5 minute read 12 Aug. 2019
Melbourne at sunrise

How disruption in the market will define the future of Australian real estate

By Selina Short

EY Oceania Market Segment Leader – Built Environment & Resources

Expert in intelligent buildings and smart cities. Champion of innovation and the strategic importance of cities.

5 minute read 12 Aug. 2019

For Australia’s largest industry, responding to dramatic shifts in the market is challenging due to the extended life of buildings.

In conjunction with the Property Council of Australia and the Green Building Council of Australia, EY has explored disruption in the real estate sector and the transformative trends that define the present and determine the future of real estate. The report,  Will the Australian property industry seize the upside of disruption?,  combines the feedback and views from a survey of more than 550 industry executives and senior managers, interviews with 15 industry CEO's and research into the megatrends that will shape the future of real estate. The report challenges the ‘safe as houses’ notion of real estate and questions whether the processes required to create a building, the business model which delivers it and the societal norms which drive it, can all be disrupted.

We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.
Bill Gates
The Road Ahead (Viking Penguin, 1995)

Behind disruption lies three root causes: technology, globalisation and demographics. While these forces are not new – indeed, they have been around for centuries – how they evolve and interact will drive the waves of disruption. By understanding the interaction between these three forces, we’ve identified eight global megatrends that are shaping the future. These large, transformative trends define the present and determine the future through their impact on businesses, economies, industries, societies and individual lives. 

Eight global megatrends that are shaping the future
  • Empowered customer: how will you change buyers into stakeholders?
  • The future of work: when machines become workers, what is the human role?
  • The future of smart: what intelligence will we need to create a smart future?
  • Behavioural revolution: how will individual behaviour impact our collective future?
  • Urban world: in a fast changing world, can cities be built with long-term perspective?
  • Health reimagined: with growing health needs, is digital the best medicine?
  • Industry redefined: is every industry now your industry?
  • Resourceful planet: can innovation make the planet resource rich instead of resource scarce?

EY has further explored these trends in its Global report, The Upside of Disruption

Increasingly, companies are aware that they need to rethink the way they operate. Despite this, just a handful of companies have successfully disrupted their own business models. Netflix, for instance, switched its business model from one centred on DVD home deliveries to one built on streaming. More recently, auto giant Daimler has begun experimenting with moves into carsharing and ride-sharing. Meanwhile, hundreds, perhaps thousands, of firms – from Blockbuster to Kodak – failed to adapt in time.

Safe as houses?

While bricks and mortar can feel ‘safe’, the processes required to create a building, the business model which delivers it and the societal norms which drive it can all be disrupted. The way property is constructed, transacted, valued and invested can all change, and all can affect profitability and returns. Our research suggests that the industry may underestimate the impact of the disruptive forces starting to emerge. The difference between those businesses that thrive in the new economy, and those that risk irrelevance and unprofitability, may hinge on one deciding factor: their ability to proactively seize the opportunities unearthed in the disruptive power of these megatrends – or at the very least quickly react to such disruptions. The industry sees itself in the business of creating, selling and managing assets. But is it really?  

The property industry creates the places where people live, work and play. So, what happens when technology and disruption fundamentally shift how we live our lives and therefore, the kind of spaces we need and desire? Steve Jobs famously said, “A lot of times, people don’t know what they want until you show it to them.” What happens if an Apple or a Google – a world-class disruptor with brand of such power and influence – moves into the property space? Will this redefine what consumers want? 

Disrupted or disruptor?

Disruption is requiring all industries to respond to shifts that would have seemed unimaginable even a few years ago. The first, and most important, step in self-disruption involves challenging long-held assumptions about matters as fundamental as the nature of your business, customers and competitors. 

Growth or innovation?

We believe innovation needs to become synonymous with growth. And this demands an approach that allows ideas to be created, tested and ‘deployed or destroyed’ at a rate that allows property companies to lead new thinking – or at least follow fast.  

New technology, delivery solutions and business models should all be considered. Innovation should not be restricted to digital and technology — it should apply to all aspects of planning, delivering and operating assets. This includes funding and financing mechanisms, business processes, supplier management, community and stakeholder engagement, revenue generation and security. The role of the public sector in catalysing and supporting innovation is important and a more collaborative approach is essential.

