CREtech Futures… What If?

 The Geographer, J Vermeer, 1668-1669

The Geographer, J Vermeer, 1668-1669

You know that phrase ‘It’s different this time’ don’t you? And it never is, is it?

But what if, just once, within our industry, it turns out that it really is different this time?

What if all this talk about #SpaceAsAService and the real estate industry moving from being one focussed on selling a Product to one built around delivering a Service actually comes to pass?

What if, over the next 5-10 years flexible working really does become the defining characteristic of the office market?

What if a majority of companies employing less than 250 people opt for buying their occupational needs ‘as a Service’ and don’t sign Leases as such?

What if a majority of companies that employ over 250 people no longer expect them to turn up at the same office every day, but instead provide a wide range of spaces and places they can work from that are specifically tailored for the particular ‘jobs to be done’ of each and every person.

What if ‘the customer is right’ and that’s what they want, and if you cannot provide it, well they really can survive without signing a 10 year Lease?

Someone will give them what they want. Demand always induces Supply.

If this comes to pass, who wins, and who loses? The same people and companies as now, or is the apple cart about to be upset?

Could this be a change in market dynamics that blows up the existing order and lays down the foundations for an entirely new industry?

In my mind, the answer is yes. Marc Andreessen was right when he presciently wrote ‘Why Software is Eating the World’ in 2011. Smartphones, ubiquitous connectivity, Cloud Computing and Artificial Intelligence, just being the most prominent of a wide range of new technologies, are transforming every industry. And in so doing are fundamentally changing the nature of Demand for Real Estate.

The reason flexible working is growing like topsy is because the very nature of the work we do, and the way the economy is structured, is being redefined by technology. Things change when the barriers to change are removed, and technology is removing a whole heap of barriers.

So who wins? Paradoxically, it will not be those with the greatest grasp of the new technologies. That will be necessary, but not sufficient.

No, the real winners in this new world will be those who marry an understanding of exponential technology with highly developed human skills, and the knowledge and capability to leverage one to enhance the other. It will be people and companies who understand that they need to know far more than they do today about how their buildings are performing, how people are actually using them, and who exactly their customers are. And their customers will be everyone who enters their properties.

The winners will be those who can combine real estate knowledge with technology, data, analytics, empathy, anthropology, design and hospitality. This new breed of real estate company will be able to create exceptional customer experiences, and these will transfer into compelling, enticing, sticky Brands, and in those Brands will lie the next generation of real estate fortunes.

Antony

This first appeared, on 21st August, as a guest blog post on www.cretech.com - with thanks to Michael Beckerman

Real Estate and technological denial

 Hunt of the Unicorn (Tapestry, circa 1500) Stirling Castle

Hunt of the Unicorn (Tapestry, circa 1500) Stirling Castle

The real estate industry is setting itself up for a mighty fall by failing to understand the implications of technological change.

What is a tech company? Well, if you are in the real estate industry you most likely would not use that moniker for your own company. You would also though not describe a TV as a colour TV. But describing any company as a tech company is as anachronistic as talking about colour TV’s. All TV’s are colour TV’s and all companies are tech companies. In 2018 it is time to get one's head around that.

In early 2017 McKinsey wrote that:

‘Overall, we estimate that 49 percent of the activities that people are paid to do in the global economy have the potential to be automated by adapting currently demonstrated technology.’

Not tech from the future, tech that is available today. The best companies are already way down this path to automating the automatable. And have the commensurately high productivity that comes with that. People, augmented by and working in tandem withgreat technology can be hyper productive. Yes, many of these are companies whose products or services are software or hardware, but many are not. Take a look at the share price growth of Domino’s Pizza to see how embracing technology can impact on ‘analogue’ businesses. Faster than any of GAFA since 2010. 

domino.png

CNBC wrote about them in December 2017:

 “President and CEO Patrick Doyle turned the chain around so successfully, for one, by heeding the public's criticisms and making better pizza. But, more importantly, he invigorated focus on digital innovation and amped up their delivery service. Domino's now employs more people in their IT department than anywhere else in the company, reports CBS News, and over half of their sales come from digital platforms.”

