The Digital Revolution in Commercial Real Estate

As the technology revolution marches forward and demographics shift, we will continue to see their profound effect on many areas of life, including commercial real estate. Worldwide, the commercial real estate industry has been slow to adapt to changing technologies. But the proliferation of automation, the Internet of Things and the emergence of machine learning and big data that are stemming from major advancements in technology are slowly, but surely, finding their way into the commercial real estate space.

Commercial real estate data have become much easier to access and disseminate throughout the industry.

Many data providers can give real-time valuation metrics to users and allow investors access to view properties without having to travel there through programs such as Google Maps. 

The digital revolution has made self-driving cars a reality, and while the technology still needs to be perfected, the potential for it to change the way in which people live, work and play is undeniable. Storage and service lots for autonomous vehicles can be located in inexpensive areas of the city. Real estate from parking garage and gas station structures can be reclaimed and redeveloped into more profitable ventures. While driverless cars will make urban life more attractive, they will also make having a long commute more feasible and urban sprawl may become more popular.

Commercial real estate financing is also moving into new territories as regulatory burdens shift lending from traditional banks to private funds, shadow banks and crowdsourcing platforms. Even commercial real estate lending practices are becoming non-traditional, with the advent of crowdsourcing platforms, which allow people to invest in commercial real estate (debt or equity) with as little as $1,000. It is a brave new world for the entire industry.

The digital revolution has led to an ever-expanding presence of e-commerce, which has both positive and negative implications for commercial real estate. It is forcing many retailers to rethink their strategies for competing in a digital world where ’bricks and sticks’ are being replaced by ‘point and clicks’. Many mall anchors are becoming obsolete and are being replaced by pop-up stores that have flexible leases. The malls that survive are those that repurpose their space, either by including entertainment or by adding living space and new types of stores that incorporate online shopping. Capitalising on e-commerce and finding creative shopping experiences will be increasingly important as well. For example, Nordstrom Local will have smaller-footprint stores with no merchandise, instead providing services such as manicures and on-site tailoring. And some traditional e-retailers have started opening ‘showrooms’ that allow consumers to try on products without large inventory.

Thanks to e-commerce, industrial distribution centres are thriving. Demand for space has overtaken supply, and competition in the market is fierce.

E-commerce retailers typically require a greater amount of space than traditional retailers and supply chain constraints, such as last-mile delivery, pose challenges for owners and occupants in the sector. In addition to distribution centres, data centres are an emerging opportunity for investors.

As more people consume digital content and make purchases online, landlords and owners of data centres are looking to expand faster.

Millennials are also affecting the way people live, work and play, now and in the future. Traditional office spaces, with private offices or cubicles, are giving way to open-office concepts that are fully technologically integrated. Mixed-used space, such as apartment buildings that also include offices, cafés, grocery stores, health and wellness centres, or dry cleaning services, are becoming popular.

Industries in the sharing economy (such as Uber, Airbnb and WeWork), which did not even exist a decade ago, are changing the way that people use and lease space.

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