infographic to show the organisations in the ‘PropTech community’ broken down by sector ©James Dearsley http://www.jamesdearsley.co.uk/ See larger version

 

Smart Buildings

The concept of smart buildings has two dimensions:

  • one focused on building use and management (covered above) and
  • another responding to the technology needs of the occupiers.

One area in particular illustrates the scale of the new demands being placed on property; that of electronic data management and storage. Facebook, for instance, has constructed six massive data-centres in the USA and Europe in the last eight years and plans to continue and expand this building programme in the near future. These centres require very high capacity broadband connectivity and the supply of ‘cold storage’ technologies to handle the millions of photos and videos we upload every day. These in turn make huge energy demands therefore placing energy efficiency and on-site renewable energy production firmly on the company’s agenda.

Real Estate and Blockchain Technology

One of the newest concepts arising from the PropTech revolution is Blockchain technology. This is a digitised distributed ledger system which allows the multiple parties involved in property dealing and management to:

  • share information and
  • ‘internalise’ legal contracts, management information and the payment and distribution of fees, rents and profit.

In due course, it is expected that it will host further innovations like the use of ‘smart contracts’ and lease agreements, thereby making the management process speedier and economically efficient.

The future of property management is tied-up with the application of new technology in a globalising world. A world that needs to be more environmentally efficient and collaborative in the way it runs business and the property services that sustain it.

Glossary

You may find the A-Z glossary in Step 1.5 helpful. It includes definitions of key property-related words and phrases.

© HBS and RREF
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