So please tell me Domino’s isn't a tech company? And they sell pizzas! Now tell me a real estate company, say British Land or Hammerson, cannot or should not be a tech company. The CEO of the former has specifically said they are not and I was told earlier this week that ‘it is ridiculous’ to suggest Hammerson be a tech company.

This is denial of the highest order. There is no real estate company that will thrive over the next ten years that does not operate based on data and technology designed to optimise the products and services they are selling. And I deliberately wrote ‘and services’ rather than ‘or services’ because there is no real estate company that will not be selling hybrid product/services within 10 years. 

In offices you will be selling ‘productive workforces’ not lettable space. In Industrial you will be selling on-demand fulfilment ecosystems, and in retail you will be co-creating immersive experiences, frictionless fulfilment and ‘the pleasure of leisure’.

Everywhere you hear about the value of great workplaces and the importance of experiences in retail; the real estate press talks endlessly of Wellness and raising standards across the built environment. And you also hear much about #PropTech and the benefits it can bring to real estate. What you, sadly, also hear repeatedly is how the ‘#PropTech people need to talk more to the Real Estate people’. It might as well be ‘East is East, West is West, and never the Twain shall meet’. What you don’t hear much about is any really substantive productivity improvements coming from the embracing of new technologies. Plenty of ‘that’s good’ but almost never ‘Wow that is amazing’.

Why is this? Because the real estate industry cannot get to grips with ‘every company is a tech company’. Where tech is embraced it is almost always as a bolt on, an addition, or a stand alone innovation unit. Or worse still, what IT are getting up to. 

Real Estate and IT is a Battenberg cake whilst it needs to be an Eton Mess. 

And anyway, who is in the real estate business? Amazon spent $13 billion on Whole Foods and Alibaba have spent $9.3 billion on physical real estate, including Intime, the owner of 29 department stores and 17 shopping centres in China. Are they real estate companies? I have seen Alibaba’s acquisitions described as just ‘fascia for their online empire’, as if the offline retail exposure was just a necessary inconvenience. Is this right?

I think not. Alibaba themselves talk much about what they describe as ‘New Retail’, in the sense of blending the online & offline world in order to create a dramatically better user experience for all their customers. Their entire focus is on understanding their customers in a very granular way, what their needs, desires and aspirations are, and then applying that learning to how a physical outlet is configured, stocked and experienced.

80% of all e-commerce flows through one or other Alibaba entity, and millions of retailers sell online through their marketplaces. As such, by merging online and offline data they are able to optimise their ‘commerce’, online and offline. The key point is they are using data, from as many sources as possible, as the foundation on which to build great user experiences. Data and technology is not a bolt on to existing operations, but the sun around which everything revolves. Nothing is not touched by technology.

To be a great, human centred company you have to start with data. In a world of exponential technology, we are reaching a point where the technology itself disappears and the only thing that matters is the human engagement, empathy and understanding that we can offer our customers. Being human is the No1 asset, and skill, today. The real estate industry loves to say that the technology is not the point, and that we must not remove the human touch from our businesses and our dealings with customers. And I completely agree, but unless all the touchpoints we have with customers, colleagues, partners and suppliers are supported by accurate, up to date and insightful data we cannot hope to be the best humans we are capable of being.

A human + a computer trumps any human or computer on their own. But also, as Gary Kasparov has explained so well (in his book Deep Thinking - https://amzn.to/2Ojm9rk), a human who understands how to create processes that leverage the complimentary capabilities of computers will outgun a more accomplished human with weaker process skills. In the context of real estate we have to be concerned about whether the tech industry will learn real estate faster than real estate learns tech. At the moment real estate is losing, and badly. But still the industry ‘sticks to its knitting’.

