Across the real estate industry, we are seeing a number of changes due to long-term trends and short-term disruptive events. Demographic shift, urbanization, rapid developments in technology, changing consumer habits, political instability, and stringent environmental requirements are having significant implications on the alignment, or misalignment, between supply and demand of real estate products. There is a desire, or better a need, to anticipate and meet stakeholders’ requirements and expectations by designing and delivering innovative, agile, better real estate assets, which are flexible, sustainable and resilient over time.
The long-held past model: 'closed, know-how & intuition based'
The real estate business environment, in the past, was relatively well understood and characterized by smooth upward trends, periodical cycles, consolidated market segments, formats, technologies, assumptions and business models. On the supply side, we have been mainly operating on a 'closed, know-how & intuition based model', with real estate owners and developers continuously, or cyclically, 'pushing' forward the pipeline, and demand taking it up over time. In this relatively 'easy to predict' scenario, the industry relied on standard market analysis combined with previous experience, know-how, and some good intuition. In the face of its inherent inefficiencies and limitations, this model has served us reasonably well and has guaranteed an acceptable level of alignment between supply and demand of real estate products.
The reality of the demand is changing
The magnitude and rapidity of change underway, driven by extraordinary dynamic economic and political forces, is so significant that, in the years ahead, the long-held standard approach adopted in the past will no longer be sufficient. Direction, degree, and speed of change are varying by geography, city, location and asset class. In general terms, real-time access to information, feedbacks and opinions, availability of multiple channels and offering options, are placing stakeholders in a better and stronger position to make 'smart' decisions. Expectations from the demand side include the possibility to do more with less, the opportunity to live unique customized authentic experiences, flexibility, openness, sharing, and moving smoothly across integrated physical and virtual worlds.
Changes in business conditions are highlighting the intrinsic limitations and inefficiencies of the past approach. These include long time-to-market, compared with the rapidity of change, difficulties in making reliable forecasts, for future cash flow, profitability and return, and inadequate processes for structured innovation and technology adoption. The combination of these flaws, when they materialize, can make real estate projects too risky, not attractive to operators and investors and not bankable for lenders.
As business conditions shift, from familiar territories to difficult-to-predict, rapidly-changing scenarios, the main challenge going forward is to guarantee a good alignment between supply and demand, creating innovative, flexible (in both content and architecture) real estate products that can evolve over time to meet the changing needs and expectations of the various stakeholders involved.
A new approach going forward: 'open, information & analytics based'
There is an opportunity, or better a necessity, to upgrade the long-held standard approach and adopt an 'open, information & analytics based model', with demand 'pulling'” the real estate developments pipeline.
Rather than operating solely, or mainly, within the 'closed' narrow boundaries of individuals’ know-how, we should listen to stakeholders, collaboratively engage with global markets, operators, partners, suppliers, talents, without the biases and limitations of personal past perspectives and experiences. On the supply side, technology in open architecture can be leveraged to facilitate better, faster and cost-effective access to global state-of-the-art solutions, experiences, and innovations (the Real Estate 4.0 Industry Platform).
Rather than extrapolating from the past, seeking to forecast 'stable' trends, we should use available information, data and analytics to understand the dynamics of the demand and learn how to successfully navigate change. On the demand side, big data and some good algorithms can be used for scientific, real-time, digital modelling of complex socio-economic ecosystems (the Real Estate 4.0 Catchment Area).
Individual know-how and human intuition are still very relevant but should be supported by smart use of technology to access globally available information, streamline value chains, innovate, accelerate time-to-market and meet the needs of the changing demand.
Processing power, connectivity, real-time availability of unprecedented amounts of data and information and good analytics can contribute to bridge the gap between supply and demand going forward and help create flexible, resilient and sustainable real estate products that can evolve over time.