Impacts of Technological Innovations on the Commercial Real (2)

Impacts of Technological Innovations on the Commercial Real Estate

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Introduction

Over the years, commercial real estate has continued to be the main contributor to the stability of the economy for most countries. Nearly all sectors in the market are linked to commercial real estate either directly or indirectly. The commercial real estate segment is one among three segments of the real estate sector. It consists of properties and spaces used for business purposes only. These property types include office buildings, warehouses, restaurants, malls, medical centers, and retail premises. Commercial real estate has also experienced growth in its lifetime, especially with technological advancements invented by day. It embraces and heavily relies on technology to facilitate its operations. Technological innovations are responsible for some of the biggest operational and supply shifts experienced in the commercial real estate market. An assessment of the commercial real estate sector depicts and outlines the impacts of technology on the sector. This paper aims to research and analyze the impacts of technological innovations on the commercial real estate sector.

Technological innovations have increased the demand for commercial real estate properties by production industries. Technology has enhanced the production of improved and cheaper goods by industries using the CRE properties. According to CBRE (2019), there was an increase in sales volume from 16% in 2017 to 23% in 2018 for production industries. Six hundred billion worth of sales was witnessed between 2017 and 2018. The expansion by retail industries to meet the growing market targets has prompted commercial real estate to restructure its setup, adopt modern space plans, and improve its infrastructure. Commercial real estate also employs modern construction equipment to develop tenants’ desired infrastructure and property construction plans, attracting their attention and maintaining prolonged relevance in the market (Ratcliffe et al., 2021). Technology has also solved the problem of physical proximity through the invention of lifts and elevators. Commercial real estate has benefited from the invention of lifts and escalators because they can now use small land pieces in their property construction. It has allowed for the construction of skyscrapers, termed ideal office spaces (Barkham et al., 2018). The presence of skyscrapers also increases the desirability of property location hence increasing the space’s market value.

The invention of the internet has been one of the most significant technological advances that have strongly impacted the operations of the commercial real estate market sector. A review of the Harvard Business article (2017) revealed that two-tire businesses in commercial real estate that used internet information in their decision-making were more profitable and productive than their competitors. The internet avails vital information about the market conditions, other properties in the market, socioeconomic conditions, and economic indicators to commercial real estate investors who use it to make crucial decisions regarding their projects (Kok et al., 2017). It allows them to study the market, understand their potential clients’ property expectations and preferences, their competition, and the standard rent rates that prevail in the market. Statistics show 66% of executives in the commercial real estate sector have gained a competitive advantage due to data and analytics. It is an improvement from 37%, recorded in 2010 (Zhang et al., 2016). This information helps property owners, and investors cut their transaction costs through efficient decision making. It becomes an added advantage because investors can use internet information on trends in the commercial real estate sector to predict future outcomes and gravitate their construction of projects to fit the trends.

Commercial real estate has also embraced the digitization of property advertisements and viewing. Property owners have adopted virtual means to showcase their property in the market, reaching out to a larger crowd than manual methods. Studies show 53% of companies in the commercial real estate sector have invested in various tech firms (Barkham et al., 2018). With the pandemic’s onset, movement restrictions, and minimal physical contact in the market, digitization has proved convenient and effective. Potential clients can now view properties in the market at the comfort of their houses through virtual showings and open houses. Other technological innovations include omnichannel, augmented and virtual reality, personalized sales, and real-time auctions (Yigitcanlar, 2016). Digitization accounts for three-quarters of the growth experienced in the current commercial real estate sector. 40% of firms in this sector have an established road map for their digital transformation. Property owners have incorporated digital leasing processes and digital sales as well. It has therefore made has work easier for realtors in the industry. Buyers can find their desired space over a short period without unnecessary strenuous, time-consuming movements.

Technological innovations have enhanced the productivity of the intellectual property. Modern transportation systems have rendered economic agents’ physical proximity irrelevant (Kummerow & Lun, 2015). Modern institutional structures characterized by downsizing, outsourcing, and smaller task-driven teams have emerged in the commercial real estate market. Capital-intensive structures have been replaced in low-density sectors by functional cubicle spaces that rely on technology entirely. The office spaces have also been affected because some clients have opted to work from home, thus not needing the office space. According to Deloitte’s commercial real estate outlook (2021) 49% increase in vacancy is expected for second-tier commercial real estate properties. A 47% decrease in rental properties is also expected because of the shift experienced in the market (Gujral et al., 2020). This move downsizes the commercial real estate sector since most spaces are left unoccupied. On the other hand, properties like warehouses continue to gain popularity and attract many clients.