MIT professor Erik Brynjolfsson recently put the scale of technological change coming down the track very well. Talking about the rise of AI he says:

“machine learning is an example of a “general-purpose technology”. These are innovations so profound that they trigger cascades of complementary innovations, accelerating the march of progress and growth — for example, the steam engine and electricity. When a GPT comes along, past performance is no longer a good guide to the future.”

He wrote this in an article entitled ‘Artificial Intelligence and the Modern Productivity Paradox’ (https://bit.ly/2LXjDp5) and it describes the real estate mindset very well. He discusses how so many people comment on how national productivity is not rising despite all this new technology, and that the conclusion is drawn that the techno enthusiasts are over hyping change and that, truth be told, the world is not changing all that fast, or that much. But then he goes on to explain how the new technologies have been massively increasing productivity, but only in those companies that have adapted their business models and processes to take advantage of the new capabilities that are out there. For example, Facebook, or Google, or WeWork, or Amazon or Alibaba. All creating huge value per employee and achieving huge scale very rapidly.

Every ‘Unicorn’ is a deeply tech enabled company. Every one is designed around what technology enables.

Retail real estate is a hard, tricky business, involving multiple skill sets and great attention to detail. But as it stands none (I'd be happy to be wrong in being so definitive) has embraced technology as a really core, 'part of our DNA', driver. Certainly not like Amazon or Alibaba have. Because, 'they are tech companies, we are not'. And that is a major, potentially value destroying way to look at things. Forget offline and online being different worlds; they are not. Ultimately we are all striving to give our customers what they want; and what they want will win. My point is; who knows more about what their customers want will also win. And that company will be a 'tech company'.

Antony

Incentives, #SpaceAsAService, and the coming Golden Age of Real Estate

  The  Meagre Company  , an Amsterdam  militia group portrait  or  schutterstuk  by  Frans Hals  and  Pieter Codde  (1633-37)

The Meagre Company, an Amsterdam militia group portrait or schutterstuk by Frans Hals and Pieter Codde (1633-37)

Incentives matter. As every practitioner or student of business knows, the way we operate our companies is largely driven by the incentives that our business models dictate. Where you are on the classic S curve of business maturity really matters. 

At the bottom left of the curve you have little competition, but not many customers, and as you move up the centre of the S you have more competition but enough customers to keep everyone pushing on and profitable. By the time you get to the top right of the S you have all the customers you are ever going to get but masses of competition. You start in an agile, constantly iterating world and end up in a static, commoditised one. 

During that business lifecycle your incentives vis a vis boosting revenues or cutting costs change entirely. There is a reason why you often get great service and value from a startup but rotten service and poor value from a utility. One is incentivised to get you to buy into their brand, in the hope of becoming a repeat customer, and the other is just incentivised to exploit their monopoly power and extract as much money from you as they can.

The upside of this process is that as one S curve reaches the top right, the seeds of the next S curve are bubbling away, and the monopolist relatively quickly gets ‘disrupted’. Technologies change, innovations occur and, as consumers, we find we get offered something better, cheaper, faster. It is the very point of capitalism.

In real estate though this process has never really worked. The office building has not, fundamentally, changed very much over many decades. Barring notable exceptions they have been all much of a muchness; grey decor, grey desks, grey computers and black chairs. You had posh versions of dreary offices and ordinary versions of dreary offices. And this worked beautifully for the industry; all the incentives pointed towards doing the same as your competition. The sheer dullness of corporate offices was a feature, not a bug. In short this setup worked, and worked well. At least it did for landlords.

That world though is about to be blown apart by the rise of #SpaceAsAService, and all the incentives the real estate industry has worked to for decades are about to be changed.

And this is a great thing.

The two biggest changes are around customers and product. First, the most important feature of #SpaceAsAService is that the customer of a landlord morphs from being the name on the lease and the person who signs the quarterly rent check, to every single person who enters into their property. 

