Disrupting real estate

According to EY, technology, demographics and globalisation are the three forces disrupting the real estate industry. While they threaten traditional business models, they also embed significant opportunities.

Advances in technology affect particularly commercial properties used for stores, manufacturing, and hospitality. Due to the rise of e-commerce, consumers are shopping increasingly online and thereby reduce the amount of in-store purchases leading to shop closures. On the other hand, digital technologies can enhance the shopping experience and make stores more attractive, resulting in constant demand for retail real estate.
Manufacturing properties are also affected by human labour being replaced by robots. 3D printing could, for example, increase the necessary local fabrication facilities.
Finally, the sharing economy such as Airbnb disrupts the real estate use by converting private properties into hotels and thereby reducing the amount of real estate for hospitality. On the other hand, digitalisation requires more data centres and properties suitable for those.

Many societies, especially in the West, have rapidly ageing populations and with that, have populations with changing real estate needs and preferences. Senior citizens drive the demand for specialised health care facilities.
Changing working preferences and new workplace models such as office sharing and home offices alter the nature of office buildings. While decreasing office spaces, companies relocate their workforce to city centres to attract talents.

Globalisation has also made the capital for real estate available across borders. While EY finds that this has increased market volatility to some extent, global diversification can also stabilise portfolios. However, global trends especially climate change continue to be a driving force in the disruption of properties such as the construction of smart, green and resilient real estate.

While many industries are being disrupted, if not to say all at some point in time, real estate is exceptional and faces unique challenges. “The planning, delivery and management of real property requires a long-term vision, which is difficult to establish in a rapidly changing world,” says EY in their report “Real estate disruption: challenges and opportunities in a rapidly changing world”. Real estate leaders need to anticipate the future state better to make use of the disruptive trends lying ahead of them.