Remaking real estate: the impact of digital technology
Technological advancements are altering the way the real estate business operates. Traditionally, real estate companies would invest in creating assets which they subsequently sold or leased to other companies or individuals. Increasingly, buyers or lessees are looking at real estate space from the perspective of usage. The business concept of 'space as a service' is emerging fast.
With the growth of business activities, Bangladesh has been witnessing a lot of real estate development. The reasons for this growth in activity are manifold: Companies require modern spaces to set up their corporate offices.
Hospitality companies are building hotels with international affiliations. Moreover, a lot of residential units are getting built at a brisk pace. According to a report published in The Daily Star, the home market in Bangladesh is expected to grow in 2019 after shrinking in the previous year.
New real estate units come with new technological fittings, such as advanced security and surveillance systems, advanced fire and safety management systems, and advanced air handling and illumination systems. New regulatory standards are also encouraging real estate builders to make their buildings more ecologically sustainable and energy efficient. Hence, there is considerable focus on making new commercial buildings environment friendly, safe, and tech-savvy.
At the same time, technology is providing users with more choice. The sharing economy model has made a lot of real estate space available for use. Mobile app based aggregator companies are connecting individuals who have free space to lease with those seeking commercial or residential space. Several international companies in this business segment have also listed properties located in Bangladesh.
Hence, there is a need for real estate companies to shift from a mindset of developing and leasing assets to that of managing assets. They need to focus on how new amenities can be deployed quickly with the changing needs of lessees. Companies should also realise that they are no longer competing only with other realtors. Instead, their competition now includes a wide range of individual lessors who have made their space available through online aggregators.
Technology, and especially mobile technology, has empowered consumers and disrupted all sectors. In today's shared economy, where and how the new generation works and shops is influenced by a unique set of values and considerations. As a result, the entire model of how real estate is built, owned and managed will need to change.
Technology is also putting pressure on existing real estate units to become modern. Although business leaders today don't know exactly what their business will look like in the next 15 years, they are certain that it will change radically. As a result, they are not seeking long-term leases and prefer short-term leases instead. Once a lease expires, they will seek new real estate space as per their new business models.
Such a change in lessee behaviour makes it essential for real estate companies to be adaptable. They need to be able to develop new assets based on the new requirements of lessees, such as reconfiguring an old workplace into a new paperless office. Similarly, real estate companies should also develop assets that are convertible to new formats with relative ease and at a low cost—for instance, converting a retail store into a kitchen.
In fact, it is estimated that the number of flexible workspaces worldwide will grow consistently, according to PwC's report on emerging trends in the real estate sector. Real estate properties that are unable to cater to evolving needs will see their asset value eroding faster. Real estate businesses in Bangladesh should keep these aspects in mind while developing new properties.
For example, the retail sector is seeing rapid growth in online sales but modest growth in sales at physical stores. In such circumstances, a retail company may choose to shut down an outlet within an area where consumers prefer to shop online more. Such a company may choose to keep the real estate space but reconfigure the store into a fulfilment centre where orders placed from the same area through online channels may be fulfilled. Alternatively, the company may choose to vacate the property completely and the new lessee could be a food company looking to convert the property into a large-scale kitchen for delivering food orders in the same locality.
Such a change will also require real estate companies to relook at their workforce. A set of people equipped with the skills to manage a particular format would need to acquire new skills once the format of the real estate unit is changed. Companies may also have to ramp up or ramp down their personnel requirement with every change in the format of the property and its use.
Moreover, real estate companies need to have a robust system in place to manage their assets. Most of the real estate companies in Bangladesh have some kind of computer system to track and monitor their asset management processes. They need to be ready with right kind of technological infrastructure, such as enterprise resource planning (ERP) and business intelligence (BI) systems, to thrive in the future. A shift towards quantitative management of assets will become critical for real estate companies to grow and remain profitable.
Another critical capability will be the ability to manage multiple projects simultaneously. Real estate companies should have the ability to manage each project within a short span of time and with limited budgets to meet the requirements of the new generation of customers. In addition, projects will require quantitative management to ensure their objectives are achieved and benefits are realised.
Increasingly, real estate companies will develop properties for mixed use – commercial, industrial and residential. Multiple sectors such as retail, manufacturing, and services will be driving this change. Space will have to become more flexible for different types of use. Technological advancements will drive change and competition, and such changes will be visible in Bangladesh too.
The writer is a partner at PwC. The views expressed here are personal.