When occupancy is on-demand, or at least by way of short term leases, the incentive to keep on pleasing the users, day in day out, suddenly becomes of paramount performance. In a long lease world the incentives are to let as much space as you can, for as long as you can. And thereafter your incentives are to not spend a cent more than you have to to fulfil your lease obligations. In a #SpaceAsAService world these incentives are turned inside out; you really want to lease less space, per person, and in many cases for as little time as possible. 

Completely on-demand space carries a significant price premium so in an ideal world, if you maintain high occupancy with a high % of on-demand usage, your returns would be optimised. Obviously that price premium reflects the higher risk to the landlord, but again the incentive then is to minimise this risk by providing the greatest possible user experience. For the specific type of customer segment you are targeting.

And that is why product is the other great change, alongside the nature of the customer. Only the best spaces, the ones that really do provide the product or service that a user needs as and when they need it, will pull off this business model. They will need to understand exactly how their buildings are operating (environmentally as much as anything else), how exactly they are being used (which areas are quiet or busy, popular or underused etc) and also exactly who their customers are and what are the ‘jobs to be done’ that they need appropriate space to help them get done.

In short, in a #SpaceAsAService world all the incentives for a landlord are aligned with providing fantastic workplaces where the user experience of everyone who enters their properties is so perfectly attuned to their needs that they keep coming back, and are prepared to pay a premium for.

This is why we are entering into a golden age for commercial real estate; everyone is now incentivised to be better than everyone else. And that is quite a flywheel.

Antony

How should Landlords respond to Flexible Workspace Demand? Are you a Pig or a Chicken?

fir.jpeg

CBRE Research recently put out a report titled ‘UK Landlords & Investors Embrace the Flexible Revolution’. In it they write, ’77% of survey participants are currently considering some form of flexible space provision’. Whilst UK centric one suspects the results would be similar elsewhere, especially in the US.

My first thought? Wow, #SpaceAsAService is now rapidly moving into the mainstream.

My second thought was about bacon and egg sandwiches…

‘What’s the difference between the Chicken and the Pig in a bacon and egg sandwich?’

‘The Chicken is involved but the Pig is committed!’ 

Knowing who you are as a Landlord is vital with #SpaceAsAService.

‘We’ll do flexible space ourselves’ is something one hears a lot from Landlords. According to the CBRE report some 35% of Landlords say they intend to self operate their flexible space. If any of those 35% are Chickens they will fail. The problem is that making #SpaceAsAService work is as much about mindset as a real estate problem.

Do you REALLY want to go from being ‘a rent collector to a service provider’? REALLY? The former is a very different type of company to the latter. Product companies are organisationally, financially, culturally very different to service companies.

In tech think of Google vs Apple; one is a service company the other a product one. and they have very different busines models, cultures and attitudes. Or take WeWork vs the UK’s largest REIT Landsec - they are from a different planet! Their customers, competitors, networks and ecosystems are all different.

For a traditional real estate company to become a successful #SpaceAsAService company is a HUGE challenge. One cannot be a bolt on to the other. Only Pigs will win in this game. Commitment is everything.

BUT being a Chicken might well be a much better move. This is not a good or bad issue. The point is, you have to understand what you are and what you want to be. If you are a Chicken then fine, but do not kid yourself that you are a Pig.

If you read the phrase ‘Real Estate is no Longer in the Business of Real Estate’ and immediately go ‘Yeah’ then do your own #SpaceAsAService - if not then partner with the best operators you can find.

If you see data analytics, IoT, AI, network effects, BIM, mobile apps, ecosystems, UX, Branding, B2C and hospitality as core skills within real estate then do your own #SpaceAsAService - if not, partner.

If you see your customer as being the name on a Lease, and your billing cycle as being quarterly, and your company is optimised for that, then partner for #SpaceAsAService.

