Transformation through Technology

While many are discovering how much they can achieve in the confines of their own home, residential properties have their inherent constraints, i.e. space, ceiling heights, loading, electricity capacity. Other constraints may be the scale of economy of certain services or ownership of equipment. It is still much easier for one to visit an imaging clinic than to purchase and operate a MRI machine at home or have the space and equipment for a soccer game at most home (at least not yet). While the above examples are driven by certain necessities, real estates involving discretionary spending such as retailers and leisure facilities face a much steeper uphill battle.

Some malls understood the attractiveness of online social media platforms, and were able to boost traffic with installations aiming at Instagram users, or rare Pokemon in their premises with correlation with Pokemon Go, the immensely popular AR mobile game. Others have even taken that idea to the full extent, namely the Ice Cream Museum, a source of many viral pictures and videos. Interestingly, these particular businesses require large floor plates and generous ceiling heights in heavy footfall locations, which are the kind of premises that retail tenants are divesting from due to poor profitability despite their marketing potential as flagship stores. Although many of these tech integration were successful, their repeatability is questionable and unable to bridge the online offline chasm exposed by Covid-19. With the onset of 5G technology, there shall be many ways and new directions where real estate can further its connectivity and technological integration. Landlords and tenants alike will need to explore ways to complement the technological trend to ensure commercial real estate will continue to be indispensable.

Real Estate Woes in the Digital Age

Why spend time and money to travel to places to do something that can be done in the comfort of home? Many find themselves asking this question as they acclimate to staying and working from home with the virus outbreak, by both employees and business owners. Internet connectivity has allowed the comfort of residential to compete with other sectors of real estate. For technology companies, the Coronavirus may even be a blessing in disguise in the long term, allowing them to eliminate most of their office space needs and overhead costs.

Real Estate’s historical performance has perhaps enabled landlord’s complacency.

As the internet becomes increasingly accessible, the rate of digitization and technological integration across companies and industries becomes exponential. Yet real estate remains very much a lagger. Partly due to QE stemming from the previous crisis, real estate has generally enjoyed decent ROI regardless of their level of technological adoption. As a result, landlords are not incentivized to invest in technology as much as they should. The situation brought on by Covid-19 shines a harsh light on real estate’s inadequacy in connectivity. Sectors like retail are among the worst hit, whose cannibalization by e-commerce is further exacerbated by the virus. Like many industries, real estate needs to reposition itself in the “Next Normal”, and technological integration could be the key in unlocking its dormant values.

 

 

 

 

Telemedicine, among a host of various digital service, is decreasing doctors’ demand for physical space.

Over the years, numerous technologies were employed to enhance real estate’s connectivity and value, such as VR for inspection, shared economy platform in the form of Airbnb, IoT sensors for development and maintenance, monitors for customer analytics, to name a few. Nevertheless, the real challenge lies in its connectivity with the online world. Numerous online services are now replacing our traditional way of life; Zoom replacing the need for office, telemedicine replacing clinics, etc. While these online services do not completely remove the need for real estate, they are more than capable of significantly dampening demand and therefore crippling valuation.