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The impacts of digital technology in real estate and construction

8 December 2016
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The Business Magazine hosted this discussion with the help of private wealth and business law advisers Charles Russell Speechlys at their Guildford offices, at which invited sector representatives discussed the impacts of digital technology in real estate and construction.

Research spotlights ‘The New Real’

David Savage revealed that Charles Russell Speechlys had undertaken authoritative research this year: ‘The New Real: unlocking new gains from smart buildings’.*

“Digital technology advances are driving a new reality in commercial real estate, at all stages of development and occupation, and from the perspectives of multiple stakeholders.

‘The new real’ presents fresh challenges and risks for business professionals to overcome – opportunities to embrace.

“Forward-thinking business leaders are recognising that a smarter built environment can deliver gains stretching far beyond energy efficiency and sustainability — it can also become a source of significant revenue streams, enhance employee productivity and wellbeing, and deliver huge cost savings. Put simply, smart buildings are becoming a critical source of competitive advantage with 38% of those surveyed actively seeking to steal a march on their industry peers.” 

Savage explained that the Charles Russell Speechlys (CRS) research, published last month focused on how new digital technology-enabled and technology-led trends might influence the overall economics of real estate.

*CRS Report pdf download available at: charlesrussellspeechlys.com/insights

New revamps for old?

Peter Laurie wondered how property owners and developers could future-proof their buildings against technological obsolescence. For example, from April 1, 2018 it will be illegal to let or renew the lease of a property that does not meet energy efficiency (EPC) minimum standards. It is estimated 20% of UK commercial property will be impacted.

Steven Barker: “Without a doubt it will cause issues, and not just for offices but also old warehousing and distribution stock. From our (RLF) analysis, the percentage that won’t make the target is far higher in those sectors.”

It was not necessarily old commercial stock that fell outside the requirements, noted Colin Allan:“Even premises built in the 1980s and early ‘90s are not achieving the EPC ratings. Investment and property companies are looking seriously at how they deal with those buildings. It’s not as simple as knocking them down and starting again; often it is: ‘How do we refurbish these properties and bring them back to the market to a high quality specification with a strong EPC?’”

“But, are all existing buildings able to adapt to structural change?” queried Laurie. Would occupiers, who may cherish their location, be forced to move because of a building’s lack of flexibility?

Savage highlighted that the business world’s built environment was now also facing the need to provide new digital technology infrastructure to enable greater data provision for modern agile working companies.

While the current focus has been on sustainability and energy performance of buildings, what happens if government or industry regulators decide there is going to be a digital tech equivalent of an EPC?

The Greater London Authority had already endorsed WiredScore, a benchmarking organisation providing certified connectivity ratings for buildings. London’s new Leadenhall Building has a WiredScore platinum rating. “It ensured it had about eight different fibre providers before any space was let.”

Barker: “We have around 22 million homes in this country and, in terms of future sustainability and connectivity, enabling people to work from home has got to be a huge prize for the UK economy.”

Data-poor environments could become less competitive, less attractive to tenants, if regulators enshrined minimum digi-tech property standards, Savage suggested.

“Energy performance is important, but it is just illustrative of many other types of technology that can have a similar trajectory around smart buildings in the future.”

Digital technology: transforming the places we work

CityFibre digital infrastructure provider Nick Gray explained that business demand for digital data supply was placing a noticeable strain on current copper-wired telecoms infrastructure, originally designed for phone traffic. UK communications infrastructure is today behind the connectivity standards of most European and even some developing nations.

“CityFibre, and others, are now trying to build and lay as much fibre as possible to help bridge the gap between large corporates who can afford their own fibre and SMEs who don’t have that luxury and are reliant on copper, so helping to transform everyone’s productivity through better connectivity.”

Craig Laubscher wondered if a new or refurbished premises might meet an occupier’s communication requirements but poor local infrastructure provision would not enable the building’s optimum connectivity performance.

Gray agreed that might happen in less urban areas. The building’s WiredScore rating would be based on the communication infrastructure that was entering the building.

Savage: “The hassle and time factor in getting your comms working properly is why this technology piece needs to be thought about now, The smart buildings concept does pre-suppose that you have the right surrounding utilities in place.”

He exampled the US, long experienced with tall buildings, having very well managed utilities riser documentation and removal processing. In the UK, too often “the tenant’s kit gets clipped both ends and left in the riser which gets blocked as years go by.” Equally, to save delay and frustration, legal wayleave agreements could be standardised rather than individually renegotiated, he felt.

Laubscher suggested commonly adopted infrastructure, hence readily interchangeable, should also be standard in new buildings to assist speedy reoccupation by tenants.

