A.I., Autonomous Cars, and New Smart Cities: The Future of Real Estate
Commercial Real Estate
When was the last time there was a big shift in the technological landscape for real estate? Data science, mobile technology, social media, augmented reality, and blockchain technology have all become household terms seemingly overnight, but what about real estate?
Over the next decade, the real estate landscape is expected to shift dramatically on a national and global level. Advances in technology will impact the way we work, travel, and live. In the United States, real estate is a $35 trillion asset class that generates over one trillion dollars in revenue annually, according to IBISWorld Industry Reports, and could be a ripe industry for disruption. Three trends with the biggest potential to disrupt or shape the future landscape of real estate include advancements in artificial intelligence, transportation, and new, smart cities.
Let’s picture what a future could look like where these three trends take off, and consider the implications for commercial real estate.
The nature of work will be impacted by artificial intelligence, with new occupations emerging and some going away. As machines evolve and acquire more advanced performance capabilities that match or exceed human capabilities, the adoption of automation will pick up first. A study conducted by McKinsey found that about 60% of all occupations have at least 30% of activities that are technically automatable.
Correspondingly, a report from the Economist on artificial intelligence predicts that nearly 50% of all jobs done by humans will be automated in the next two decades. Think of how many personnel have been replaced by personal digital assistants, which have now learned to speak to us conversationally. When nearly half of all jobs are carried out by robots that do not need to work in expensive office buildings in the city center, a new need for different types of real estate like industrial will emerge that can be readily accessed for maintenance.
Artificial intelligence will also make it easier to share information. In real estate, this means the industry could become less opaque for novices. Access to information about a property’s financials, transactions, and operating history could be democratized and lead to faster transactions.
How we invest in real estate will change. In the future, technology companies that gather, share data, and leverage artificial intelligence, machine-learning, and mobile technology will allow for easier investment decision making when it comes to buying, managing, and selling real estate at both the retail and commercial levels. When we have smarter tools for analyzing and underwriting real estate like machine-learning algorithms, more transactions are expected to be done online. Online transactions will be faster and become more efficient.
Additionally, work impacted by artificial intelligence means there will be more robots, and more robots means a greater need for industrial real estate like warehouses and data centers, and a change in the use of office space.
When I think of where cars fit into real estate, I typically think of parking lots, roads, and access to hubs of public transportation. However, one of the biggest drivers that could change the way property is built is autonomous cars. When cars were first invented in 1885, they dramatically impacted the spatial design of urban planning, architecture and our modern streetscapes, creating the suburbs and shopping malls, which pulled people away from cities where they could enjoy more space. A boutique consulting firm called 99mph hypothesizes that $1 trillion of real estate is on the move, all because of innovations in transportation.
Imagine this future: you wake up and summon your car from your garage. You hop in it and it drives you to your destination, using its own navigation that updates traffic in real time, and all the while you don’t need to lift a finger. You can check your emails, meditate, enjoy a cup of coffee and read the news on your way to work. When you arrive, you will not need to figure out where to park your car because it will drop you off outside your office and park itself. If the car is electric, there will be no need to stop off and fill up your tank because the car will plug itself in to charge while not in use.
Self-driving cars will make long commutes more comfortable, give commuters back more time for productivity, and provide the chance to live further from a city center. Roads and infrastructure will need to change to support self-driving cars. One idea that Elon Musk has proposed is a system where cars drive onto a futuristic metal platform that works like an elevator, taking the car underground, shooting it across the city using magnetic rails in underground tunnels. The system would shepherd driverless cars to their destination and reduce congestion. You can watch the concept in motion here.
With the hyperloop, consider what it would be like to travel on the ground at 760+ mph (faster than a jet airplane) and get to and from major cities like Los Angeles and San Francisco in 35 minutes. If you are in Europe, you will be able to get from London to Paris in just 15 minutes. It is getting easier to truly live and work anywhere around the world.
