Data, climate and hybrid work transform commercial real estate

Real estate is the largest asset class in the world. Any two-bit internet-preneur will tell you: Make a bit of money selling something, and invest that in real estate to make that coveted passive income. It makes perfect sense, everyone needs a roof, but how we determine what that roof is worth is changing quickly.

“I thought that travel was quite backward in its use of technology and it turns out that the real estate world is very similar, and in both cases, it comes from being very successful. These people have made a lot of money,” says Raj Singh, managing partner of JLL Spark Global Ventures, the corporate venture arm of commercial real estate company JLL.

“They continue to add value, and what is the issue, I think, for them now is that the world changes and so the way that you add value changes as well,” says Singh, who worked in corporate venturing in the aviation and mobility sectors for what was then called JetBlue Technology Ventures.

The onset of data as its own asset class, as well as higher demand for sustainability and the effect that the pandemic has had on office occupancy, will have profound effects on how commercial real estate is managed and valued.

Info-structure

Up until now, real estate has done a great job of raking in tons of money through rent, without using that much technology. That is now set to change, and there may be a point in the future when the data that buildings generate will be its largest source of income.

Data regarding occupancy – detailing who is in the building and where – can be used to manage capacity and flow, according to Singh, as well as to determine what kind of amenities or furnishings would be needed. Measuring how many people come in and out, and in how many numbers, would also be useful for third parties like city planners to assess the relative impacts of things like congestion around the area.

Mobility providers can use that data to help determine how to position their assets – across rail, road or other transport mediums – to accommodate the expected numbers. Utilities, for their part, would also benefit from data relating to how buildings are prepared to deal with expected weather conditions through their heating and cooling systems.

Beyond that, data can be used for internal purposes to determine if, and to what extent, certain parts of the building need maintenance, or even if they will need maintenance in the near term

“At every level of the way that you use a building, there’s data coming out of that,” he says.

“I think that eventually building owners and building tenants will make money providing those data insights and giving permission – I’m sure it’ll be mostly anonymised, it won’t be so personal information in there – but giving permission to third parties, saying take that data and build a better service around it, and we’re really just at the start of that.”

On top of the pull factor that is the additional revenue from data, there are also push factors such as the growing unwillingness of workforces in the US, for example, to work low-wage jobs, resulting in building owners becoming more likely to automate more than they have in the past.

Large institutions such as private equity funds and insurance companies continuing to amass large portfolios of commercial real estate is also making it increasingly difficult to manage those portfolios without the help of technology.

Building green

Another push factor comes from a higher focus on ESG and sustainability, given that a sizeable chunk of most companies’ carbon footprint comes from their physical buildings.

“I expect that we’ll see a lot more startups that are focusing on reduction of power use. There’ll be a lot more startups focusing on measuring and reducing water usage, the production of waste. All these things are easy wins for the industry say, because if I do that, I pay less in my utility bills as well, so it’s like a win-win there,” says Singh.

Modularity is coming down the pipeline and may represent something of a game changer for how sustainably buildings are put up. The bespoke nature of how buildings are built today means the carbon footprint is quite wide. Modular building processes – which feature standardised components that can be reconfigured like Lego – have the dual advantage of at least partial assembly offsite and a much more granular way to measure carbon.

Much in the same way as we’ve seen with other industries (think consumer goods, or for the cynics, music) things start off as artisanal, even hand-made products, before becoming mass-produced to maximise use and flexibility. Instead of putting up entire buildings, we may be able to one day produce components at scale and assemble them as needed.

Climate risk is also becoming a factor in where people are deciding to buy or place new buildings. Severe weather – floods, fires due to dry weather, or other natural disasters – cannot be ignored to the extent that they have been in the past. At the same time, the quality of a building’s green credentials is increasingly factoring into where companies decide to take up leases. They are oftentimes willing to pay more – the so-called green premium – to be in a more eco-friendly building.

Hybrid future

A changing climate is not the only reason a building owner may want to reconsider where they buy or build. One of the enduring changes in the aftermath of the pandemic has been the effective death of the five-days-in-the-office schedule, and with it, some of the old ways of thinking about how to manage commercial real estate.

One effect will likely be the eventual phasing out of the large, centralised company headquarters in the middle of town, which have typically been located based on the most convenient commute, on average, for employees. With more fragmented work schedules, that may change.

“I call it the de-atomisation of corporate HQ. So rather than having a big shiny building in the downtown, you maybe have multiple locations that are smaller, and you place them in a way that works with the demographics of your workforce,” says Singh.

“Flex” is becoming the name of the game for building owners. How can you take your existing assets and make the most use of them when occupancy is irregular? How best can you make your space as nimble as possible to accommodate as many uses as possible for a wider array of tenants?

Even in the same company, the function of the physical workspace is likely to change. “I don’t think people will go back to buildings just to sit in offices and work at their desk because they can largely do that very well from home,” says Singh.

“You’re going to go back for [the social aspect], but you also going to go back to collaborate – it’s much harder to collaborate when you are remote – you’re going to go back to innovate. And so you have to think now about: all the offices I have, are those spaces appropriate for those sorts of activities? And probably not all of them are.”

Platforms like Zoom won’t necessarily always be the standard of remote working communications, either. More sophisticated systems are already coming into place for bridging the gap between remote and in-the-office. JLL Spark has already stepped into this sector with its recent investment in Shared Studios, a developer of technology to collaborate via full-body streams, strengthening the illusion of being in the same place.