According to Prologis and Savills, industrial building vacancy is reaching an all-time low (even 2.0% in some markets) and will not be able to support the rapidly growing market demand for space until supply catches up. It has taken too long for real estate professionals to admit that building technology is a NEED to have, not a nice to have. The days of looking at technology costs as anything other than critical when assessing building budgets are over.
How Does Commercial Real Estate Relate to the Current Supply Chain Crisis?
The industrial sector has been inefficient for years without stakeholders focusing on a technology strategy that focuses on all phases of the building life cycle: acquisition, development, management, and disposition. This has directly impacted the ability of the industry to accurately forecast demand or prepare for unforeseen scenarios. This is not just an industrial problem. The commercial real estate industry has been slower to adopt technology compared to other business sectors.
There are innumerable amount of ways to analyze buildings when you deploy the technology. This means that there are many different problems that can be solved or improved at the building level by leveraging technology. It does not need to be one size fits all. Integration with existing systems and workflows can be taken into account when choosing technology partners. Combining these partners, you can come up with a technology “stack” to implement at each building. If stacks would have been in operation pre-pandemic, an enormous amount of data could have been collected and would have been feeding valuable data points (think inventory, layout and height analysis etc.) that the industry would have had time to interpret (and respond to) over the past few years. Questions on what the size of the next building should be, desired tenant layouts, as well as location, could have been backed by data. Perhaps we even could have seen the current crisis coming?
Instead, consumers dealing with lagging inventory and high prices have been short-changed, in part, due to the refusal of developers and owners to adopt the technology. Prospective investors in up-and-coming funds that are targeting this problem should require transparency into the technology strategy that will be powering everything from site selection, to design, construction, and asset management. It’s wild to consider just how bad the situation is and you can thank the standard industry-wide belief that you need to hoard information and relationships for control and success.
What Should My Next Steps Be?
The next time you are thinking about investing in a company or fund working to alleviate supply constraints by developing, owning, or operating new buildings, ask for transparency into their technology strategy. If they don’t seem to have one, run. Do not walk. You’re signing up to have your money allocated based on gut decision-making rather than facts.