Real Estate Development

After the seis­mic shifts and re-eval­u­ations faced by us all in real es­tate over the last 18 months, our latest an­nu­al re­search makes it clear that, for both the sec­tor and its cli­ents, vac­cine-led con­fid­ence and op­tim­ism are sup­por­ted by two ad­di­tion­al forces shap­ing our fu­ture: tech­no­logy and ESG.

Tech­no­logy and an in­nov­at­ive ap­proach to sus­tain­ab­il­ity and well­being are set to se­cure the fu­ture of the of­fice. In a world where the of­fice now has to com­pete with the com­fort of work­ing from home, it needs to find a new pur­pose to per­suade people to re­turn to the com­mute, at least some of the time.

People miss the of­fice, the hu­man in­ter­ac­tion it pro­motes and the clear bound­ar­ies that of­fice life cre­ates between per­son­al and pro­fes­sion­al life.In many or­gan­isa­tions, it has been young­er people who have lob­bied hard­est for a re­turn to the of­fice, un­able to work sat­is­fact­or­ily at home and miss­ing the op­por­tun­it­ies and so­cial in­ter­ac­tion that of­fice life presents.As city centres be­gin to work out a new fu­ture, tech­no­logy will be at the heart of the de­bate, with the more fa­vour­able build­ings al­low­ing people to work seam­lessly and con­nect with col­leagues around the world at the same time as giv­ing a feel­ing of safety and se­cur­ity.With ‘the di­git­al work­place’ now con­sidered the new work­ing en­vir­on­ment, em­ploy­ers need to both em­bed the phys­ic­al im­ple­ment­a­tion of smart tech­no­logy in their build­ings and to en­sure the vir­tu­al work­ing ex­per­i­ence trans­forms the em­ploy­ee ex­per­i­ence by fos­ter­ing ef­fi­ciency, in­nov­a­tion and the so­cial ele­ments that many people crave in their work­place.

Real es­tate pro­fes­sion­als have had a dra­mat­ic con­ver­sion in the last 12 months to­wards the prin­ciple of achiev­ing net zero, ac­cord­ing to our polling.While the concept was barely un­der­stood two years ago – and in­dustry ex­perts were taken aback by ini­tial glob­al am­bi­tions to achieve net zero by 2040 or 2050, the real es­tate sec­tor has been gal­van­ised in­to ac­tion by its in­vestors and oc­cu­pi­ers and is now look­ing to hit its tar­gets by 2030-2035. Tech­no­logy has to be at the heart of this: stake­hold­ers from across the real es­tate world now have the mo­tiv­a­tion, fin­an­cially and eth­ic­ally, to cre­ate and util­ise tech­no­logy that can help cre­ate green­er build­ings.In the last year the biggest play­ers in UK real es­tate, in­clud­ing Aviva In­vestors, Brit­ish Land, Land­sec and SE­GRO, have set bold tar­gets to reach net zero, with most re­spond­ents ex­pect­ing the real es­tate world to beat gov­ern­ment tar­gets by achiev­ing net zero emis­sions by 2035 at the latest.

The dawn of pr­op­tech was 1980-2000 and saw the rise of soft­ware tools that made as­set man­age­ment easi­er. Pr­op­tech 2.0 was 2000-2015 with the rise of the likes of Zo­opla and Airb­nb help­ing the con­sumer, in par­tic­u­lar, to re-think their re­la­tion­ship with real es­tate. We are now at the dawn of Pr­op­tech 3.0, driv­en by con­cepts such as AI, ro­bot­ics, 5G, 3D print­ing and the In­ter­net of Things, (IoT) which will cre­ate the biggest changes of all and will in­crease the speed of change after the seis­mic up­heav­al of COV­ID-19. Many people see this as a fourth in­dus­tri­al re­volu­tion, rep­res­ent­ing a fun­da­ment­al change in the way we live – a new chapter in hu­man de­vel­op­ment en­abled by ex­traordin­ary tech­no­lo­gic­al ad­vances com­men­sur­ate with the first, second and third in­dus­tri­al re­volu­tions. The im­pact on the built en­vir­on­ment dur­ing the 2020s will be pro­found.

For land­lords smart build­ings will de­liv­er high­er rents, for ten­ants tech­no­logy will be an in­creas­ingly im­port­ant en­a­bler for the work from home re­volu­tion, and for both in­nov­a­tion will help sup­port a more sus­tain­able fu­ture.

