If you thought railways had a major impact on RE . . .

Vice President , The Regional Group of Companies Inc
  • Jun. 22, 2017

It took only 30 years for the railway to reshape the British landscape, the British economy and the very fabric of British society. But as profound as that change was, it came at a glacial pace by today’s standards.

John ClarkThe march of progress, for good or ill, reshapes the kind of real estate we need.

Whatever we build today must have the functionality and the capacity to adapt, extend its useful life and future-proof itself against technological advances we can only dimly predict.

That can be a pretty tall order.

But as history has shown, it’s an imperative, nonetheless. We often look at real estate in terms of its recent past use, but the value of real estate is the current value of future benefits. Investors must make the best estimate of what that future may hold.

Right now, we are on the cusp of many changes, the impact of which are potential game changers, and there is a great risk of driving while using only the rear-view mirror.

‘A revolution within a revolution’

There is a three-part series on TVO called Locomotion: Dan Snow’s History of Railways. It tells of how “rapid industrial growth during the early 19th century, coupled with the prospect of vast profits, drove inventors and entrepreneurs to develop steam locomotives, steel tracks and an array of daring tunnels, cuttings and bridges that created a nationwide system of railways in just 30 years.”

The promotional material for the series further characterizes this period as “a revolution within a revolution; a maelstrom of scientific enterprise, social upheaval and rampant capitalism that burned at the heart of the industrial transformation of Britain.”

Much of that verbiage could be applied to the period of rapid technological change in which we live now. And in both cases, it’s real estate that takes the brunt. 

We’re seeing it in how hospitals must now be designed, in traditional retail as e-commerce takes greater hold, and in what it means to “go to work.”

Making buildings work for the future

Take the thousands of commercial properties across the country that are sliding into that dreaded class-C category.

Part of it is a function of age and neglect, but design plays a huge factor, too.

The designers of properties built in the ’70s and ’80s, even the ’90s, couldn’t foresee how the workplace, and work habits, would change with the rise of the Internet and mobile technology.

Last week, I heard about one of the teaching staff at the University of British Columbia, in Vancouver, who can’t afford the cost of housing in that city and now works remotely from his home in Northern Ontario.

Employers are looking to cut real estate costs and reduce the amount of office space they lease by shifting away from assigned desk space and having fewer work stations than they do staff. If, say, 10 or 15 per cent of your team is offsite at any given time, it only makes sense to reduce your leased space and associated costs.

Desire to increase density per floor

But this shift goes hand in hand with a drive to increase density per floor.

That puts more demand on HVAC systems. Elevators need to be bigger to handle more capacity. New standards for workplace comfort call for more natural light, higher ceilings, and smart building technologies that allow personalized control of the environment to suit individual tastes.

The future will probably see the interface between people and computers largely voice driven; this will again change the workplace for the need to manage and control sound. Couple all these factors with the drive to reduce energy and water consumption.

Old buildings with good bones can be renovated and retrofitted, provided the expected return justifies the expense.

But what about new properties being built? What does the future hold for them? How can architects and developers future proof against “what-if” scenarios that might still reside in the realm of science fiction?

What we can expect to reshape real estate

All we can do is project from what we know and can see on the horizon today:

* We know people will only become more mobile and detached from the traditional office setting in the years to come;
* We know smart building technologies are already being deployed. These can turn a conventional building into an artificially intelligent organism that can track the status of every individual and ream of printer paper in real time (enter the Internet of things);
* We know the push is on to create “net-zero” buildings that, through reduction, conservation and onsite energy harvesting, have a neutral environmental impact;
* We know global technology companies and major automakers are investing 10s of billions to populate our roads with autonomous vehicles, which would free huge swaths of urban real estate used today for parking for other uses.

No one has a crystal ball, but one thing we can all take for granted is that change is constant.

Just like the rise of the railway system in the U.K. in the 19th century, the changes coming now will reshape every aspect of our lives.

To discuss this or any other valuation topic in the context of your property, please contact me at jclark@regionalgroup.com. I am also interested in your feedback and suggestions for future articles.

 


John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

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John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

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