Savage believed such ‘moving-in’ troubles were one reason companies resorted to using the WeWork and Regus business model of serviced offices. “There is a complex causation interplay running between the new technology and market expectations and it is generating new opportunities.”

Jonathan Hill highlighted that technology connectivity also offered locational choice. “We are working in our homes, on the train, in hotels or coffee shops. Work as we all know, is what we do, not where we do it. Everyone expects to be able to work everywhere. The idea of a working desk is not as it was in the past, and we are now creating a lot of collaborative-style workplaces.”

Conversion of fringe City areas that no-one would have considered for business use during the past 30 years was now becoming fashionable and desirable, added Hill.

“The Tea Building in Shoreditch has a waiting list for tenants,” noted Barker.

Apple is occupying the old Battersea Power Station, other companies are moving out, choosing to be based around the M4 and M3 corridors – close enough to London links, but gaining in property costs, and employee travel and wellbeing.

Allan: “Without a doubt technology is changing the way we work.” Morgan Lovell research showed an average 55% of office workstations today are underutilised. Internal mobility shows that almost half of all desks in a workplace are wasted. Organisations need to create an environment that allows people to work however they want to work and more collaboratively.

Rob Driscoll: “Today’s open source collaborative workplace designs are entirely different to tradditional silo designs adopted a few years ago – with reduced need for physical storage through digitisation of administrative systems, we occupy only one third of the floorspace we own and sub-let the rest because we know 60% of staff will not be in occupancy at any one time.”

Given enhancements in technology and devices used in business, there is a trend for a lesser requirement in regards to books, filing cabinets and IT servers which de-clutter offices for design and practical purposes, noted Joe Jeffers.

Laurie: “And, increasingly a company’s built environment reflects its culture and brand imagery.”

Savage: “Google and others have not dispersed their workforces into the ether, they have built sophisticated campus-style ‘work-as-life’ environments.”

Laurie: “In Reading, Oracle currently sets aside 20% of space for incubator businesses.”

Not that workplace change was new … Savage said Shell provided shops, a cinema, swimming pool and rifle range for its employees in the 1960s and 70s. “You could just live within that corporate bubble.”

Around the same time a number of larger companies started revolutionising their workplaces by providing more amenities such as bringing in retail malls and informal working areas, added Allan.

Hill: “But, where and how we work now is changing completely. Technology has brought about not only more possibilities and greater efficiency, it has revolutionised how we communicate so we need to consider what differences that will make to today’s real-estate world.

Digital technology: transforming professional stereotypes

Senior management at Driscoll’s organisation tended to operate from across a number of locations including home or throughout the UK, and (through Microsoft Gold Partnership) Skype for Business, ShareFile and other collaborative tools to facilitate comms-links. The company was now “social media savvy” having readjusted its cultural fit and corporate image.

Laubscher: “Identity is massive today, but how do you make a building adapt to multiple people at multiple times and also portray their company and its identity?”

“It can certainly help drive your business,” agreed Savage. One of CRS’s clients is Derwent London. “Adaptability and technology in their buildings is very good and tenants are queuing up to take space because Derwent has got its brand absolutely in the right position, in this millennial zeitgeist, meeting the requirements of agile business working.”

JLL, like some other property consultants, now had its own fit-out business. “You don’t normally think of JLL as a contractor, but they have a contracting operation that can show you the absolute zenith of current agile trends right now – WeWork interview rooms, for instance, that can look like someone’s lounge or kitchen.”

Hill suggested institutional property owners might have operations that almost became like hoteliers, dealing with occupancy rates rather than long-term leases on their buildings.

Savage: “The big question is how disruptive and over what timescales is all this technological change going to be within the worlds of different property stakeholders? It’s here now, but is there a pivotal impact point? Are we ready for Google the contractor?”

With the construction sector often considered inefficient and reliant on trade skills, what changes could be expected?  Would there be new disruptive market entrants?  Would improved onsite construction management or R&D and offsite manufacturing become the focus?

Barker felt more modular and offsite fabrication was inevitable for speed, efficiency and quality – not least with greater UK immigration control on specialist labour. “I think we will have to rip up the rule-book over the next 10 years to get things right.”

Hill agreed there was more off-site fabrication and modular construction being explored. “We are already manufacturing building components; the question is how big and different can they become.” 

Complexity may well be easier to build into buildings through technological design, and materials may change. “But, you will still need skills in the factories to build the modules, unless more robots and machines are used.

“The interface and collaboration between design and construction is also becoming far more integrated than it was in the past.”

Tech that’s developing faster than the development sector?

Business Information Modelling (BIM), a 3D model-based process design tool, had been generally successful within the construction sector – improving cost-efficiency, reducing onsite errors – although not yet used to its full extent, said Hill and Barker.  The facilities management (FM) sector was also now beginning to use BIM for post-construction operational building control purposes.

