All industries are experiencing technological disruption. And real estate is adapting less quickly than others. But I hope we’re starting to get it. If not, that disruption can very easily lead to destruction, as it has for many businesses.
Tech disruption in commercial real estate
I was in Madrid speaking at an event to celebrate 30 years of JLL in Spain. To an audience of 400 business leaders, I gave my views on how the real estate industry needs to “surf the wave of disruption”; not only navigate technology, but really embrace it.
Our problem is we’ve got a business model that’s been working well for years. Prime locations, lease lengths, occupiers – they’ve been static, compliant for decades meaning the industry has become passive.
For example, over the last 10 years, a steady 70%+ of real estate investment has been going to G7 countries – much of this to just 10 cities worldwide. But during that period the share of global GDP from these countries has dropped from 45% to 32%. Our default is to continue investing in these same countries. To continue doing the same things.
So why change?
Well, technology is changing things. Not what we do, but the way we do it. I still bank, take taxis, have conversations with my kids…however, I now do all of these using an app. So in five years’ time, how will companies invest in real estate? Differently? You bet!
And despite all the change happening around us, we’re hoping our model won’t change. But it already is. In fact, our usual criteria are all changing to create maximum disruption. Two of the biggest structural changes:
- Buildings are becoming “smarter”. They generate so much data on how they’re being used that we can predict the future. Are you using this?
- And occupiers are becoming more complex. Their businesses are being disrupted, so likewise need non-traditional real estate.
And it’s organisations from outside our industry that are offering solutions to new challenges, such as Blockchain, WeWork and Airbnb. We might hate it, but the future is a demand for shorter, more flexible leases.
In fact, at JLL we predict that within the next 10 years 30% of offices will be rented hourly! Can this be institutional? And although this might be restricted to smaller businesses today, it’s these SMEs that will be the large corporates of tomorrow.
So we need a revolution of sorts. A shift in mindset. We can’t remain passive and keep our fingers crossed that things don’t change further. We’ve got to actually do something. We’ve got to be active.
Some thoughts from Spain
Also speaking at the JLL anniversary event was Alberto Esguevillas, Development Director at global shopping centre operator Westfield. He explained how his company is being active, by identifying new revenue streams in real time advertising opportunities. And by hiring 120 people in a tech office in San Francisco! You didn’t think everyone at Westfield is in retail did you? It’s all about new skills, new ideas.
Talking with some of our Spanish clients afterwards, they seemed to get this. They understand the sooner they get into the mindset of a hospitality business, the sooner they will meet the ever-increasing demands of occupiers. Being active is about linking value (rent) to customer needs, it’s about operating buildings not just owning them.
The beauty about being in Madrid is that people here have seen disruption and uncertainty. They are now prepared to think differently to get ahead, to grow differently and create a future that is sustainable for the modern world as opposed to hanging on to legacy ways of working. Refreshing but never easy.
We may not have all the answers but we will find the partners and new skill sets to find out.
We are getting ready.
Are you ready?
Feel free to visit https://capitalmarkets.jll.com/report/workspace-reworked/ for our thoughts on how you can surf the wave of tech-driven change