Impact of digital revolution on real estate set to intensify, says Aviva’s Levis
Technological innovation is influencing the fundamental drivers of real estate supply and demand and also helping to shape the form, function and management of buildings, says Richard Levis of the global real estate research team at Aviva Investors.
Levis says that to maximise returns and manage risks it is important that international investors understand these changes.
“There are three main areas of change in digital technology that we expect to impact on real estate. Firstly, the boundary between traditional services and technology sectors is likely to become increasingly blurred. Secondly, improvements in computer processing power, data analysis and software sophistication will enable a growing range of human tasks to be automated with knock-on effects for real estate demand. Thirdly, the ubiquity of digital devices allied with the development of cloud computing systems is likely to continue to enable new and potentially disruptive business models to emerge.
“Together, these developments can lead to changes in the underlying occupier demand for real estate. But while the need for flexibility and efficiency from business space will grow, technological developments could also improve the ability of buildings to respond.
“With digital businesses typically being office-based employers, office markets should be the main beneficiaries of these expected developments. We expect this to favour existing tech clusters and core office markets in the major city centres of advanced economies.
“As well as changes in occupier demand, new improving digital technology will affect the physical form and function of offices themselves. For example, the rigid demands of traditional IT infrastructure will relax as cloud computing and wireless technologies become more prevalent. As a result, there will be increased opportunity for new and innovative architectural and design solutions for offices.
“The importance of ecommerce is growing but digital technology is also enabling traditional retailers and their customers to have a much more sophisticated understanding of one another. Although online shopping will continue to grow in importance, we believe physical property will remain critical to retail as the physical distribution, collection, return and ‘show rooming’ of goods will go on.
“Future distribution warehouse demand will largely be shaped by retailers’ multi-channel business strategies. For non-food retailing, this is likely to mean a higher demand for flexible and accessible distribution hubs together with small regional ‘nodes’ close to areas of high population density. As items increasingly move between homes, warehouses and stores, the capacity of buildings to accommodate a two-way movement of items will grow in importance.
“The internet of things will enable the environmental and social impacts of occupying buildings to be more easily measured and understood. As the availability of this type of information improves, the responsible and social investment policies of both occupiers and investors will compel them to demand more sustainable buildings and building management practices.
“Building occupiers will also be able to monitor and manage their use of commercial floor space to a much higher degree of accuracy than before. This should lead to improved energy, water, waste and space-use efficiency leading to increased demand for adaptable buildings that can integrate the appropriate technology.
“We also expect the collection and interpretation of real estate management data to improve. For example, more information on leases, tenants and building-level financial and environmental performance will become available for analysis. The increasing flow of information should enable better building and portfolio level management decision making.”
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