This is a general summary of key participant points from the London launch of SMARTInvest Real Estate by The Grid Media Ltd in partnership with Bird & Bird LLP on July 19, 2018.
Michael Rudd, Co-Head, International Energy & Utilities Group and Marco Nicolai, UK Head of Construction, Bird & Bird LLP
May Khizam, Founder & Chief Strategist and Tasneem Mayet, Research Director, The Grid Media Ltd
The private round table was attended by market leading participants representing a broad cross-section of the built space value chain from the United Kingdom, Singapore and the United Arab Emirates. The discussion focused on front line thinking, with a focus on disruption, at the intersections of investment, real estate and technology.
On the topic of leadership in the real estate sector, participants were hesitant to accept the findings of PwC’s Global CEO Survey 2018 (results below) that indicates real estate CEO’s are a lot less concerned than ‘global CEO’s’ about present-day challenges such as cyber threats, the speed of technological change, changing consumer behaviour and new market entrants.
|Real estate (30)||Global (1,293)|
|Speed of technological change||10%||38%|
|Changing consumer behaviour||7%||26%|
|New market entrants||7%||20%|
Source: PwC Global CEO Survey 2018
The participants agreed that the real estate sector, being both labour and capital-intensive, is ripe for disruption which is both a vulnerability and opportunity for the sector. They shared examples of how their organisations are anticipating and managing developments brought about by rapid advances in financial and building technologies, in addition to other influences.
Contrary to the survey findings above, participants cited robust in-house practices ensuring risk assessment of cyber threats throughout their supply chains and how those practices were becoming an inherent part of company policy with definite KPIs being set to harness cyber resilience among other perceived threats.
In regards to development and management of assets, comments were raised about the management of different information systems that ‘talk to each other’ or are kept separate and the importance of dealing with vulnerabilities that arise either way.
The participants discussed changing consumer expectations and behaviour driven by technology (and, in turn, driving it!). In the retail ‘bricks and mortar’ market, observations were made about the impact of on-line shopping ranging from the increased investment in warehouse, logistic centres and data centres to strategies to attract customers to ‘bricks and mortar’ retail destinations (e.g. major shopping hubs promoting themselves as ‘destination hubs’ including through events and various entertainment facilities). In the commercial market, participants noted the increasing innovation requirements of commercial tenants and the growth in non-traditional tenants such as through co-working spaces. The individual and technology are increasingly coming to the forefront of development and building management, requiring landlords to adapt to various dynamics including shorter leases and the need to build or retro-fit office space with a priority on occupant behaviour and connectivity. In the residential market, although various innovations are influencing the development value chain (including what technologies are integrated into the home), most home buyers still prioritise traditional decision making factors like proximity to work, schools, amenities, etc., and affordability (i.e. new technologies incorporated into the home carry less weight in deciding whether to buy).
On a related note, there was discussion about being able to incorporate flexibility into the built environment value chain to accommodate changing user needs or advancements in technological solutions that may well render the systems, or the platforms they run on, obsolete during interim development phases. Participants discussed two industry challenges. First, the potential tension between making development decisions, often years in advance, and the need to subsequently adapt in response to evolving market trends. Second and notwithstanding various policy initiatives regarding smart / future cities, the speed (or lack thereof) that regulation, industry technical standards and template (e.g. construction) contracts each respond to innovation.
Participants also discussed the investor’s perspective. In revisiting the growth in co-working spaces participants noted that shorter and more flexible commercial office leases could impact upon valuations and investor appetite. It was also suggested that investors, who increasingly have access to a wider range of relevant decision making data, are increasingly looking at alternative high yield real estate assets such as warehouses, logistics centres and data centres which have long term leases with a multi-national tenant. In the residential market, it was noted that market dynamics have seen the growth in new developments primarily focused on rental accommodation, such as ‘private rented schemes’. Affordable housing was also discussed, including the higher targets set within London.
Through the discussions various comparisons were made between the UK and overseas markets, with the common perception (with various complexities cited) that it may be harder to adapt the UK built environment to disruption by comparison to other overseas markets. In some of these overseas markets a combination of factors including the greater availability of green field sites and a nimble regulatory environment stimulated more rapid innovation and investment into developments within cities, including cities responding to high urbanisation rates. Participants felt that the UK was well-placed to also adapt and learn from other cities around the globe
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