Disruption: Real Estate’s Hurdle

unknown

Disruption [dis-ruhp-shuh n] noun: 1. Forcible separation or division into parts; 2. A disrupted condition; 3. Business. A radical change in an industry, business strategy, etc., especially involving the introduction of a new product or service that creates a new market.

The future of digital innovation exists right now. Throughout everyday life, the digital grid influences our decisions, and augments the tasks we accomplish. At any point, one can get directions to the new chic restaurant, order through an on-line merchandiser, favorite a friend’s picture of their adorable pet, pay bills, and make flight reservations to escape to white sand and blue water. Retailers, financial institutions, and many other industries have determined that their offerings include technology and digital capabilities; going beyond the previously determined core competencies. Real estate has been resistant to the change thus far, as evidenced by the backlash to new organizations to the sector such as Airbnb.  Despite the public policy questions that have arisen, digital innovation will eventually disrupt most if not all real estate asset classes and functions.

Jason Henderson, Baker 2016
Jason Henderson, Baker 2016

In May 2016, the Cornell Real Estate Review highlighted significant implications of the digital age in real estate. Cornell Baker Program in Real Estate Graduates Jason Henderson ‘16 and Jason Spencer ’16, Senior Editors, discussed the implications of Autonomous Vehicles (AVs) on real estate. Their findings indicated that the introduction of AVs could impact existing and future buildings in the following manner:

  • Reduction of parking demand in CBD office space
  • Space conversion or sale opportunities of parking in multifamily and hotel space
  • Increased sustainability of the built environment
Jason Spencer, Baker 2016
Jason Spencer, Baker 2016

Further, with new construction, AVs will require fewer parking decks. This will allow for developers to dedicate space in more useful forms. Obviously, the increased usable space raises building valuations, thereby providing larger profits upon disposition. The findings in Henderson and Spencer’s piece will be cited in Deloitte’s Commercial Real Estate Outlook 2017, in addition to having been mentioned in National Real Estate Investor.

Developers and asset managers of office buildings will have to make important decisions to satisfy the needs of occupants beyond the implications AVs present. With employees now able to work from anywhere and anytime, the use of space will be of high concern. The traditional cubicle-based office that detracts from collaboration will no longer persist. Employees require more interaction and connection to the digital grid. Through the spaces that have been introduced by architecture firms such as Gensler, executives have found that the workplace becomes more productive through the collaboration of ideas that the connected office provides.

Retailers will also look to introduce new products and services to best take advantage of these new technologies. As and example, Uber recently partnered with local restaurants in gateway markets to serve as a delivery service; thereby allowing an industrious driver to pick-up/deliver food and secure a driving service fare within the same neighborhood, increasing the productivity of their time. Further, Chipotle has been testing drone burrito delivery service at Virginia Tech and other college campuses. This follows behind Amazon.com’s well-publicized trials of transporting purchases via drones in London.

With these advancements, retailers must consider the strategic advantages of their real estate space. Although the space of retailers may not increase, their overall portfolio will by default undergo a redevelopment. Current spaces will need to transform to create a unique experience based on the retailer. Reduction of space will not be the key driver, but rather digital disruption within the retail asset class that will require re-imagination and repurposing of space.

Technology changes will also transform how projects are financed. With individual investors now able to fund movie projects and inventions online via friends and fans, entrepreneurs have greater access to funding. Real estate has already had the influence of crowd funding reach its door. Online providers such as Realty Shares and RealtyMogul allow investors to diversify their real estate portfolios, and investors looking to diffuse $1 million can park their funds in more than a hundred properties. Because of this, developers no longer have to secure funds through traditional lenders for their projects. Instead, if a project meets the risk profile of the investors within the defined pool, they have the opportunity to break ground. This may force financial institutions to create smaller subsidiaries to gain access to the increased potential yield of these projects in order to maintain their market share and earnings.

At the Cornell Real Estate Annual Conference in New York City on October 13-14, alumni, students, and guests will have the opportunity to listen, discuss, and question how disruption has, and will influence the numerous facets of real estate. Distinguished panel disruption-re-registration-finalspeakers such as Michael Gross of WeWork and Gary Phillips of Allianz RE of America will provide highly anticipated commentary. The two-day conference will be highlighted by Thursday evening’s keynote speech from Cornell 2016 Real Estate Industry Leader Award winner MaryAnne Gilmartin of Forest City Ratner Companies, by Friday’s discussion on the Introduction of Change and the Built Environment,as well as the annual Think Big/Think Bold panel. With the aforementioned implications of technological disruption, the opportunity has come to leverage digital innovation in real estate.  This period of Disruption has arrived, and the pace of change is accelerating. Cornell looks to be the leader in providing students and alumni with the tools to be leaders in real estate technology moving forward.

Print Friendly