The Future of Real Estate: beyond bricks & mortar
Real Estate has managed to survive quite immune from the onslaught of technological advancement that has forced the re invention of other industries and asset classes. Now its the turn of the bricks & mortar of our built environment — everything from designing, to building, to managing, to financing and use cases of real estate are under the microscope of the emerging proptech movement. But technology can only deliver if its pointed in a direction and direction needs vision.

You Can’t Change bricks ‘n mortar
The physicality of our build environment has limited our ability to re-imagine it in more abstract terms and this has limited its potential as an asset class. Real estate is full of inertia. Its an expensive asset that requires large capital outlays. It is conceived of in vertical silos so it fits in the categories of retail, industrial, residential, office etc. It is traditionally lumbered with very long leases because the economics favour that approach. It takes a long time to transfer ownership between parties given the arcane (often blackbox) legal and stewardship processes that govern exchange. But new visions of the potential of real estate is throwing up multiple new business models and opportunities for technology to get its teeth into.

Start with the base line: rental yield
The base line for assessing the economic opportunity for real estate is the rental yield. How much does stuff rent for per square foot in “this” area? From there, you build a model that spits out what return on capital deployed to build or buy a building (with leverage) will be earned based on the yield. Just rent. But buildings are and will be able to produce revenue beyond than just rent if they can be conceived of as such.

How can buildings ‘earn’ more than rent?
The economics of buildings is changing. Here are some auxillary renvenue streams that could be derived from real estate:
- Energy — with the advent of solar energy and other localised energy sources, buildings can produce more energy than they need from time to time. That energy can be resold into the grid.
- Data — as IOT (‘internet of things’) begins to take hold in buildings, terrabytes of data about how the building is ‘performing’ will be thrown off to the landlord. While this will be of use to the individual landlord, it will also have value to third parties (see how Mastercard is selling data on customers to Google). This will produce an additional revenue stream in the monetisation of building data.
- 5G — as 5G is rolled out globally, there will be a proliferation of smaller localised telecommuncation masts. The roofs of buildings will be coveted by service providers and they will pay rent to post a mast on landlords roofs.
- Treating tenants like Customers — if you understand your tenant like a customer, you can package new services to them and charge for it.

Wait, over 400 words written and no mention of blockchain?
A lot of these innovations can take place without blockchain technology but it will make delivery so much easier. How to track and trade the excess energy into grid? Blockchain (its already happening in Thailand, see https://www.weforum.org/agenda/2018/08/in-a-posh-bangkok-neighbourhood-residents-trade-energy-with-blockchain?utm_source=Facebook%20Videos&utm_medium=Facebook%20Videos&utm_campaign=Facebook%20Video%20Blogs)
How to reduce the time taken to exchange title on buildings from months to days? Blockchain (see Propy doing just that in California https://finance.yahoo.com/news/propy-announces-first-california-property-103000175.html?utm_campaign=Propy%20Newsletter&utm_source=hs_email&utm_medium=email&utm_content=64687937&_hsenc=p2ANqtz-_TX2DXla5YdRSETsyDK2k4jqK7-TsW1I1xvPSDFxCnF9-_umsQ3h8lCShthi-wjenD1rQHFJMYYP0O-NHWKbRwa_3ORQ&_hsmi=64687937&guccounter=1)

Wait, over 500 words written and no mention of WeWork?
WeWork is a great of example of where the vision lead the way to a simple change in the business model of traditional landlord/tenant dynamic. WeWork intermediates by taking wholesale leases on long terms and offers the space on a flexible short term lease basis to small tenants . Its not a technology company per se but the knowhow learned on platforms like Uber and Air B&B have made the delivery of the WeWork model possible on a huge scale.
OK, got it
New ways of imagining how real estate can be used will create new business models beyond bricks & mortar. Technology like IOT, big data, AI and blockchain will make the realisation of these models possible. And once they can demonstrate that the yield is bigger, more resilient and sustainable than the traditional rental yield dictates — the investment will flow !
