The Sky Isn’t Falling, But Here’s How Automation Will Affect CRE September 12, 2017 | Alex Richardson

Predicting a future in which all or most of human labor has been replaced by automation has become an almost fevered pastime among the technologists, entrepreneurs, and policy wonks who make up the world of technology journalism. Whether this is describing a utopian world of leisure and culture or a dystopian hellscape of inequality is the dealer’s choice. Add that to the cacophony on the other side that insists that those who are worried about losing their jobs are wrong (and quite possibly soft in the head), and you have a discussion that is difficult to make any real sense of.

And yet, one way or another, automation is coming. That’s certain. What’s also certain is that commercial real estate, because of its deep integration with virtually every other business sector across the economy, will be one of the first to notice its influence. Being prepared for those changes and ready to adapt to new challenges will be a key factor in predicting the industry’s winners and losers over the next few decades.

With that in mind, let’s explore the areas affecting commercial real estate that are most subject to change as automation replaces workers and cuts costs for consumers.

 

Building Operations

Closest to home is the effect that automation is already having on building operations. Building Automation Systems have been around for decades, but advances in the internet of things and machine learning will mean real changes to the way we run our buildings behind the scenes.

Already, companies like Aquicore are causing the number of data streams in commercial buildings to explode. Where not long ago building teams had access to just a few data points about their building’s energy use and water consumption, engineers in modern buildings have real-time access to data about unit- or equipment-level consumption, air quality, CO2 levels, and more.

The digital collection of this data is already a kind of automation in and of itself: Building engineers and facilities managers no longer have to spend hours every month traversing their buildings clipboard in hand to write down utility consumption figures. As machine learning matures into an industry, experts predict that the task of understanding and acting upon that data will become increasingly automated. Someday in the not-too-distant future, buildings may virtually run themselves and require an on-site presence only for person-to-person interactions and repairs.

 

Construction

Another field that is on the cusp of important changes is construction. The construction industry is ripe for automation on several key indicators. Productivity growth in construction has been historically weak compared to other sectors, in part because of a reluctance to invest in new technology. It also habitually goes far over budget on large projects. Finally, construction faces a chronic shortage of workers – there were 200,000 unfilled U.S. construction jobs as of February 2017, according to the Bureau of Labor Statistics.

All of this points to an industry that could be made significantly more efficient with modern automation techniques. The construction sector can be slow to adapt, but the promise of lucrative cost savings and efficiency gains will almost certainly win out in the end. When that happens, it seems likely that commercial real estate will benefit from lower building costs and possibly from longer building lifetimes if more robust techniques become affordable.

The potential for automated construction extends from small, mundane tasks to large-scale ones. John Davenport, a surveyor at Whitaker Contracting Corporation, told Recode that using drones to survey quarry stockpiles allows him to accomplish in ten minutes what previously would have taken two days. In New York, a startup called Construction Robotics recently unveiled the SAM100, which can lay 2,000 bricks per day – five times what the average mason can lay. There are even attempts at 3D printing entire buildings underway, though those might not be productive for some time.

 

Retail

In the long suffering retail vertical, commercial real estate can probably expect more of the same. As automation takes hold of warehousing and delivery, costs will be cut further in the e-commerce industry, meaning further cuts to brick-and-mortar. At the same time, there are signs that growth in e-commerce will lead to an increase in the demand for warehousing space.

A recent report by noted academic Carl Benedikt Frey and Citigroup predicted that 63 percent of the jobs in sales, 80 percent of the jobs in transportation, and all human employment in retail could disappear as automation takes over. Frey is a well-regarded scholar on the topic of workforce automation and industrial renewal. He became a well-known figure after a 2013 prediction that 47 percent of all global employment is susceptible to automation. This result was mirrored in research conducted by President Obama’s Council of Economic Advisors, but it has been debated by other economists.

While not all retail would disappear under a heavily-automated model, Frey expects that much of consumerism would transition online. E-commerce still only accounts for less than 10 percent of all retail purchases, but lower costs, faster delivery, and the coming of age of the millennial generation seem likely to push that number up over time. The warehousing space that would be needed to fulfill these online orders far outpaces the current stock, suggesting that commercial real estate professionals should consider increasing their exposure to this vertical. By pulling together analysis from a few different sources and with a little back-of-the-envelope math, Bisnow estimated that more than 2.3 billion square feet of new warehousing space will be required by 2035.

 

Office

If the research presented in JLL’s Global Real Estate Trends 2017 report is to be believed, almost 10 percent of all jobs will be automated within 20 years. That’s more than some estimates and less than others, but if it were to prove true, it would have a profound impact on the office vertical. If, as JLL predicts, a further 25 percent of workers find that half or more of their tasks are automated in the same time frame, the effect will be even more pronounced.

A shift that is already happening is expected to go hand in hand with the decline in regular office workers: A rise in ad hoc employees and teams that accomplish specific tasks for a company before completing their employment. Automation – as it always has – makes it easier to specialize. In the modern era, that means that there’s an advantage to using a small, permanent team that can access a wide array of specialized skills through the freelance market.

So, what can the commercial real estate market anticipate? JLL predicts shorter and more flexible office leases will be in higher demand. Coworking spaces will probably continue to expand, but regular office leases are expected to change as well. And while some types of tenants will value flexibility more than others, virtually all of them will continue to expect more and more technology amenities to facilitate their work. While flexibility and shorter leases are more expensive for landlords to manage, JLL notes that tenants will likely have to pay for that flexibility in the form of higher rent.

One of the impressions that jumps out at you from the various predictions and augers cited here is that no one really knows what’s going to happen with automation. Are 10 percent of jobs going to disappear in the next few years, as JLL predicts, or are 47 percent, as Frey does? If jobs do disappear, will there be new jobs to take their place? Bisnow notes that John Maynard Keynes predicted similar techno-unemployment last century – a claim that Frey defended, arguing that the jobs were lost but were replaced by new ones. He doesn’t see that happening this time around.

It is a truism that things are changing. Automation technology is advancing and it will undeniably bring changes. The next successful generation of commercial real estate leaders will be those who do their best to read the tea leaves but remain flexible and ready to correct course as the future emerges.

About The Author

Alex Richardson is a staff writer at Aquicore. He writes about green policy, energy efficiency, and innovation that affects commercial real estate. Alex.Richardson@aquicore.com.