There can be no denying that the commercial property market slumped during COVID-19 but it is bouncing back and in some sectors is stronger than before the pandemic. There are several driving forces to the change and one of these is undoubtedly the effect technological advances are having on the market.
The pandemic has accelerated the adoption of new technologies by all as those that could worked from home more, shopped online more and relied on technology for even basic communication. Leaders in the field strive to keep up with each other, with investors and with society generally. Feeding into this technological drive is the need for property to be sustainable, not only to keep up with new sustainability laws but to meet the Environmental, Social and Governance (ESG) criteria that socially conscious investors use to screen potential investments.
Recent technological advances are huge - commentary in the field suggests that they are driving a fourth revolution, comparative to the earlier industrial revolutions.
Here are some examples of the key technologies driving change at the moment:-
- AI (artificial intelligence) and machine learning
- 5G: the fifth generation mobile network – it enables a new kind of network that is designed to connect virtually everyone and everything together including machines, objects, and devices
- Internet of Things: physical objects that are embedded with sensors, processing ability, software, and other technologies that connect and exchange data with other devices and systems over the Internet or other communications networks, for example smart home security systems, smart factory equipment and wireless inventory trackers
- Virtual Reality (VR) and Augmented Reality (AR)
- Robotics: design, construction, and use of machines (robots) to perform tasks done traditionally by human being
- Voice technology
- Driverless vehicles
- Biometrics: the measurement and statistical analysis of people's unique physical and behavioural characteristics
- Blockchain: a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system
- 3D printing
How are these advances affecting each sector?
Offices – hybrid working looks as though it is here to stay for the foreseeable future, however the demand for office space post-pandemic is higher than expected. Working from home has become the ‘norm’ for many and workers have adjusted to the virtual working experience. As such, when those workers attend offices they are looking for an experience which is at least as comfortable and technologically advanced as working from their own homes, and many are preferring not to travel the distances they once did. New build, high tech experiential office spaces focusing on collaboration and interaction are leading the way in this field. Meeting the technological drive in this sector is more challenging for older properties which cannot as easily be adapted to the new digital age. These ‘smart buildings’ are in demand and they demand a higher rent too - up to 20% more than their older counterparts. Kent’s town centres have seen a limited take up in town centres with tenants seemingly seeking out smaller high quality spaces for example serviced/co-working offices.
Life sciences – leading the field in terms of technology, embracing AI and machine learning for efficiency, growth and learning opportunities, together with renewed awareness and appeal driven by the pandemic and vaccination drive. As a result there has been a huge rise in the demand for life sciences real estate. In Kent, science parks have been particularly active. For example, Discovery Park in Sandwich saw over 35 new tenants during the course of 2021 (with at least 14 of them being start-ups) with a strong demand for laboratory space and Kent Science Park in Sittingbourne (comprising laboratories and business accommodation) has maintained a high level of occupancy.
Logistics – the pandemic led an accelerated shift to online shopping and as a result the demand for warehousing is high, with less emphasis on location and more on available technology to meet the demand for faster and more efficient deliveries. Industrial properties are non-synonymous with sustainability and without heavy investment this type of property may struggle to meet the technological and ESG demands due to their large size and, usually, low energy efficiency status. Occupier demand in the distribution sector is growing and Kent is an attractive county for occupiers whose occupancy costs have increased in other markets, for example within the M25 market.
Retail and leisure – the in-person retail and leisure industry was hit hard by the pandemic. For many the emphasis continues to be on staying afloat rather than adopting innovative technologies – the BRC-LDC Vacancy Monitor in April 2021 found that the overall vacancy rate across the UK increased by 1.9% when compares to the previous year in the first quarter of 2021 (to 14.1%). Consequently this sector will be a way behind other sectors and this will very likely have an impact on occupants reaching sustainability targets.
Retirement living – with an ageing population the need for retirement housing has been present for many years however, particularly for those with wealth, the need for high tech, high quality accommodation post-pandemic is a major driving force.
Development – the demand for residential and commercial development sites is ever growing but now with added emphasis on sites being tech-enabled (and ESG compliant) which, in so doing, will command a higher premium. Real estate which fits into both the tech and high-performing ESG brackets has the brightest future for development.
Agriculture – last but by no means least is agriculture where technological advances are essential to increasing productivity. Of course, UK agri-tech has a key role to play in reaching net-zero and farmers are open and accepting of new tech – in a recent survey by a finance company 76% of those surveyed are exploring high-tech equipment, including renewal energy. Examples of advances are:- a non-chemical robotic weeding system for cereal crops; a granular drone which swims in stored grains to monitor their condition and quality; automated grape harvesting; and a bird-like drone which hovers over large landscapes to inspect land for pests and diseases, amongst other things.
Looking to the future
As the Government introduces more and more sustainability targets, including the drive to achieve Net Zero by 2030-35, technology advances will assist property owners in meeting them. Examples of technology which will assist are smart buildings, power generators (such as solar panels), smart lighting, advanced appliances and temperature/ventilation regulation/management products. Technological advances are key to the creation of greener buildings.
Other benefits to technological advances are:-
- The collection of data for real estate asset management with the aim of benefitting occupants with a space which is more sustainable, customisable and well utilised, therefore increasing productivity.
- Tech such as property surveillance, utility solutions (smart meters), smart door locks, voice technology visitor management system, smart blinds/doors create an increased sense of safety and convenience
- The associated increased in the value of property and interest from investors.
It is clear that technology has a vital role to play in the future of commercial property. While many of the technologies referenced in this article are still in their infancy, it will be important for those in the real estate industry to keep a close eye on how they continue to develop, so that they can lead the way in reaping the benefits these technologies can deliver.