While the potential impact and trends are many and ever-changing, we think there are a number that require the industry’s debate, interrogation and creative thinking.

Trends in property
  • Digital technologies

    Blockchain technology has the potential to streamline and accelerate business processes, increase cybersecurity and reduce or eliminate the roles of trusted intermediaries or centralised authorities.

  • Compromised cybersecurity

    The average time to detect a cyber attacker’s presence in a company’s system is 140 days, compromising not only its proprietary business information but also sensitive customer data. With more connected buildings and infrastructure there are new risks, as cyber threats enable profound disruption to cities and companies.  

    • Blockchain is being piloted in land title registries in Honduras, Greece, Sweden, Ghana and Georgia.  
    • Additive manufacturing (3D printing) could change the way buildings are constructed, maintained and upgraded with the simplicity of producing parts while contractors are onsite. Bespoke design delivering better aesthetic, ergonomic and safety outcomes, reducing supply chains and delays, becomes cost effective. 
  • Robotics

    Robotics could predict everything from project delays to property price fluctuations and aid the design and delivery elements of construction. There are three key layers:  

    1. Rule-based automation: Robots that follow a set of pre-defined rules that describe tasks. 
    2. Enhanced/intelligent process automation: Robots that can understand unstructured data, human communication and draw conclusions from data cross-checking.  
    3. Cognitive platforms: Robots that learn from experience in the same way as humans do in order to perform complex tasks without human interference Robots have already been deployed in the property industry in roles including receptionist and cleaner, and they are being trialled for monitoring and surveillance. 
  • Smart Future

    Connectivity: It is estimated that more than one billion "things" excluding smartphones, tablets and PCs, will be connected in commercial buildings alone by 2018. This is up 35 per cent from 2015.  

    Use: The ability to assimilate, analyse and make decisions in more complex and scalable ways than ever before enhances effectiveness, enabling the optimal use of assets, power grids, transportation networks, production lines, supply chains, and cities. Smart assets will link to analytics that collect data to create bespoke experiences for customers and build revenue-generating data streams. Smart assets focus on delivering better health outcomes with wellness being a key buying and investment criteria.  

    Collaboration: The private sector will drive the acceleration of 'smart cities' strategies in precincts where an industry sector has had control and the smart concept is proven. Scaling it to entire cities will require sectors such as technology, finance, real estate and energy working cohesively with governments to see major gains in citizen benefits and productivity. 

  • The sharing economy

    Empowered customer: The sharing economy enables people to participate in enhanced leisure experiences, business opportunities and conveniences that were, in the recent past, out of reach for many. We are moving rapidly towards a more self-service focus, creating intense competition in the service industries. Understanding and adopting the technologies disrupting the brokerage and leasing space can complement the traditional model.  

    Asset utilisation: A lot of high-value enterprise assets such CT scanners, MRI machines and office space, have fairly low utilisation rates. Asset-intensive industries where assets are not highly utilised will experience the biggest levels of disruption and supply shocks. Construction and mining equipment manufacturer Caterpillar’s alliance with US start-up Yard Club allows contractors to rent machinery to each other between jobs, converting slack periods into cash. 

  • Autonomous transport

    Vehicles: Autonomous vehicles trials are occurring in more than 40 cities around the world. 

    • Australia has commenced trials in Melbourne and Adelaide. 
    • In the UK, members of the public trialled a driverless electric car.
    • Uber introduced driverless cards in Pittsburgh.  
    • Singapore kicked off on-demand driverless taxis. 
    • An autonomous bus transported passengers in France. 

    Analysts predict that autonomous vehicles will eliminate up to 90 per cent of the current parking spaces in cities with remaining repurposed as charge stations to power up fleets of electric vehicles. 

    Drones: Heavy investment in drone technology will enable delivery with the potential to include human transportation. Drones can be used in a multitude of ways: to aid design and space visualisation; to report maintenance issues; and to provide site monitoring and surveying. Advanced algorithms, drones, delivery roots and autonomous vehicles are all well-funded technologies in different phases of market adoption. Amazon, DHL, Matternet and Flirtey all have drone trials underway.

We now have no choice but to design smart, connected and sustainable infrastructure to accomodate this global growth.

