Conventional thought regards real estate as a tangible asset that will steadily preserve and build wealth over time. But technological disruption is accelerating and rapidly changing how individuals interact with real estate.
Online shopping continues to affect retail and industrial real estate. Retail properties are suffering from net operating income losses as retailers increasingly vacate space, while industrial assets benefit from the need for more distribution centers to accommodate package shipping and receiving. Industrial and retail property valuations today, which are captured in the capitalization rate or multiple on net income, show that investors believe this trend will continue.
What is most notable is that the current level of disruption has occurred with less than 15% of retail sales occurring online. I expect this number to increase drastically as the next generation of shoppers, who were born with smartphones, replace the baby boomers as the largest consumer demographic. How frequently will they shop in brick and mortar locations?
But technology can disrupt in positive ways as well, and it is the job of an investment manager to integrate technology in ways that increase value at physical locations. Origin is currently reviewing a number of new technologies to enhance the experience of our tenants, differentiate our apartments from others, reduce our expenses and increase the bottom-line profits for our investors.
Real Estate Technology for Apartment Renters
For our apartment renters, we’re exploring Hello Alfred, a virtual personal assistant that helps plan day-to-day activities.
As fewer renters own cars, we’re looking into Envoy, an electric car rental fleet that would be accessible at our apartment complexes. This would provide a convenient alternative to Zipcar, Uber and Lyft.
We’re also researching Abode, an app that controls all home systems and services. It integrates heating, cooling, alarm and door keys into one app for us to simplify our renters’ lives.
Finally, we’re watching smart glass systems that turn glass windows into screens when touched. For example, we could use this technology to display transit schedules in an apartment lobby. Or under-utilized store-front glass could double as interactive information centers.
Real Estate Technology for our Investment Team
For our research analysts, we are interested in geo-fencing, a technology that uses GPS or RFID technology to create a virtual geographic boundary. Geo fences trigger a response when mobile devices enter or leave a particular area. This could help us gain demographic details, such as age and gender, as well as traffic patterns around specific real estate locations. You cannot move real estate, and this data would give us more insight when selecting investment locations.
As we acquire office and multi-family buildings, this can also lead to managing retail spaces. Many local municipalities require office and multi-family buildings to set aside space for retail, so they can earn sales tax in addition to property tax. For this, we’re watching CountBOX. This takes monitoring foot traffic indoors and provides key data for optimizing marketing spend, improving store design and taking the guesswork out of product placement. The technology is placed in the floor to provide real-time data on where a customer enters the store, how they move throughout the store and how much time they spent in each area. If you ever feel like you’re being watched, you are!
Real Estate Technology for our Asset Management Team
Technology can also help us save money and impact the bottom line for our investors. Origin’s asset management team is investigating Blue Box, an HVAC coil cleaning system that is cheaper and more effective than traditional cleaning systems. HVAC coils are not exciting, but saving $50,000 and increasing the useful life of an asset is!
PLNAR app is an augmented reality system that allows building measurement — both square footage and volume — in real-time. The app only costs $5 and could replace the old way of building measurement, which can take weeks and costs thousands of dollars.
Finally, as technology matures, the advantages become more economical. For example, we’ve been installing LED systems and low-flow plumbing systems at our properties at a low cost. Not only are we helping the environment, but we’re providing an attractive return on investment for our partners.
Regardless of where technology heads in the future, what is certain is that real estate investors today need to embrace new ideas, anticipate secular changes that could affect valuations, and re-invent space to address the changing needs of their occupants.