Are We Entering the Jetsons Era?

Daniel Lem, Director & Head of Investment of PMG, shares his predictions on what the key drivers of commercial property might be in the near and medium future. Some seem radical – but when you think about it, some are actually in play as you read this.

We’re now well into the 4th industrial revolution1 which is defined as the combination and integration of the digital world with the physical world. Every industry is being impacted by this change and the real estate industry is certainly not immune.

Robotics, artificial intelligence and automation are not just changing the physical requirements for commercial property, but location as well. Amazon has over 45,000 robots in their warehouses across the USA2 and is using drones for package delivery in many areas. Robots are reducing the need for employees focussed on repetitive tasks, whilst self-driving transport reduces the risk and hassle of commute and freight.

With automation and easier access, the likelihood of larger, possibly even multiple level, distribution centres in remote locations on the outskirts of cities where land is cheaper, is highly likely. With improved logistics, we can foresee goods beings shipped directly to smaller distribution warehouses in regional locations, also on cheaper land.

With a lower requirement for holding surplus stock, smaller warehouses in outer suburbs and regional locations are more likely to sprout up servicing the ‘click, print, and deliver’ consumer market.

E-commerce has been disrupting the retail industry for many years now. Approximately 43% of all online sales in the US are through Amazon3. With Amazon’s 2.4 hectare warehouse in Melbourne, it really is just a matter of time until we see online sales in NZ get closer to this level. Retail tenancies are likely to become smaller and will continually transform and be reinvented to ensure ongoing relevance for retailers, who increasingly will need to focus on the consumer experience and technology to remain viable.

In addition to the changing requirements of warehousing, property construction is also starting to change, thanks to technology. The onset of 3D printing is becoming more and more mainstream. In 2015, the first apartment building (of five levels) in Suzhou Industrial Park, China was recently constructed wholly by 3D printing4.

Uber have a target to have a fully autonomous self-drive fleet by 2030⁵ , just 12 years away.

What’s to become of the inner city carparking building, when cars don’t need to park in town any longer?

Office density rates are increasing as occupiers better utilise space through design and amenity and the rise of the co-working spaces. Across New Zealand we used to have office density rates of 18-20 sqm per person. This is now 14-15 sqm per person. The recently constructed Trustpower building in Durham Street, Tauranga has an office density rate of 13.7 sqm per person, achieved through more efficient space planning and hot-desking. Owners of office buildings should consider the likelihood of existing tenants wanting to maximise the efficiency of their existing space.

Businesses are becoming more and more conscious of the design and amenity that their office spaces provide. In 2018, Millennials (those born between the early 1980s and 1990s) will become the largest age bracket in the workforce, and by 2025 they will become three quarters of the global workforce. We know Millennials have different ideas about the ways they like to work, including more flexibility, less contractual commitments, hot-desking, mobility, and placing more emphasis on culture and working for organisations with a social conscience. What does this mean for employers, office space, and property management services?

There are now over 40 co-working offerings in the New Zealand market. With a growing number of innovative businesses being established across the country, leveraging expertise and energy through collaborative working environments is becoming more and more important. As innovation precincts sprout up around the country offering flexible leasing options, office landlords will need to reconsider existing business models and provide greater flexibility of tenure for tenants. This is likely to contrast with the traditional desire for long lease terms for surety of income, for both owners and their funders.

The movement to Green-rated buildings isn’t just a fad anymore. We are entering a social capitalist era where business owners, large and small, are becoming more aware of their environmental footprints. This is not just because their customers and staff are saying ‘we need this’. More and more businesses now realise it makes good business sense in terms of more efficient use of real estate, low carbon footprints, lower occupancy costs, and ultimately improved bottom lines.

From an investment perspective, in 2016 investors invested $78.7bn in ‘responsible investments’. A 28% rise from 2015 . How and what will property investors want to invest in, in the future?

The next 10 years will bring some extraordinarily interesting and challenging times for New Zealand as a nation and for many business sectors, including real estate. Advances in technology, new innovations and global players such as Amazon coming into the market will mean many sectors and businesses will need to change the way they do business. Some say that the property sector has, to date, seen a low level of impact by technology and digital disruption and while, to an extent, this might be true, at Property Managers Group we have been planning for it for some time. We’ve asked ourselves the above questions and what it means for our business and investors and we are developing clear strategies to address the challenges and changes in each real estate sector, so our investors don’t have to.

Today, our strategy remains to deliver long term sustainability and value for our investors through proactive management and portfolio diversification. Tomorrow, you can be sure that PMG is already working towards ensuring it and its investors’ successes continue well beyond these changes in technology and throughout the 4th industrial revolution.

Read this article and other stories from the country's leading investment and commercial minds in our free 24-page 2018 Commercial Property ThinkBook.