September 27, 2019
September 16, 2019
How The Speed Of Change In Technology Is Catching Out Real Estate Owners
It is a paradox that developers and real estate owners across the world are increasingly having to grapple with.
“Technology changes incredibly fast, but buildings are static, and take a long time to create,” WiredScore President and EMEA Managing Director William Newton said. “That means you need to think flexibly about how technology can change and where it is going to go.”
“I think building owners are kind of ignoring Moore’s Law,” Newton said.
Moore’s Law argues that because the number of transistors per square inch on integrated circuits roughly doubles every year, computer processing power increases exponentially, and technology changes ever-more rapidly.
Buildings, on the other hand, take years to design and build, and are difficult and expensive to change once construction is complete. But as technology becomes ever more important in daily life, and as the move toward smart buildings advances, the need to make commercial real estate assets as technologically innovative as possible becomes more and more pressing. How can the industry square this circle?
At the heart of this debate is connectivity: having the best possible internet and mobile phone facilities possible. This will be the infrastructure that underpins the technology deployed in buildings, makes assets attractive to tenants and heralds in the smart building revolution. Making sure that connectivity in itself is up to scratch is no simple matter, but changing business models from connectivity providers and real estate companies alike is making sure that buildings have the flexibility required so as not to get caught out by Moore’s Law.
Commercial real estate sectors like offices can learn a lot about the importance of connectivity from the trends experienced in sectors that interact directly with consumers, like student housing or rented residential.
“Five or six years ago I was in charge of our student accommodation business, and the world has changed immeasurably since then,” Greystar Managing Director of Enterprise Services Neil Burton said. “Then it was just a question about whether you had WiFi or not. Today, you need to be offering a best-in-market service, and you need to have the physical infrastructure to provide that, and also to anticipate where things will go in the next three or four years.”
“Connectivity today is not a nice to have, it is absolutely front and centre to your offering, almost as much as having power in a building,” AXA Investment Managers - Real Assets UK Development Director Harry Badham said. “Your connectivity has to be resilient. When it comes to their homes people know all about testing the speed of the broadband and checking mobile phone coverage, and it is the same in the world of work now.”
Badham has an anecdote that highlights how difficult it is to anticipate the changes that will come about in the world of connectivity and technology in real estate.
“When we first started building [the 1.4M SF London skyscraper] 22 Bishopsgate, there was a lot of discussion about WiFi calling,” he said. “The thinking was that everyone would be moving to making calls using WiFi-enabled services, because of capacity issues with existing technology.”
As a result, AXA installed a WiFi system that would give every floor of the building sufficient coverage to allow for all the new bandwidth required to make these calls using WiFi.
“A few years on, that now seems a bit anachronistic. It is great as we have great WiFi across the building, but now the issues are around 4G and 5G. So we are putting in a small cell systems network that will allow for 3G and 4G and ultimately 5G to be used throughout the building.”
Badham said the company was trying to provide flexibility up front that will allow it to change the kind of connectivity it offers to tenants as and when their needs change.
“The key thing is, we need to make sure we have the right backbone, in terms of the building’s infrastructure, that we can upgrade if we need to,” he said.
“It can be difficult to predict how something like 5G might affect consumer behaviour, but it is a reasonable forecast that the need for best-in-market connectivity will increase,” Burton said. “Just look at the changes in the way we use our phones. In 2012, mostly people would be using their phones for search or to read emails. Today, you sit on the tube, almost everyone has downloaded something to watch or listen to. The need for data has increased dramatically.”
Changes in the business model of connectivity providers are making it easier to achieve the flexibility real estate owners need to keep up with the pace of technological change. Space as a service is an increasingly common term, and now the hardware within a building can increasingly be rented as a service rather than bought.
Electrical company Philips is offering building owners a service to rent lightbulbs rather than pay for them, and Philips replaces them when they wear out. The same business model is increasingly coming to connectivity. The connectivity provider installs the technology and negotiates with companies like mobile operators, providing a service for landlords, who can pay a higher fee to upgrade if needs be, but any cost in upgrading the hardware is borne by the service provider.
“It is a new business model, and it creates a long-term agreement between us and the customer, be they a landlord or a tenant,” StrattoOpencell Chief Executive Richard Bourne said. “It has not been how this has worked historically, where asset owners have just been sold a product that might become obsolete in a few years. If you think about the life cycle of an asset, a managed service allows you to provide the best amenity possible to a tenant on an ongoing basis and keep them productive.”
According to Burton, asset owners also need to have a mindset that factors in ongoing operational expenditure to make sure the connectivity in the buildings is as good as possible.
“You have your capital expenditure, and then that should see you through the next three or five iterations of what is the best resident experience before you have to put in place more cap ex. But if you have a cap ex budget, you need to factor in that within that there will be ongoing operational expenditure, in case you need to upgrade your service.”
As tech-enabled smart buildings become more commonplace, this need for flexibility will become ever-more important.
“Connectivity matters today, and connectivity underpins everything that happens in a smart building,” British Land Head of Smart Places Julian Barker said. “We think smart buildings will have a leasing advantage so you need that platform to create the most connected buildings possible.”
Barker said the advancements in smart technology that are becoming commonplace in the home — voice assistants, the ability to control your environment — will be increasingly common in the office, too, along with myriad other services like technology that will automatically rebook a meeting room if you are late and alter the booking for your Uber afterward. This technology will become expected by tenants. He said British Land is working on its own software systems to fulfil many of these functions for tenants, or at the very least bring them together on a single app or platform, but first new infrastructure needed to be in place to allow the software to change rapidly.
“If you look at a building like 100 Liverpool St., what we have done is essentially have really fat pipes, so we can put more fibre in if we need it, without the need to start ripping walls down,” he said.
Greystar’s Burton said that ultimately, connectivity has an implication on an asset’s ongoing value and the price for which it might sell.
“As investment horizons become longer, and, in the world of residential, ownership becomes increasingly institutional, investors want to know that the infrastructure of buildings is fit for the long term, and that they won’t have to make big capital investments going forward,” he said.
The increasing ubiquity of connectivity standards like the WiredScore pay testament to this.
It is impossible to predict the future exactly. But when it comes to connectivity, it is possible to plan for it.