Startups always moan about companies that don’t quickly adopt their products or services. “They just don’t get it” they say. This is almost always wrong. They get it perfectly well but their companies are optimised for their business model. Not the startups. And rightly so. That is why change is so hard; they are operated for business as it is, not as it might be.

Mostly, real estate companies are optimised for being Product/Rent Collector companies. As they should be. That is what has worked for several decades. Build or buy an asset, lease it, keep it or sell it. And many are very good at that; the concern is that many will forget what they are, and think their slick machine will work in a different world. It won’t.

And that is NOT a criticism. Optimising for what you are is what all good management does. But at times like now, when a market is ‘fundamentally’ changing, the chances of value destruction are greater (perhaps) than value creation.

The #SpaceAsAService world we are entering is much more like the Technology than the Real Estate industry, and in tech ‘winner takes all’, ‘monopoly’, ‘market domination’ are the AIM. Networks/Marketplaces are where the value lies. The best space, with no network, will not come out on top.

Successfully networks win because they become the safe, comfortable and painless solution to a need. And they grow exponentially; from no-one knowing anything about them to suddenly being known by everyone. But once established their value grows exponentially as well. People are tribal, we like to belong. Only Pigs will build #SpaceAsAService networks we want to belong to.

There will be many winners in a #SpaceAsAService world, Chickens as well as Pigs.

Just be sure you know what you are.

Antony

Rain, Steam and Speed V4: Why, and how, technology is upending the real estate value chain

 Rain, Steam and Speed, JMW Turner, 1844

Rain, Steam and Speed, JMW Turner, 1844

This is the text of a talk I gave at The Chairman's Dinner, prior to the Urban Land Institute's Annual UK Conference on the 4th June, 2018.


There is an old Danish proverb that states ‘It is difficult to make predictions, especially about the future.’ So… obviously I am going to now make a lot of predictions.

Worse than that I am going to make predictions with a five year timespan. As any sane ‘futurist’ would tell you the trick to making predictions is to make them for a long time in the future. That’s why you have ‘the end of the world is nigh’ not ‘the end of the world is tomorrow’, as in the Monty Python sketch.

Near term predictions can make you look very stupid.

But I have a trick up my sleeve… and that trick is technology.

You see, within the tech sector, there is a very well established and pretty much rock solid adoption map. You start out with a product that gets picked up by innovators, and there are always some of them for just about every product, and then with a bit of luck you build a user base amongst the ‘early adopters’. Very soon after that though you reach what Geoffrey Moore, in his great book ‘Crossing the Chasm’ described as… the Chasm. This is where you come up against economics; you need enough traction to fund, or raise the funding for, continued growth. 

The other side of the chasm is the ‘Early majority’ which is a market significantly larger than the early adopters. But most products never make it across the chasm. For whatever reason they fail to get enough traction to escape the world of startups. Just like some birds jump the nest before they are able to fly.

BUT for those that do Cross the Chasm, you know what their market development is going to look like. Growth amongst early adopters takes them to about 50% market penetration, and that is normally where they peak in terms of gaining new users. After that it is a matter of hoovering up the late majority, and even later, the laggards.

So, looking at life through a tech lens, yes you can predict the future. You just need to determine which products have ‘crossed the chasm’. Yes there is still the issue of determining speed through the stages, but far less uncertainty of outcome than is often assumed.

What has happened over time is that adoption of new technologies has got faster and faster. So, for example the Internet rose to 50% market penetration far faster than did electricity, the telephone or indeed the washing machine.

In similar fashion it took mobile phones about 17 years to reach 100 million users. The internet took about 8 years, and Facebook just 5. All though are knocked into a cocked hat by the Indian phone network Jio that reached 100 million users in just 170 days, after its launch in September 2016. That’s what free voice and data can do!

We can then see where the near future is headed, and we can be assured that it is going to get there faster than we think.

