Technological Impact on Office Properties
The introduction of new technologies by landlords and residents has revolutionized the source of real estate revenues and uses of space. New hardware and software technologies, along with E-Commerce, the Internet (Edge Computing-Micro Data Centers), AI/Machine Learning, Block-Chain technology, etc. are altering the way corporations and individuals utilize space.
The real estate industry and owners have not been known to embrace rapid changes in technology. However, major public and private owners are now committing large sums of capital for new technology integration. These technologies will significantly change the real estate industry, and in particular, the way owners invest in and finance properties.
Adoption of new technology processes face severe challenges in the real estate industry. There are major problems facing corporations when introducing and integrating new technologies. Major problems are found in the assessment, compatibility, interface, acceptance, and implementation phases of the technology program. Actions a firm may take to overcome these problems are to change management style, gain access to capital, build database management and interface systems, implement end-user-marketing programs, and develop diagnostic systems.
Real estate based Virtual-Open Enterprises (VOEs)
A radical way to deal with the adoption of new technologies is to structure a real estate company as a Virtual Open Enterprise
Real estate based Virtual-Open Enterprises (VOEs) must have a robust system of internal or virtual company employees that can autonomously act to configure and optimize internal systems. Employees and leadership must have a way of providing common goals to diverse stakeholders in the firm, so that efforts optimally converge on what is wanted, and meet customer needs. Employees and leaders must have a way for all components of the enterprise to be rewarded and punished by contracts, and not rely on predefined, static business boundaries, nor expensive static, old-style employment contracts.
Some of the main features of VOEs are:
● Corporate culture focused on impacting not only the internal company environment, quality of products and services, profit and revenue growth, but also impacting the global environment.
● Mission driven strategy that focuses on reinvestment of profits in achieving company goals and objectives.
● Business participants have a decentralized common knowledge for which all stakeholders focus on quality improvement, project teams are self-organized and managed, focusing on efficient-effective project-product completion.
● Universal accountability, responsibility, and transparency of value contributions from all participants in the processes.
● Open environments for collaboration and investment for mutual ownership of company interests with other stakeholders (network) in the company.
● Revenues and earnings are used to plow back into human and physical capital to achieve higher Return on Investment (ROI)/Return on Equity (ROE)/Return on Assets (ROA).
● Rewards, penalties, and incentives are calculated and shared amongst the stakeholders.
Impact of COVID-19 on Space Utilization
The impact of COVID-19 on commercial space and investment markets have changed significantly since the inception of the (COVID-19) pandemic as of January 2020, and the impact on the commercial real estate market as of March 2020.
Commercial real estate is at an existential phase of its life cycle. Due to the pandemic and the subsequent severe recession, commercial real estate space utilization, and subsequent highest and-best-use, has changed dramatically. We are now witnessing office buildings at 100% vacancy rates in some markets, and quality classes; tenants defaulting and breaking their leases; and without significant fiscal and monetary policy accommodation, intrinsic values for commercial real estate could have collapsed.
The reuse of existing space, to its highest-and-best-use, will best be seen in the transformation in reutilization of office space. The expected forecast is for a rapid reuse of other types of residential and commercial spaces: hotels and resorts, storage, industrial facilities, etc. The main property sectors benefiting from this transformation are life science, data centers, and storage facilities.
According to McKinsey and Real Deal, social distancing and lockdown of physical space magnified the transformation over to remote and distance work environments, drastically changing tenant and customer space utilization and experiences. The pandemic negatively impacted hotels and retail, but benefited biotech and pharmaceutical companies, driving demand for space.
The concept of the modern office building no longer holds true
The concept of the modern office building no longer holds true, technology in the COVID-19 environment has altered the economics of office buildings. There are five important areas where technology has impacted offices:
● Energy saving devices and systems
● Internal and external environmental quality control
● New processes and revenue streams
● Maintenance
● Recycling
For example, major disruption to the utilization of office space has come from:
● Computer-Assisted-Design-Build (CADB) improve design-construction-delivery aspects
● Fuel cells, solar, etc. produce energy savings
● Heating, Ventilation and Air-Conditioning (HVAC) systems provide better environmental controls
● E-commerce, Internet, Social Networks provide new revenue sources
● Trash compactors and shredders improve recycling efficiencies
Office markets have been overtaken by mobile telecommunications and electronics:
● Automation
● Big Data Applications
● Block-Chain
● Cellular phones
● Fax Machines (Electronic Documentation)
● Internet (Edge Computing)
● Laptops/Tablets
● Robotics
● Micro-Data Centers
These technologies shift corporate users to telecommuting, hoteling, teleconferencing, networking, etc. to reduce space costs.
Conclusions
Over the years due to rapid technological, social and cultural change, the real estate industry will have to make radical changes to its management style, organizational structure and technology applications. The goal of the industry is to ride the digital revolution by creating a global network of innovation, products and solutions.
By adopting the virtual-technological organizational structures and advanced technologies (AL/ ML, blockchain, etc.), real estate organizations will be able to confront change and uncertainty, leverage ideas and techniques, create value webs, and move toward mass customization.
The unique technology for the real estate industry is not the technology itself, but the technological innovation in organizational design and behavior, the creation of integrative-open global systems of communication and management.
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