Innovation with an Eye on Capital
Capital appetite for disruptive technology is reshaping every commercial market, from industrial to retail.
Whatever the next big thing in technology will be, it always promises to change life in the blink of an eye. But rarely do such transformations happen instantaneously. Flying cars might be the stuff of 1960s science fiction, but the electric vehicle has only recently penetrated the market after decades of hype that they'd extinguish the combustible engine industry.
Still, across markets in commercial real estate, technology is and will continue to produce major changes. Office sharing, food delivery, and e-commerce are game-changing trends enabled by technology. But obstacles, including government regulations and industry pushback, can delay major disruption to commercial real estate.
Norm Miller, the Hahn Chair of Real Estate Finance at the University of San Diego, has built an impressive career specializing in automated valuation models, data mining, market forecasting, and mortgage risk analysis. Long story short, he needs to know what's changing and when. “This is the most dynamic time in commercial real estate that I've seen in my lifetime,” he says. “But these changes take time. It might take 10 or 20 years before we get shakeout on office sharing, for instance. The market takes time to figure it out.”
Looking at self-driving cars and trucks, collectively known as autonomous vehicles, for instance, Miller believes the technology is almost ready to revolutionize commercial real estate, but many optimists fail to understand real-world problems. “In a case like this, regulation will be a major consideration,” he says. “Hurdles aren't even across technologies. In the case of autonomous vehicles, for instance, experts like Elon Musk have said they have to be 10 times safer than people.”
In addition to government and industrial regulation, potential disruptors are also reliant on capital markets to some degree. Investors in the U.S. have an enormous appetite for innovation, Miller said, so capital can flow toward paradigm-shifting technologies, which can skew commercial real estate markets.
Miller points to office-sharing as an example where outside money has pushed specific companies or models when they may not be the most effective or efficient. “Traditionally, we've seen capital-pushed supply of real estate primarily in retail,” he says. “But we might now have it in office and other sectors. And if it's capital-pushed, it's not solely based on fundamentals of demand and supply, which instructors at CCIM Institute teach in their market analysis course.”
In the search for the next Amazon, investors may overlook fundamental realities in a specific sector of commercial real estate. The best data analyst with the best software can still misunderstand a regulatory environment or the influence of capital. For this, Miller says, experienced real estate professionals can help bridge the gap from theoretical models to real-world experiences.
Hear more on this topic at the 2019 CCIM Global Conference, Oct. 13-14, in San Diego, where Miller will lead a breakout session entitled, “A Closer Look: The Impact of Autonomous Vehicles,” which explores how the technology could transform commercial real estate development and urban infrastructure.