The in­creas­ing im­port­ance of tech­no­logy and di­git­al­isa­tion has come to the fore through­out the COV­ID-19 pan­dem­ic, par­tic­u­larly in the of­fice mar­ket but also in life sci­ences, build to rent and lo­gist­ics.

Re­cov­ery of the real es­tate mar­ket is well un­der way, with op­tim­ism rising and a vac­cine-promp­ted bounce pro­pelled fur­ther by two power­ful forces driv­ing the sec­tor’s fu­ture: tech­no­logy and ESG.

There is a grow­ing con­sensus that the next gen­er­a­tion of real es­tate tech­no­logy will bring un­pre­ced­en­ted change to the in­dustry, with the key trends pre­dicted by in­dustry com­ment­at­ors as fol­lows:As the new hy­brid world dawns it is seen as in­creas­ingly im­port­ant that ac­cess to the of­fice (in par­tic­u­lar) be as con­veni­ent and stress-free as pos­sible.Liv­ing and life­style are also now con­sidered a fer­tile world for tech­no­logy – but only in new de­vel­op­ments.COV­ID-19 has ac­cel­er­ated e-com­merce across Europe, with e-com­merce in the United King­dom rock­et­ing.Big data is set to un­der­pin the whole re­volu­tion.Tech­no­logy is also seen as key to fa­cil­it­at­ing great­er sus­tain­ab­il­ity, with sensors, data and the best meas­ure­ment cru­cial to en­han­cing ESG cre­den­tials, par­tic­u­larly in the chal­len­ging arena of ret­ro­fit­ting.However, it is also re­cog­nised that bar­ri­ers re­main to the wide­spread ad­op­tion of tech­no­logy, with big data in par­tic­u­lar eyed with sus­pi­cion by ten­ants and cus­tom­ers. Three in four of those we polled said they were wary of the Re­turn on In­vest­ment on smart tech­no­logy. Com­pan­ies har­vest­ing this data are viewed with dis­trust – with the Daily Tele­graph among the first or­gan­isa­tions to re­con­sider and then with­draw devices to mon­it­or wheth­er people are at their desk.Our re­search across a range of fields, from the real es­tate in­dustry, among of­fice oc­cu­pi­ers, renters and po­ten­tial renters, re­tail ex­perts and life sci­ences pro­fes­sion­als, drew a strik­ing re­sponse.

We asked the real es­tate sec­tor of­fice oc­cu­pi­ers, renters, re­tail­ers and life sci­ences busi­nesses what im­pact COV­ID-19 is hav­ing on de­mand for real es­tate in their area, and also on ad­op­tion of in­nov­at­ive tech­no­logy.The sweet spot for in­nov­a­tion and de­mand driv­en by COV­ID-19 is life sci­ences, where both the oc­cu­pi­ers and the real es­tate pro­fes­sion­als see equally pos­it­ive op­por­tun­it­ies. Driv­en by spec­tac­u­lar tech­no­lo­gic­al break­throughs like COV­ID vac­cine de­vel­op­ment, and with pub­lic and private sec­tor fund­ing pour­ing in­to the sec­tor, life sci­ences is an as­set class in the up­per right quad­rant, very much em­bra­cing the op­por­tun­ity.By con­trast, in-store re­tail is `stuck in the head­lights’ ac­cord­ing to our polling – be­set by fall­ing de­mand caused by lock­downs and less likely to have ad­op­ted in­nov­at­ive tech­no­logy as a res­ult of COV­ID. In­ter­est­ingly, real es­tate pro­fes­sion­als are sig­ni­fic­antly more pess­im­ist­ic about real es­tate de­mand from the sec­tor, than re­tail­ers them­selves. This may be a re­flec­tion of in­creased de­mand for lo­gist­ics space as a res­ult of the ac­cel­er­ated shift to on­line shop­ping.While real es­tate pro­fes­sion­als see of­fices as the most act­ively in­nov­at­ing in re­sponse to the pan­dem­ic, oc­cu­pi­ers are less con­vinced, al­though they also seem less pess­im­ist­ic about de­mand for of­fice space. This per­haps re­flects the real­ity of a blen­ded work­ing ap­proach which looks here to stay in the im­me­di­ate fu­ture.The build to rent sec­tor, by con­trast, is seen as `lucky’ by renters who see that de­mand is strong but do not be­lieve they are see­ing enough in­nov­a­tion in the light of COV­ID-19 rather than re­devel­op­ing tired prop­er­ties.