Last week I gave a talk and used Turners 1844 painting Rain, Steam, Speed for a slide. This is the one where the steam engine is flying across the Maidenhead bridge on the recently completed Great Western Railway. It sums up brilliantly what it must have felt like to Victorians caught up in the First Industrial Revolution. The future rushing towards you and everything in a bit of a blur. But with a feeling of palpable excitement.

That was then and this is now. 

Generally speaking that feeling of palpable excitement has diminished, in many cases to be replaced by a feeling of angst and consternation. What were the election of Trump and the vote for Brexit if not a reflection of angst and consternation. 

What has also diminished though is an appreciation of just how fast technology is developing, behind the scenes. As Jeff Bezos has said, we are all only impressed for a short while. So, even though you probably all have in your pocket a smartphone that in 1985 would have outgunned a Supercomputer and cost $25 million dollars, you don’t give it a second thought. Whereas 25 years ago you could wait 28 days for a mail order delivery, we now complain that our Amazon order only arrived at 8pm on Sunday, as opposed to 8 am. After all we did order it from our sofa whilst watching a streaming movie 24 whole hours ago.

And that is the flashing red light for the real estate industry.

Regardless of whether or not the populace is viewing technological change through the excitable lens of Rain, Steam, Speed, it is happening faster than ever. 

And that is why our safe, if cyclical, slow world of real estate, where you build something you designed ten years ago, largely unchanged, and with no penalty, is set for a disruption that very few believe possible, let alone likely.

The key reason this is both possible and likely is that, contrary to many peoples understanding, human behaviour follows on from technological developments and not vice versa. Technology is not invented in response to human demand. Technology is invented when its invention is possible.

For example, you probably remember the dot com crash of 2000 where trillions of dollars of investment capital evaporated over the following year. Much merriment was had at the tens of millions lost by online pet food companies and video on demand operators. What you might be less likely to know is that the online pet food company Chewy was sold for $3.35 billion last year and that Netflix is currently valued at $153 billion.

The difference? Infrastructure.

In 2000 broadband was in about 26% of homes, and computer chips contained about 100 million transistors. Today broadband is near ubiquitous, at about 96% penetration, and computer chips have 10 billion transistors.

Chewy and Netflix exist because they can exist, not because any human asked for them.

The technology that crosses the chasm does have to either address an existing need or create a new need, but most importantly it needs to work, at least in the context of something users value. For example, the original iPhone was a terrible phone, as Microsoft’s Steve Ballmer very loudly shouted about as he mocked the then not very important Apple. But Steve Jobs knew that people loved being able to take their music around with them and loved taking photos, and on those two vectors the original iPhone was terrific. That took it across the chasm.

It is really unwise to bet against progress in technology.

A few years ago there was much talk about Moore’s Law coming to an end. This was the theory, from Intel co-founder Gordon Moore, that technology at a given price would double in power every two years, and it had held for fifty years. The talk though was that because of the laws of physics transistors simply could not get any smaller and 10 billion on a chip was about the limit. The logic seemed hard to refute. But things have not panned out like that. Instead of progress getting slower, it has sped up.

And for that we have to thank the computer gaming industry.

With a fortuitous twist of fate, it turns out that the type of computer chips that Artificial Intelligence works best on are not the PC chips that Gordon Moore and Intel had been referring to but GPU’s, which are the primary processing units for dedicated gaming machines. Simplistically, in computer games it is vital to be able to do thousands of things at the same time, as opposed to one after another, and that encapsulates the difference between GPU’s and CPU’s. 

The consequence of this, the use of custom designed chips to do very specific tasks is that the training of Neural Nets, which are foundational to Machine Learning, increased in speed 60 times in just three years from 2013 to 2016, with the bulk of that happening in one wonder year, 2015.

At the same time the scale of the smartphone industry has increased so dramatically that the cost of any component in one of them has reduced to being ‘cheap as chips’, as the saying goes.

So any sensor in a smartphone, for example GPS, accelerometer, proximity, barometer, biometric, compass, and of course high definition slow motion and high speed still and video cameras is now available in very high quantities and at a very low price.