Resilient cities

If we are to cope with the growing strains of urban population, then cities must be liveable, competitive and sustainable — environmentally, financially and socially. They must also be equipped to create opportunity. We have seen a rise in the ‘trust deficit’ being faced by governments and corporations. The relevance of this to the property sector is particularly significant when you consider the link between property ownership, urban access and inequality. While urbanisation generally affords economic opportunity, it also presents significant resource risks. Rapid urbanisation is contributing to global resource depletion, while some of the potential effects of climate change, such as flooding and other extreme weather events, will hit cities hardest.  

One successful case study of this approach can be found in Barcelona. The city – like so many others – was searching for ways to stave off economic and developmental stagnancy following the 2008 recession. To help save money and optimise the urban infrastructure, the local government employed the latest computing technologies and embraced “smart city” initiatives in 12 areas including water and lighting. This helped reduce congestion and emissions via sensors that led drivers to empty parking spaces; created a sensor network to monitor precipitation and humidity, allowing officials to target irrigation; and installed nearly 20,000 smart meters to measure energy consumption and improve efficiency, among other efforts. In total, Barcelona calculates that it saved $37 million from smart lighting, $58 million from smart water measures, and increased cash flow from parking by $50 million, thanks to the city’s Internet of Things implementation.

Real estate companies have made great contributions to cities through placemaking efforts. In the future the data they contribute will be as critical to the city’s potential as the design elements of the buildings they construct.
Bill Banks
EY Global Infrastructure Leader
The 100 Resilient Cities program (100RC)

Pioneered by the Rockefeller Foundation, 100RC is helping cities around the world become more resilient to the physical, social and economic challenges that are a growing part of the 21st century. Cities selected to join the network are provided with resources to develop a roadmap to resilience along four main pathways:

  1. Financial and logistical guidance to establish an innovative new position in city government, a Chief Resilience Officer, who will lead the city’s resilience efforts; 
  2. Expert support for development of a robust resilience strategy; 
  3. Access to solutions, service providers and partners from the private, public and non-government sectors who can help them develop and implement their resilience strategies; and
  4. Membership of a global network of cities that can learn from and help each other.

Through these actions, 100RC aims to help individual cities become more resilient, and to facilitate the building of a global practice of resilience among government, not-for-profits, the private sector and individual citizens. Both Sydney and Melbourne were selected as members of the first 100 Resilient Cities and are working to develop strategies that will build the strength of the community, infrastructure and economy in these cities.

Asking the tough questions

Property companies are well-drilled in asking themselves questions about the market, but in a world of disruptive innovation, this is no longer enough. As the sector evolves, leaders need to continue evaluating their ability to adapt to change. Here are the five questions they should be asking themselves:

What business are you in? Disruption changes the very business that companies are in. Customers don’t necessarily want to own a car, their real need is to get from point A to point B, which can just as easily be accomplished with a ride-sharing service, self-driving car or drone.

Who is your customer? Disruption does more than empower customers, it creates entirely new customer segments with different needs and expectations. Understanding how the customer base has changed and the needs of the new customers are critical inputs for self-disruption. 

Who are your competitors? Responding to disruption requires making the right comparisons, such as assessing your company against the appropriate competitors. Since disruption attracts non-traditional entrants from other sectors, the peer group you historically identified with may no longer be relevant. 

Who are you aligning with? Whether technology or innovation partners, or the creation of alliances with traditional competitors to pool investments and R&D to compete with disruptors, the partnerships you create for the future will require different skillsets to the ones you have today

Is your culture playing it ‘safe as houses’ or ready for innovation? Sustainable innovation requires an understanding of how an organisation currently works and what is needed to embed innovation into the company culture. Central to this is how to link innovation to your growth agenda. Once this is achieved and you have created a culture that can actively encourage ideas, it is also critical to have an approach to triage, test and manage the innovation process adding predictive intelligence to improve outcomes.

Summary

Evolving technology has created disruption in the Australian property market. The industry is now being challenged to embrace innovation as research suggests that many are underestimating the impact of emerging disruptive forces. 

About this article

By Selina Short

EY Oceania Market Segment Leader – Built Environment & Resources

Expert in intelligent buildings and smart cities. Champion of innovation and the strategic importance of cities.