Commuters will reexamine fundamental assumptions of how we live and work. When cities are better connected, the value of real estate will shift, possibly making suburbs more valuable, if we spend less time wasted commuting and more time connected. City planners, architects, and those working in construction may need to revisit the way we build freeways, adding features to them to allow for a massive reduction in congestion. It might be possible that shopping centers and offices will be built without parking spots. Also, real estate taken up by driveways, roads, parking lots, and garages may not be needed, and the land could be repurposed. In the future, we may see the first cities to be truly driverless, and maybe even flying cars like the Jetsons imagined.
Cities today are no longer mere aggregations of buildings and people. With an increasing amount of work and purchases being performed from anywhere on mobile devices with internet access, consumers are transforming the way they do their jobs, purchase goods and services, and live. Office buildings will evolve to serve multiple purposes and meet a new set of tenant demands. Commercial real estate buildings that were once single purpose will evolve to meet multiple growing demands including workspaces, retail shopping centers, distribution centers, offices, entertainment hubs and more.
Let me ask you a question about some existing cities: What do the following cities around the world have in common: Chicago, Atlanta, London, Paris, and Beijing? These cities are monocentric, meaning there is a clear city center where people travel to for work, and leave to return to the suburbs. Most cities are monocentric, built around one Central Business District (CBD). However, they were not designed to be megacities, which house more than 10 million people. The United Nations has predicted that the number of megacities will reach 41 by 2030. By 2050, two-thirds of the world’s population, more than 6 billion people, are expected to live in urbanized areas.
If you were to design a city from scratch that could support 10 million people, would you have one central hub for all businesses and services, or several? Newer polycentric cities like Los Angeles and Phoenix have multiple CBDs and suburbs. This spreads out population, resources, and congestion. Next, how would you approach building high-rises with limited square footage? Should all buildings have more than one purpose? Would you build them to be self-sustaining?
A future with a higher population means there will be a greater demand for housing, water, energy, and infrastructure, and increased population density means that innovative solutions to construction and building purposes are necessary to avoid challenges with resources, traffic congestion, healthcare and waste management.
Smart cities around the world are testing new approaches to city living. A smart city is an urban area that uses different types of electronic data collection sensors to supply information which is used to manage assets and resources efficiently. An example is Masdar City in Abu Dhabi, which will have 500 households that rely completely on solar energy and other renewable resources. It will also become pedestrian-friendly by outlawing cars and utilizing only bicycles and public transportation. In Portugal, PlanIT Valley intends to use more than 100 million smart sensors, placed along buildings and roads to evaluate and adjust energy consumption, and prevent damage from emergencies by facilitating instant responses to fires or accidents. Other cities are installing dynamic, self-learning systems to explore smarter ways to provide food using less energy in the form of vertical farms or hydroplantations.
Commercial real estate landlords should already be thinking about offering more multipurpose buildings that have greater flexibility, more amenities, community-building and a customer service experience to maximize tenant occupancy. Cities growing by a massive scale have started to incorporate smart technology into real estate design and construction to meet the needs of future megacities. Infrastructure that detects, stores, and shares data may be essential to the efficient operation of a city, while universal solar panels, Wi-Fi, and phone charging ports powered by renewable energy may be the key to a sustainable city. Smart cities will use multipurpose infrastructure that blends homes, industrial, office, retail space, schools, and public parks.
We are experiencing explosive, exponential growth in technology. This will impact the way we work, travel to work, where we live, and how the places we live and work will be modified in the future. Some innovations we can picture, and some we will have to imagine for now. Real estate transactions, investing in real estate, and building real estate are all things which could change. Advancements in real estate construction have been made already, such as using 3D printed pre-fabricated materials for modular homes, which can be scaled for the masses. When autonomous cars become mainstream, and megacities are the norm, we may see an emergence of new types of real estate and infrastructure. Ultimately, nobody really knows what will happen, and we still have time to experience, influence, and witness these changes. We will continue to keep an eye out for the future.
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