Real Estate Turns to Tech in Time of Transition, ULI Study Finds
At a time of uncertainty and flux, commercial real estate practitioners are increasingly turning to tech solutions, according to the Urban Land Institute’s annual “Emerging Trends in Real Estate 2019,” released during the organization’s fall meeting in Boston last week.
The research, conducted by a joint venture between ULI and PwC and based on a survey of 1,630 individuals from the commercial real estate sector and follow-up interviews with 750 of them, tracked leading trends to watch in the coming year as well as an overview of the market. This year participants pointed to a particularly complex landscape, in which slowdowns in overall economic growth and productivity has led to a more cautionary investment approach and an increased interest in high-tech solutions.
Even those who see expansion continuing into 2020 for property as a capital asset indicated it was a time to “harvest, hedge…[and] be cautious,” one veteran asset advisor told researchers, adding that “2019 will be a turning-point year” in which “the capital markets correction is coming.”
As investment margins have compressed, the study found that capital is being utilized across a spectrum of asset types, from core assets to opportunistic investments with higher yield potential.
As an international investment fund executive told ULI, “The differentiation of opportunities has—to a degree— expanded; niche product types like senior housing and self-storage are being viewed as ways to ‘round out’ real estate holdings, taking advantage of specialized uses that are not ‘averaged out’ in major trends.”
Transparency of data, now more commoditized and less expensive, has made real estate financial markets more efficient and sharpened competition.
“Transparency in data is very powerful,” one senior researcher told ULI in the report. “For one thing, it has driven transaction time down.”
Tech is also being turned to as a solvent for both labor shortages—in its ability to automate functions—and overall slowdown in productivity and growth.
Labor Shortage and Low Productivity
The declining birth rate and sharply reduced immigration represents a double whammy for the U.S. economy, which should ripple into real estate where labor shortages—particularly in the construction sector—has grown more acute, the report also indicated.
Despite a temporary bump provided by the tax stimulus package in 2018, growth since the global financial crisis of 2008 has been moderate at best, the survey finds, citing low productivity growth as the key factor.
According to the recent Congressional Budget Office projections, gross domestic product is expected to grow just 1.9 percent in the 2018 to 2028 period, with job gains averaging just 0.5 percent annually.
To cope with lower levels of productivity, the real estate sector has been incorporating and developing new platforms for so-called fintech companies to automate routine functions. And tech geared toward the sector, which, according to statistics from the U.S. Bureau of Economic Analysis, represented 13 percent of the country’s 2017 GDP, is following suit. These include Fifth Wall Ventures, the $100 million revenue-generating venture capital firm that invests in startups and tech aimed at the “built wall.” CB Insights forecasts that real estate tech investment could top $5.2 billion in 2018 and target everything from fintech and proptech, supply chain logistics to end user convenience, data analytics to tailored amenities.
Artificial intelligence, like voice recognition devices, has become more commonplace, and will continue to impact the way we work, live and shop—and the built environments that serve us. Forrester Research has estimated that by 2027, AI could impact up to 25 percent of the daily tasks performed in every job category and enhance the personalized intelligence of future workers.
Much attention, the report indicates, has been paid to the application of AI in residential applications to automate building functions and streamline services, but as it is adopted more widely by the transportation and logistics industry, AI may potentially change both the look and locations of future industrial locations in the supply chain.
While AI’s ability to automate building and property management functions are the so-called “sunny side of the street,” the data collected to do so may also compromise tenant security, researchers point out. Property owners will need to need to secure information and assets from cybersecurity threats.
Overall, real estate owners were the most optimistic in this year’s study, rating business prospects for 2019 at almost a four (3.9) on a one to five scale, ranging from abysmal to excellent. That was followed by residential builders and developers at 3.7, while real estate lenders and security investors were less bullish, coming in at 3.6 and 3.5, respectively.