The e-commerce penetration into the commercial real estate sector has seen many retailing firms shift to online distribution of commodities to their customers. Statistics show It has experienced a growth of 37% in 2019 only. This percentage translates to approximately eight hundred billion dollars channeled into E-commerce (Piazolo & Dogan, 2020). Most of them don’t need physical spaces to operate from. Therefore, they rely heavily on warehouses to store their commodities and distribute them using modern transportation systems. For this reason, commercial real estate has shifted its focus and resources to constructing more modern warehouses to meet the niche in the market (Veuger, 2018). The demand for warehouses has shot by 22% in 2021. Approximately one thousand eight hundred tenants needed over 660 million square feet. Individual tenants. Statistics show that third-party logistics leased a minimum of 100,000 square feet of industrial spaces last year only (Barkham et al., 2018). It was equivalent to 31.3% of the market share and one hundred and twenty-two million bulk square feet.

With the health and safety of their clients in mind, Commercial real estate players have built modern and advanced spaces that incorporate technological aspects for functionality. Property owners strive to avail modern facilities essential for their tenants, like a good internet connection (Kok et al., 2017). Research shows 90% of tenants in office spaces consider internet availability before leasing the space. Motion sensors, intruders, and fire alarms have been installed in CRE premises to enhance the security of their clients and their property (Veuger, 2018). In addition, doors with automatic sensors and touchless plumbing fixtures have been used in most properties to make the experience of their tenants unique, satisfactory, and convenient. A 2017 white Paper states that a property’s connectivity and advanced security measures increase its market value by 3.1%. Property owners are more creative than ever and develop spaces that promote their tenants’ good health and wellness. They go for features that enhance natural lighting, reduce congestion and thermal, and increase the comfortability of their tenants. Technology has made it possible for investors to construct properties that have all the necessary and modern features easily and affordably.

Conclusion

Commercial real estate has experienced undeniable progress over time because of technological innovations in various fields in the market. Technology has made its operations easier, faster, and more productive. Property owners boast of meeting the high market standards and the demands of their clients thanks to technology. However, it is also important to acknowledge that some innovations have negatively affected the commercial real estate sector. Players in this market sector should therefore moderate technology incorporation and look out for their employees and wellness. It is expected that more technological innovations will emerge in the future, influencing the changes in the commercial real estate market sector. Therefore, commercial real estate players should stay positive and open to new technological advancements to maintain relevance in the highly competitive markets.

References

Barkham, R., Bokhari, S., & Saiz, A. (2018). Urban big data: city management and real estate markets. GovLab Digest: New York, NY, USA.

Gujral, V., Palter, R., Sanghvi, A., & Vickery, B. (2020). Commercial real estate must do more than merely adapt to coronavirus. McKinsey & Company.

Kok, N., Koponen, E. L., & Martínez-Barbosa, C. A. (2017). Big data in real estate? From manual appraisal to automated valuation. The Journal of Portfolio Management, 43(6), 202-211.

Kummerow, M., & Lun, J. C. (2015). Information and communication technology in the real estate industry: productivity, industry structure and market efficiency. Telecommunications Policy, 29(2-3), 173-190.

Piazolo, D., & Dogan, U. C. (2020). Impacts of digitization on real estate sector jobs. Journal of Property Investment & Finance.

Ratcliffe, J., Stubbs, M., & Keeping, M. (2021). Urban planning and real estate development. Routledge.

Veuger, J. (2018, September). Digitalization real estate on American Real Estate Society 2018. In 2018 CIRRE Conference: 3rd Conference of Interdisciplinary Research on Real Estate (pp. 149-154). Hanze University of Applied Sciences.

Yigitcanlar, T. (2016). Technology and the city: Systems, applications, and implications. Routledge.

Zhang, D., Zhu, P., & Ye, Y. (2016). The effects of E-commerce demand for commercial real estate. Cities, 51, 106-120.