Combine all of this together and we are entering a world where anything that is ‘structured, repeatable or predictable’ is going to be automated, and if you believe McKinsey, they said in January last year that that applies to 49% of all the tasks people across the globe are paid to do.

The RICS last year published a report saying that 88% of everything a surveyor does could be automated within 10 years.

Does that therefore mean that half of all jobs are going the way of the Dodo and that Surveying might not be the best choice of career?

In short No - because life never works out like that. What it does mean however is that the work we all do, and the way the economy works, will change fundamentally and in so doing will upend the value chain within the real estate industry.

Lets go through some of the sectors:

The Office:

When half the tasks that humans do now are no longer within the purview of humans, and anything ‘structured, repeatable or predictable’ is done, in one way or another, by a ‘machine’ the fundamental purpose of an office changes. ‘New’ work, as I like to call it, in a digital world will be all about human skills. Design, Imagination, Inspiration, Creation, Empathy, Intuition, Innovation, Collaboration, Social intelligence - those are the killer skills of the next 10 years. And they require a new form of office, one that harnesses data and design to catalyse just those skills.

42% of employees work for companies that employ over 250 people. Those companies should be able to muster up the investment, inclination and skill to create the sort of ‘Imaginarium’ that allows their employees to be as productive as they can be. As we know, many of them fail on this at the moment but my feeling is that the top two quartiles will create great spaces in the future, if only because without them they won’t be able to hire the talent without which they will collapse. Faster than ever before.

But 48% of people work for companies that employ less than 50 people, and in many areas, such as the City of London, some 70% of occupied units are less than 10,000 sq ft. 50% are less than 5000 sq ft.

In these companies they most likely will not have the space or skills, even if they do have the inclination, to create great modern, flexible, adaptive, high quality, human-centered spaces. 

My prediction is that this sector of the market is a prime target for whoever can come up with the business models and #SpaceAsAService thinking that delivers a Product that fits their requirements. ‘Everyone deserves a fantastic workplace’ to quote Neil Usher, but most small companies, half or more of the market, cannot deliver this for themselves. Someone needs to do it. And whoever does it best will build a great Brand with great value.

The flip side of this is that there is going to be a huge amount of obsolete space around. We need fewer but better offices.

From an investment standpoint the big trend will be the shortening of leases, and the increasing change from a valuation model with bond like characteristics to one where the operator really matters, as they will be the driver of revenue. The curator of the user experience, the UX, will be perhaps the most important component of an investment. The owner of the asset, if not the curator, will move down the pecking order.

Retail:

In the same way that, if we admit to reality, we do not need offices to work, we do not need shops to shop. In both cases we need to be made to want them. It is interesting to see and hear the attention the Grimsey Report 2 is getting at the moment. Five years ago I was at the launch of the original report at the Houses of Parliament. Thereafter Parliament completely ignored it, whilst indulging in endless fantasies about ‘saving the High Street’. That was an obvious wrong move five years ago and thankfully today you hear less nonsense along those lines, even if not a great deal of coherent action.

The reality of retail is very simple. Mostly shopping is dull, if necessary. For those essential items that we forget about and run out of, and for anything ‘cheap’, too cheap to ship, that we want or need to buy, there is a solid future for physical outlets to supply. At the other end of the market, for shopping that is fun, we both need and desire great retail experiences that pander to our innate human need to socialise and acquire. Everyone, or almost everyone, loves some form of shopping. Give them a great experience and they will part with their cash.

For everything in between cheap and everyday, or fun and an experience, we can rely on Mr Bezos to handle it.

Amazon spent $13 billion on Whole Foods and Alibaba have spent $9.3 billion on offline retail. Do not be misled by this - they have not done so because they think offline retail is great and an essential asset. They have done so because, with their vast technological capabilities, mountains of data, and personal relationship with millions upon millions of online shoppers, they believe they can build a ‘New Retail’ model that is much superior to what the incumbent offline industry provides.

