At the PERE Asia Summit last month, one of the most discussed topics was the proliferation of technology and how it has the capacity to impact property investing – both positively and negatively.
More specifically, the focus was on ‘disruptive technologies,’ which implies the kind of change that typically takes cost and inefficiency out of a system.
One of the globe’s biggest landlords told PERE that, from his firm’s perspective, there is no asset class that has been disrupted to the point where it becomes obsolete. Rather, the disruption means that when investing, a firm has to make technology front and center of the investment thesis as it does not want to be left with an obsolete property down the line.
E-commerce in the region, for example, is having a major impact on China’s shopping malls. The country’s e-commerce market is one of the world’s largest and has continued to cannibalize in-store retail visits and sales, as most Chinese consumers would rather choose a digital channel – search engines, brand websites, or social media – when researching a new product or purchase. Only 10 years ago, the shopping mall would have been considered one of real estate’s most defensive asset classes.
The rise of e-commerce does not mean that returns cannot be generated through Asian retail properties. But with less in-store retail activity taking place in the region, prudent investors should orient themselves to what has been dubbed “unique destination properties,” which are more mixed-use and feature attractions for consumers aside from merely shopping.
Also making waves in Asian real estate is the so-called sharing economy where groups such as WeWork and Airbnb have firmly solidified their place. The two companies have dramatically changed how landlords can re-imagine their properties, and provided real estate owners with the ability to generate revenue from previously underutilized space, increasing asset values.
These sharing economy tenants may demand that property investors and owners think more carefully about the appropriate size, usage, layout and amenities of their buildings, whether for development or refurbishment strategies.
However, many new economy tenants tend to have weak credit, and landlords will need to seriously evaluate the extent to which they want to spend capital to attract them, the firm said.
Yet sharing economy tenants can have a less quantifiable impact on a property, too. One landlord that counts WeWork among its tenants in Asia said that business counts as an amenity to the building, just because of the liveliness and dynamism of the people. When evaluating a multi-tenanted asset management plan for office properties that are being repositioned, property owners therefore should also consider sharing economy tenants as part of the mix.
And while it will take some time before they become a permanent fixture in Asia, autonomous vehicles also have real estate investors beginning to consider how this disruptive technology will affect their investments.
Autonomous cars have the capacity to change everything, from commuting patterns to parking requirements to potential weakening of ‘last mile’ industrial corridors.
For instance, in Hong Kong, bidders are currently circling a 31,000-square-foot site currently being used as a car park and set to be sold by the government through a public tender.
The Class A site in Murray Road is ensconced amid a number of iconic Hong Kong buildings, including the Cheung Kong Center and the Bank of China Tower. The deal will be Hong Kong’s first commercial land sale in its prime business district in two decades.
It is clear disruptive technologies can pose a risk for Asian property investors. But for those investors that closely track technology and quickly adapt to it, there is potential for reward as well.