Tue 01 May 2018

Technology in the Retail Sector

Technology is still, relatively speaking, in its youth and evolving rapidly. But is the real estate service to the retail sector, one of the oldest and most established asset classes but one which has also itself had enormous challenges as a result of the change in customer shopping habits, managing to keep up?

Space as a service

Landlords are starting to think of space as a service, rather than a commodity and so the traditional occupation structures face redundancy. We live in a time where people increasingly wish to rent products on-demand, as opposed to owning something which is perhaps out with their price range, or which becomes out of date quickly. We see this trend in the use of applications such as Amazon Prime, as opposed to purchasing CDs or DVDs, or through the use of companies such as Uber and car clubs rather than owning a car. Real estate is also impacted by this change in mentality and occupiers are looking for ever increasing flexibility.

In the office sector, there is a growing belief that better offices will attract better talent, with higher staff productivity and retention rates. As a consequence of this there is increasing demand to obtain buildings which accommodate flexibility, sustainability and general staff wellbeing. The same thinking applies to retailers but with the focus on customers - retailers need to attract and retain customers by offering them flexibility and choice. We have already seen a real move towards online shopping and in certain sectors, a change in core shopping habits - more of which will undoubtedly arise.

Retailers will have a heightened focus on security in years to come, the robustness of which will need to be balanced against an efficient and uncomplicated service. New technology, such as facial recognition, may be used to support this in the future.  

But will we see more fundamental changes?  There is little doubt that we will.  Perhaps in the future we will rent much more than we buy in other retail sectors too.

Big Data and Artificial Intelligence (AI) inc. the Internet of Things

So how will the suppliers of real estate to the retail sector respond? The use of Big Data in real estate will allow the tracking of market trends, customer behaviour and asset performance. It is an invaluable tool which is being used across a number of other industries and real estate is now beginning to recognise its advantages. Retail already does.

AI is predicted to transform the work that we do and the businesses we operate within. The advances in technology will mean that increasingly computers will be able to discover patterns in data, even without human instruction.

With specific focus on retail, there will be further changes to the industry as AI improves. Future forecast sales will be accurately predicted, resulting in an even further decreased need for physical floor space. Advances in technology such as chatbots and facial recognition will result in fewer checkouts and more automatic payments. Perhaps the real estate industry, not just the retailers will themselves be better able to predict change and be ready to accept the offer.

AI will also provide environmental benefits by reducing the energy consumption of buildings by up to 30% via the Internet of Things. This is a network of devices or systems which are interconnected. It can connect our homes, laptops, cars and phones, however is increasingly being used in commercial buildings. The application of new technologies in building systems has endless possibilities, whether that be by lighting and heating controls, air quality measurement or predictive maintenance. Looking at real time data from multiple data sources and systems, a building can have the intelligence to respond and adapt to needs.

Changes in consumer trends and employee culture

The rise in online shopping has led to a decline in high street purchases already, resulting in retail store closures. There are limited new entrants who are willing to take large amounts of space and many online retailers choose to remain on this platform. In a report by JLL: The big eight for UK real estate, it was predicted that by 2030, a quarter of groceries may be sold online, with total store numbers potentially falling by 22% before the end of this decade as the overall share of online retail sales continues to increase. However, with this online expansion comes a new asset class in the form of industrial warehouse facilities and distribution centres.

Employees in our businesses are more connected than ever, with an increasing move towards flexible working. Many organisations are choosing to utilise remote working models, thus reducing the amount of office space needed and challenging the concept of what constitutes an ideal office location. This in turn will impact how and where people shop.

In the series of Emerging Trends in Real Estate Reports led by PwC earlier this year, it was suggested that the Real Estate sector is at a point in its evolution where those who fail to embrace the developments in technology, do so at risk of being left behind permanently. The sector has been criticised for failing to embrace innovation, however this is slowly changing. The use of technology in real estate does not detract from the human skills which are essential in managing properties, transactions, portfolios and people, rather they facilitate faster and more intelligent decision making. Businesses that will continue to thrive in this new era will develop new sets of skills and ways of collaborating out with the traditional industry boundaries along with creating innovative new business models to survive and compete. As the technology and real estate sectors increasingly merge, those working in the field will need to have an understanding of both to survive and properly serve a sector which is already evolving much quicker than the real estate sector is - it needs to catch up, as there are so many changes already taking place in the retail sector which property owners and managers need to properly embrace.

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