The thing to worry about is whether the software industry can learn retail quicker than the retail industry can learn software.

Industrial:

Three words covers all you really need to know about the industrial market: ‘robots’ is one and ‘last mile’ are the other two. 

The industrial market is all about automation. Amazon may put out PR pieces about the number of people they employ in warehouses but that is hardly the end game. Complete automation of warehouses is simply a technological challenge. And when you are getting 60 times better at machine learning every three years it is only a matter of time before the best warehouses, run by the best companies, will be entirely dark. Many already are. Many will follow.

It is about more than automation though. A company called Clutter in the US is a new breed of ‘Big Yellow’ type self storage operation. With two differences to the standard operating manual. First, they use AI to help them optimise storage; they don’t store all your goods together but mattresses with mattresses, bicycles with bicycles etc. This means they can utilise their space much more efficiently. And they have their warehouses many miles outside of the cities they serve, where they are cheap. Using an app you can see and track everything you have in store and request delivery within hourly slots. What they lose in proximity they make up for with technology.

Cracking the last mile though, is the big problem the industrial real estate sector needs to help solve. How can we help enable Amazon, or whoever, to get an order to a customer in an hour? And no, Click and Collect is not the answer to that; it is simply a temporary fix that only those in the real estate industry think is an end point.

Alibaba own a supermarket chain in China called Hema. If you live within three kilometres of one of their stores they will deliver to you in…. 30 minutes.

Amazon, even prior to the acquisition of Whole Foods, had a distribution centre within 20 miles of 45% of the US population.

Industrial real estate strategies simply need to focus on those three words. Robots and last mile.

Residential & Build to Rent

Clearly we are not building enough homes, and have not done so for decades. Even if we did they would today be beyond the reach of most young people.

So it is inevitable that the Build to Rent sector will grow, probably dramatically. It has crossed the chasm. Regulatory issues need to be sorted out but I cannot see how they will not be. 

This sector has the chance to replace prime offices as the default home of large chunks of institutional money. As we have seen the office market is, for a large percentage of it, dying in terms of providing Bond like returns whereas whilst one can quite easily consider buying office space on-demand that is harder to square with where one lives. As such, stable long term returns should be on offer and might well become the asset of choice to institutions that require stable long term returns.

It is also highly likely, desirable and sensible that large scale build to rent developments will be mixed use and include significant amounts of office or other commercial space. As one does not need to be in a human-centred, deeply collaborative working environment five days a week it makes much sense to add facilities near to where people live.

Hotels

Not my field but demand for Hotels rises inexorably, despite the rise of AirBnb, largely because the world is getting richer and more people are travelling. Barring cataclysmic events, hotels have a strong future. Prosperity, as well as demography, is destiny.

Planning, Design, Construction

If you want one sure bet within the real estate sector then the increasing use of technology in Planning, Design and Construction is it. Together with these silos becoming increasingly joined up. We will not be worrying about the supply of construction workers in ten years. Fortunately, as there won’t be enough. These sectors are being pushed by human constraints and pulled by technological advances. They are only moving in one direction.

In conclusion then we are in a world that Turner would have understood, where everything is a bit of a blur but palpably exciting. Even if we are begrudging in accepting that that is the case, it really is. 

Steam engines transformed Victorian society and AI and the 4th Industrial revolution is changing ours. To quote though another great artist, Picasso; ‘Computers are stupid - they can only give you answers’ - it is up to us, their masters, to realise that where we end up, as individuals and as a society, is down to our use of that human skill where we, at least for now, greatly outshine the machines. Judgement. As AI reduces the price of Prediction, the value of Judgement goes up. 

And finally, to paraphrase Gary Kasparov, the great chess player and thinker, a human plus a computer, trumps any computer on its own.

Cogito ergo sum

Antony