THE FUTURE OF REAL ESTATE: ADOPT, ADAPT & ADJUST
January 30, 2018 |
Fred E. Taylor Professor of Real Estate and Executive Director, Masters of Real Estate Development, Arizona State University, W.P. Carey School of Business
“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.”
R. Buckminster Fuller
The impact of technological change on society is not new. The agricultural revolution, the industrial revolution, scientific revolution, digital revolution, the automobile, TV, and telephones are all examples of technological shifts that have greatly impacted our lives. Some of these have impacted settlement and land use patterns (such as the automobile), others have impacted the form of places we create (construction techniques and materials) and some have impacted how we do business (iPhone). There is no doubt technology is impacting real estate, but the central questions to answer are:
Is the greatest impact to the business of real estate or to the real property assets?
Will there be an “iPhone” event for the real estate industry – a seismic shift in the design, use, location and operation of space?
Will technology allow business models that fundamentally alter how the business of real estate is conducted?
Can we predict the most significant potential impacts?
My sense is that technology is impacting the business much more than the real property. One way technology is doing this is by allowing new business models to compete against legacy models, and in several cases, to become dominate forms of how the business of real estate is conducted. Technology allows collection and use of data on a greater more efficient scale and by a greater number of people. Data and analytics can increase the quality of market analysis and decision making, and has the capacity to change the brokerage industry from a purely transactional to an advisory focused business – to “the travel agents of the future.” It used to be that tightly controlled access to market information (Multiple Listing Service – MLS) provided significant value that inured to the licensed agent.
The barrier to entry has been lowered by technology and companies that are making market information available to the general public are disrupting the brokerage business. Control over market information is no longer the most important component of the business that creates value for the service. That information is increasingly available to all and can be increasingly more accurate. Technology is also providing the tools to effectively use the data, changing the process and removing inefficiencies – sharing information, generating documents and executing agreements.
There is a convergence of demographics and technology that is creating changes in business models, and those business models are impacting all aspects of our lives – the business of real estate included. Martec’s Law states that technology changes exponentially and organizations change logarithmically. The rate of organizational change slows as changes in technology occur – technology keeps accelerating making divergence greater. What this means is that companies have trouble keeping up with and adopting new technologies. Real property cannot change quickly. Business can change quicker, but it is difficult. Changes will be incremental for the business and focused on increasing efficiency. This provides the opportunity for new business models to be created and new competitors to emerge that will challenge existing market participants as well as leaders within the business of real estate.
A hint of the possible impacts of technology comes from an article published in January 1947 in The Annals of American Academy of Political and Social Science (Vol. 249, Social Implications of Modern Science pp. 81-88) by William Fielding Ogburn titled “How Technology Changes Society.” Inventions not only create industries, they also destroy them and the combination of these two things along with demographic shifts, impact how we live.
One thing seems to be certain, so long as society exists, it will need real estate. What type and where is what we need to think about. Because of this we must think strategically about the impact technology will have on our business, adopt it, adapt to it and adjust our services and business models. Becoming critical and strategic thinkers is imperative to survival. An emphasis will be on advisory services and helping people make good decisions, not just controlling information. Real property is big, clunky and hard to change quickly, but the business of real estate can and is changing quickly.
Be a student of the business.
Professor of Practice Mark Stapp is a well-known expert in Phoenix-area real estate. Stapp teaches future real estate leaders at the W. P. Carey School of Business at Arizona State University and is an accomplished real estate developer himself. As the Fred E. Taylor Professor at the W. P. Carey School, Stapp is executive director of the one-year Master of Real Estate Development program for real estate professionals. He also serves as a faculty associate at ASU’s Herberger Institute for Design and the Arts. Outside ASU, Stapp has been part of various business enterprises and development projects across the United States for more than 30 years.