The 'Intelligent Era' for Real Estate

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The 'Intelligent Era' for Real Estate

Published 27 June 2019

Tim Ryan is Head of Technology at DAC Beachcroft and a founding member of the firm’s PropTech team. Here he considers the impact that the eroding boundaries between physical and digital will have on the sector and on office space in particular.

 

The coming Intelligent era, marked by pervasive and ambient connectivity, together with artificial intelligence, will rewrite the foundation of many of our assumptions about business. As the digital and physical merge, industry boundaries will continue to erode, requiring a fundamental rethink of the business organisation, the capabilities needed to compete in it and the shifting nature of competition. Aiming for targeted or limited disruptions will no longer suffice when the rules of engagement shift so profoundly[i].

 

New mantras

The dawn of the connected intelligent era is ushering in new economic models and operations. Fewer and fewer activities require the constant colocation of labour, while physical spaces are merging with the digital. This will increasingly shift spatial economics[ii], as an increasing number of activities become geographically disconnected. This tech shift will mean consumers will not just be doing things differently, but doing them in different places. The old mantra of location, location, location needs to be re-thought. 

The impact on office space could be dramatic, especially when considering the potential decentralising impact of autonomous vehicles. 73 percent of all small business teams could have remote workers by 2028[iii]. By 2030 at least 11 percent of vehicle miles traveled by commuters could be via autonomous vehicles.  The impact of what people are prepared to do for commuting and what they are able to accomplish on that commute could rewrite property values previously dependent on transport links.

 

Connected RE

The Internet of Things (IoT) is fast becoming a key driver of future business, with IoT data growing twice as fast as social and computer-generated data[iv]. Nearly a fifth of the data generated worldwide by 2025 – and a fair chunk of that of IoT origin – is forecast to be marked as ‘critical’ to daily life, and nearly a tenth as ‘hypercritical[v].  Having an IoT strategy able to inform decision making could emerge as a critical success factor.

Success will also require real estate to rethink IT models, including industry use of cloud. The future of computing lies at the edge of networks, such as with IoT linked devices and infrastructure. The coming volume of data renders cloud use uneconomic, and too slow to respond[vi]. By 2025, nearly 30 percent of data generated will be real-time[vii] and more than 50 percent of data is forecast to be managed autonomously[vi].

Connectivity will become a key societal issue. Some 43 percent of business leaders are looking to move offices to cities with a compelling smart city vision[viii].Cisco estimates that smarter cities will have impressive increases in efficiency with cities potentially improving their energy efficiency by 30 percent in 20 years[ix]. Such cities could become tomorrow’s trade, finance, logistics, tech or commercial centres, challenging existing global networks and patterns[x].

 

On the job learning

It has been said that ‘…everything invented in the past 150 years will be reinvented using artificial intelligence within the next 15 years[xi].’ Indeed, across all industries, only 8 percent per cent of CEOs believe their business model will survive the current levels of large-scale digital disruption[xii]. The creation of new revenue streams is perhaps the killer A.I app though, with machine learning making the difference in the management of structures designed and built in BIM (building information modelling software), for example, or turning raw data into insight and something actionable. A.I will also radically redraw talent requirements, which are likely to feature artificial expertise, data analysis, experts on modular design and logistics and even resilience experts and circular economy specialists[xiii]

A.I will blur and collapse both organisational and industry boundaries. Rethinking and reworking working relationships vis-a-vis external partners and even rivals could see the emergence of powerful construction and real estate platforms. The role each player assumes within this ecosystem remain largely undefined; that of orchestrator, hub, contractor and so on could all change depending on how digital the industry becomes and the degree to which skills and capabilities shift in importance. Today’s strengths could become tomorrow’s weaknesses.

 

Green and flexible

Global demand for green buildings is expected to grow significantly by 2021, with around half of building groups expecting at least 60 percent of their projects to be 'green' by 2021[xiv]. This could be but an ignition of the market, with global green buildings set to account for $24.7 trillion of cities’ climate investment opportunities[xv]

Infrastructure designed around future needs, able to resist future hazards and remain flexible enough to repurpose, often incurs a higher initial cost. However, as McKinsey notes, it is often ‘…a worthwhile investment that pays for itself in the long run[xvi].’ Research from Boston Consulting Group suggests there could be several viable 3D-construction businesses within five to ten years[xvii]. Mini grids could also appear, bolstered by changing utility models later in the 2020’s. For example, residential renewable power generation and storage could be profitable for Londoners by 2030[xviii], shifting the economics, purpose and utility of much real estate.

 

Planning for the future

Our current thinking, embedded in models from the 19th and 20th century, is ill-prepared for the fundamental changes that the intelligent era heralds for the nature of competition and collaboration. Technology must be aligned strategically with organisational and market change. What we do, where we do it and how we do it are all vital issues for investors, developers and occupiers to consider.

 

References

[i] Source: Gerd Leonhard, 2018

[ii] Source: Forbes, 2017

[iii] Source: Small Biz Trends, 2019

[iv] Source:IBM, retrieved 2018 

[v] Source: IT Pro, 2018

[vi] Source: FT, retrieved 2019

[vii] Source: ZDNet, 2018 

[viii] Source: Cognizant, 2018

[ix] Source: Visual Capitalist, 2019

[x] Source: World Economic Forum, 2018

[xi] Source: Raconteur, 2018

[xii] Source: Raconteur, 2018

[xiii] Source: World Economic Forum, 2018

[xiv] Source: Business Green, 2018

[xv] Source: Smart Energy, 2018

[xvi] Source: McKinsey, 2018

[xvii] Source: Boston Consulting Group, 2018 

[xviii] Source: Imperial College London, 2017

Authors

Tim Ryan

Tim Ryan

London - Walbrook

+44(0)20 7894 6978

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