The experience we are engaged with often is seeing technology becoming more and more embedded into real estate platforms. We are seeing blockchains becoming a major component of real estate transactions in the U.S. and this is slowly catching on in Europe. If you are assessing any real estate opportunities in the U.S., I strongly recommend you to consider implementing a tech component into the equation, as it would provide you a healthy profit margin and value add.
How could technology disrupt real estate?
We are a Chinese fund looking at a number of modest opportunities in various asset classes, including medical real estate and student housing. One risk factor that we struggle with a bit is trying to weigh risks of emerging or even unknown technologies. Obviously, Airbnb had an impact on hospitality, but what other technologies could alter the real estate landscape? How heavily should technology be weighed as a risk factor in valuation and investment decisions?
This is not a legal question, but more of a business question. It is true that technologies have quite an impact on a lot of industries. We've seen advances like the co-sharing company Airbnb, artificial intelligence, blockchain and robotics. People do talk a lot about how these rapidly developing technologies can affect our typical way of doing business and conducting evaluation. I think a good way is to see how some technologies are changing the real estate industry now, in what way and in what speed. Then try to engage professionals and make an informed decision.
The growing impact of technology on the economy and even real estate is quickly becoming a fact of life. While anticipating the impact of technology on real estate could help in developing an investment strategy, it is not easy to foresee all of the ways it may effect behavior of people for real estate. A few thoughts and things to watch include driverless cars. This trend is expected to take hold over the next 10 years in the U.S. in a big way. It could alter commuting patterns, decisions on housing and locations for housing, and many other things in people's decision-making that would have an impact on real estate. Clearly, if this takes hold, the need for parking when people commute to work would be greatly reduced and could detract from the value of parking revenue for both office and residential users of parking. While I would expect the impact could be much more far reaching, it is difficult to asses its total impact. Another to consider is high-speed rail. This could also alter people's commuting patterns and choices of where to live and work, which would impact real estate values. Greater reliance on public transportation instead of cars would tend to focus greater development and densification near transit hubs, which also plays into some of the cultural things that attract millennials, with people wanting to live closer to their work and entertainment centers. Then there's online shopping. Clearly, this has already had a major impact on real estate and will continue to do so in the future, reflected in greater challenges and declining values for retail real estate and a great upswing in demand for distribution centers and similar types of industrial real estate, which is in short supply in areas of high demand. There is also technology in the workplace. This has advanced to the point where many workers telecommute, which enables them to work from home all or most of the time, reducing the demand for office space and enabling some to live farther away from the office because they may rarely go there in person. While this trend has tapered off, it is here to stay in many industries and has lowered overall office demand. It likely has had some effect on people's decision in housing. Finally, housing and office buildings that do not stay abreast of developments in technology will likely become less desirable to renters and owners and have difficulty in competing in the marketplace. It is not accidental that today in New York, new office buildings are the focus of leasing activity, with new, high-tech space being in great demand and rents that could be 50 percent more expensive than older "Class A" buildings. It shows how much of a premium tenants are willing to pay for a modern, high-tech space. Older buildings are having difficulty competing for these tenants, even with much lower rents and often in better locations.