It is unsurprising that the wider real estate industry has remained stubbornly analogue until fairly recently. The pre-eminence of a tried and tested model focussed on ‘bricks and mortar’ assets in core locations delivering reliable IRRs over long-term leases seemed utterly dominant, until it suddenly wasn’t. Real estate investors are needing to learn how to stay successful in this new tech world.
Tech has certainly been a key disruptor across every real estate asset class; first the threat of online shopping vs in-store retail, then the advent of working from home and demand for flexible office space challenging the historic fixed office model, AirBnB and short-term lets pushing hotels into a far more competitive mode and, of course, the ultimate curveball of Covid-19 disrupting everything in its path.
In parallel the evolution of Corporate Social Responsibility (CSR) and sustainability policies from an oft-dismissed ‘greenwash’ sideline to established Environmental, Social and Governance (ESG) metrics that are absolutely core to investment allocation have forced multiple waves of change across every business sector. Larry Fink’s annual letters to BlackRock investors have heralded that change, highlighting that “climate risk is investment risk” and that financial performance without “social purpose” was no longer deemed to be good enough.
Space as a service and the crystal ball
Real estate investors, developers and operators are now grappling with the need to be innovators, disruptors and futurists, all the while maintaining successful portfolios and growing stable returns.
As real estate and technology strategist Antony Slumbers notes: “it’s not the case that everything you already know about real estate is no longer important, it’s just no longer sufficient.”
We are now dealing with buildings that are still inherently illiquid assets at a time where flexibility and adaptability are the top priorities and the previously rigid lines between asset classes are increasingly blurry.