Disruptive technologies drive new opportunities

Technology increasingly connects the digital and physical worlds. Billions of people now access products and services in a highly efficient manner. The growing pervasiveness of the internet and advanced industries presents both opportunities and challenges for commercial real estate (CRE) investors.

Tim Wang and Julia Laumont at Legg Mason’s property investment manager affiliate, Clarion Partners, note in a recent paper “New innovations will encompass virtually every aspect of our lives, including the way we reside, commute, work, shop, and manufacture. These changes will inevitably alter the way we use CRE, as well as overall demand and—we believe—lead to the highest and best use of properties.

“Rapidly evolving innovations that capitalize on market inefficiencies will create both challenges and opportunities for CRE investors.

“We expect the biggest headwinds to come from the speed of change and the struggle of existing infrastructure (virtual and built) to keep pace. Large-scale opportunities may emerge from higher out-migration from big cities due to affordability and livability, the urbanization of premier and emerging suburbs, the growing popularity of mixed-use properties with more recreation, shifting supply chain logistics bringing warehouse property to major population centers, and more frequent use of hotels for business and leisure travel in top employment hubs and at destination resorts.”

They analyse the key trends that will change the nature and future of commercial real estate investments. They are:

SHARING ECONOMY PLATFORMS: The age of networks brings connections that create tremendous social and economic power. Online platforms have given rise to the ‘sharing economy,’ which is revolutionizing many businesses across different industries. The ‘sharing economy’ encompasses the peer-to-peer (P2P) based activity of obtaining, giving, or sharing access to good and services.

E-COMMERCE & OMNICHANNEL RETAIL: The shifting consumer landscape (online and in-store) is transforming supply chain logistics and shopping preferences.

ROBOTICS & ARTIFICIAL INTELLIGENCE: Automation, now mainly robots and artificial intelligence (AI), is leading the fourth industrial revolution globally. Future labor market disruptions may be significant. Labor-saving technologies, together with globalization, have led to the loss of millions of manufacturing and agriculture jobs over the last two decades, and major transformations lie ahead in additional industries. Office-using employment sectors, such as legal, finance, government, and design, may be more at risk.

SELF-DRIVING OR AUTONOMOUS VEHICLES (AVS): Autonomous vehicles (AVs) will add trillions of dollars to the U.S. and global economy over the next few decades. AVs may be available to consumers by 2019, and mass adoption is anticipated by 2030.

FINTECH: MOBILE BANKING & BLOCKCHAIN: The financial services industry is undergoing massive technological changes, with greater use of online banking and blockchain. Financial technology, or FinTech, is rapidly changing old-fashioned banks and investment managers, making it easier to save, borrow, and invest without ever dealing with a traditional bank, broker, or accounting ledger. Blockchain, for example, opens the door for game-changing virtual transactions, which could disrupt a wide range of professional and business transactions.

CLOUD COMPUTING & BIG DATA: Exponential growth in internet-based cloud computing services is increasing demand for data center facilities which are specialized buildings housing IT infrastructure. Tech giants Amazon, Google, IBM, and Microsoft lead in cloud business.

THE FUTURE OF THE SUPPLY CHAIN (DRONE DELIVERY & 3D PRINTING): Drone delivery and 3D printing have the potential to greatly address current supply chain challenges, such as expenses and long lead times from imports and exports, as well as high inventory costs around the most densely populated U.S. regions

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