_Next wave technology will force a rethink of business models and real estate strategies

On its own Google would be a remarkable story of innovation led growth, but it is just one of the tech titans that have flourished from the West Coast of the USA since the late 1990s.

The rapid accumulation of financial muscle and scale by organisations such as Apple, Amazon, Facebook or Microsoft has influenced global real estate markets in three ways:

1. Direct demand across key global markets:

The titans have been actively acquiring space across the globe. Over this past year Facebook has, for example, committed to both 760,000 sq ft of space in San Francisco and more than 600,000 sq ft across three buildings in London’s King’ s Cross District, where it will join Google as a key tenant.

This follows on from Apple making a similar commitment at the iconic Battersea Power Station and building-out its futuristic new HQ in Cupertino. The impact is not limited to office markets either. More than 70% of transactional activity in the UK industrial market during 2017 involved Amazon, and their industrial market dominance has been an almost global phenomenon.

2. Further raising the bar on the workplace:

The new ‘spaceship’ campus created by Apple follows in the footsteps of the famed (but often misunderstood) Googleplex in establishing a new benchmark for leading edge workspace.

The tech titans have placed great value and investment in the workplace. They have raised the bar in how occupiers could, and should, think about the workplace. They have brought a new focus to internal and external building quality, which has a wider market resonance.

The Steve Jobs Theatre, Apple Campus, Cupertino, California

3. Fuelling disruption across all industries:

Collectively the titans have established the digital age for business. Accordingly, law firms, accountancy practices, retailers, banks, media companies and the like have been required to formulate new business models. The success of these new corporate structures is ultimately dependent upon attracting and retaining new, technology savvy talent.

In order to entice that talent, companies have had to rethink their space and locational requirements. From an occupational market perspective, the equation has been simple: disruption = demand. This is the reason why, despite an often less than positive operating environment, leasing activity has sustained high levels since the turn of the decade.

All hail the next wave!

The growth of the tech titans supports the economic theories advanced by Joseph Schumpeter. He argued that economic change revolved around innovation, entrepreneurial activities and market power. Schumpeter also, tellingly, maintained that technological innovation creates temporary monopolies that are necessary to provide the incentive for firms to develop new products and processes.

This is prescient in the context of the next wave of digital technology presently emerging and impacting business and consumer alike. Although often originating in academia or entrepreneurial startups or spin-offs, the rise and adoption of automation, robotics, artificial intelligence, machine learning, augmented reality and virtual reality is being rapidly advanced by the tech titans.

Take the example of Artificial Intelligence. Google have, according to tech sector analysts CB Insights, invested in 19 separate AI companies over the six year period 2012-17, acquired a further 13 specialist AI companies over the same period, and created six in-house programmes to extend their expertise and market dominance in the next wave.

Clearly, the market capitalisation and cash on balance sheet of the tech titans enables them to drive R&D further and faster. They can also pull at the M&A lever in order to dominate in any emerging area of technology. The next wave is the latest battleground for the titans but it is also an area posing some broader questions about the future of not only the workplace, but work itself.

Jobless growth?

As next wave technologies become the latest weaponry in the battle for corporate competitive advantage, a great debate has ensued. The debate is an emotive one which has led to three principal schools of thought.

First, there are those who believe next wave technology will decimate global labour markets, leading to huge net job losses and significant societal challenges.

Secondly, some see next wave technology as bringing structural labour market change, eradicating many jobs but ultimately replacing them with a range of new jobs. This may generate a slight net increase in the quantum of jobs, and a marked uptick in the quality of jobs found within the global labour market.

Finally, some believe that next wave technology is adopted at varying speeds, meaning that the actual impact on global labour markets is often overstated.

Furthermore, it serves to enhance rather than replace jobs. This enhanced productivity will generate growth that, in turn, also has a positive labour market impact.

Our view is that the first school of thought has Luddite tendencies and tends to overplay the speed at which technological change occurs, while underestimating the ability of companies and economies to adapt to change. In this sense, the second position of structural adjustment has more validity.

Recent experiences in the digital economy clearly point to the creation of new digital jobs at the expense of traditional roles. This has placed greater emphasis on attracting particular skills-sets and brought a net positive impact on employment levels.

We believe that, the third position has the greatest probability of reflecting the corporate dynamic over the next five years. It has two compelling elements. First, it positions next wave technology as having a direct, and much needed, impact on corporate productivity.

Second, rather than portraying a robotic labour force drawn from a sci-fi blockbuster it paints a more realistic picture of humans working in harmony with machines to bring the very best from both.

Property in the next wave

Those adopting a more optimistic position in the debate, recognise the resilience and adaptability of corporates and the people they employ. They also acknowledge that change in the organisational structure of companies, the workforce they require, and hence the workplace, is inevitable.

On this basis, and supported by the findings from our survey of global corporate real estate leaders, we believe that the commercial application of next wave technology will have five direct implications for global occupational markets:

1. No major negative impact on global occupational volumes:

Although corporate real estate leaders recognise that there will, in time, be some fluctuations in the headcount of their organisations, around half of those surveyed saw only a slight decrease in the size of their global portfolios, while more than one third forsee no impact on total floor-space at all.

2. Continued recognition of the role of real estate in attracting and retaining tech talent:

Fifty-five per cent of those corporate real estate leaders we surveyed saw next wave technology greatly increasing the talent requirements within their business.

Across sectors, businesses will be competing for a small, specialist pool of talent au fait with the emerging technologies and capable of implementing them commercially. There will be no let-up in the use of high quality, highly serviced real estate to support in this competition.

3. Increased corporate mobility towards those locations with the talent:

Greater due diligence will be undertaken to identify where pools of appropriate technical talent are created or cluster, and more companies will move their technical and transformative functions towards these locations.

4. A more productive workplace:

Next wave technologies may well be the input that unlocks corporate productivity. While it is important to air caution, given the effect of current technology on productivity levels, 59% of our survey respondents maintain that next wave technology will have a positive impact on organisational productivity and 4 in 10 believe enhanced efficiency will derive.

5. The innovation imperative will be reflected in real estate:

Next wave technology forces business to rethink their business models. It places an innovation imperative at the heart of businesses. Accordingly, we will continue to see the rise of specialist teams, in specialist facilities, to drive corporate innovation.

Our survey highlights that two-thirds of corporate real estate leaders are responding by either creating or having concrete plans to create such new facilities, with 47% pointing to the formation of innovation labs as a key development in the corporate armoury.

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