Barker remarked: “We have seen nothing yet. The next 15-20 years will blow our minds, and we have got to be ready for it.”

Driscoll highlighted that the construction sector was comprised 99% of SMEs, often single-owner businesses without the funds to invest in BIM. “Asking them to get on board with a technology revolution is tough to achieve cohesively, but necessity is the mother of all invention and as competitive edge becomes the norm todays innovation will soon become the norm.”

Also, clients often asked for BIM but were not always happy with its cost, or didn’t understand its true value to them. “The business case is simple. The whole life cost of a building is 10% construction, 80% operation and 10% demolition – so obviously you can use BIM to manage down the 80%.”

John Lohan and Driscoll felt not enough was spent on design, with BIM or not, because getting a proposed building over the buyable line was the initial objective. Insufficient design was done pre-construction, consequently additional design work was done during construction, and costs went up as problems were ironed out.

Savage: “That’s the whole point. The way our sector is set up is not focused on that 80%; and, FM is the Cinderella of our sector to some degree.

“So, how do we get to a situation where everyone is shining the right light on beneficial technology?  It’s not just energy performance management, it’s about flexibility, wellbeing, productivity etc and the opportunities to commercialise some of the data.

“What’s going to force the issue here; to create the flux that creates the realignment that changes the model?”

Lohan highlighted loss of skills. “Hundreds of thousands are leaving the industry and not being replaced. Brexit will magnify the issue.

“We should be engineering and designing more, and looking carefully at how we de-skill the industry which is heavily craft-based.”

He exampled an African project where modular construction had delivered cost and time certainty, by using low-skilled but safety-oriented people and ‘plug and play’ IKEA-like techniques.

While the design process had progressed from drawing boards to 3D BIM, the development sector overall was still too focused on deskbound employees.

Driscoll: “Technology is changing far faster than generational churn and the generational tech divide is moving upwards rapidly and currently sits in the 35-54 yr old range.” 

Can we make the industry and cultural changes required?

The industry is beset with time-consuming planning, engineering and building regulations and rules-based professional disciplines said Lohan. An industry mindset change was required, with workplace intelligence being compliantly codified and integrated into the design process, to add value and grasp radical opportunities.

Too many companies were under-utilising the full potential of their built facilities, through poor understanding of business needs leading to inadequate design.

Advanced technology is available, but traditional cultural aspects – companies built like castles with IT firewalls and everyone cocooned at their workstations ready for systemised action – needed to change. Outside of work, people are free to use technology as they wish, he noted.

Savage also mentioned how the legal and insurance sectors currently adopted a silo mentality within the hierarchies of building design and construction, making it more difficult to create a contractual environment that genuinely facilitates a collaborative partnering ethos. “Technology is the enabler, but what is preventing the change happening?”

Driscoll noted the cultural change among employees with their requirement of a ‘whole-life package.’ “Job roles today facilitate a working lifestyle not simply an income, but intuitive IT familiarity is now an expected norm within an employment context.”

Gray: “Telecoms needs to catch up too. We (CityFibre) are bringing better Internet to towns and cities, but working from home is still non-achievable in most of rural Britain.”

What about new tech beyond fibre – LiFi and 5G for instance?” asked Savage. 5G uses shorter range transmitter technology and is “an astonishing step-up “ while LiFi uses a building’s lighting frequency as a communication channel.  Short-range technology could be more secure and reduce installation costs.

Laubscher noted that office blocks, largely based on metallic core construction, were not conducive to wireless signal strengths. Seamless transition between external and internal communication would be challenging.

Gray: “We always say fibre will be your last telecoms installation. We feel physical infrastructural cabling will always be superior to wireless technology.”

Jeffers and Allan raised the issue of data security within multi-tenanted buildings and inter-linked cyber environments.

Jeffers opened the question: “Who is responsible for protecting data – the building’s owner, developer, the tenant whose firewall is breached?”

Savage agreed that smart technology opened up a Pandora’s Box of legal quandaries regarding data ownership, access, and its use for commercial gain. “A huge set of legal issues is coming down the road, as more big data is captured and disseminated. The law will have to play catch-up fairly fast.

“Just as people don’t know what technology will be beyond fibre, we can only spot the outlines of the future legal issues, but they will be there.”

Accommodating ‘gig’ employees that ‘drop-in’ to work

Laurie queried the successful delivery and management of space to suit transient millennials who often viewed work as “a gig or a tour of duty of two to three years”. How can workspaces integrate with such mindsets, attracting and retaining talent while creating beneficial working cultures and communities?

The workforce attention and retention answer lay in agile technological business connectivity and communicative collaboration with colleagues Allan stated. “Home-working can isolate. Young people want to participate within businesses. They want a working environment where they can enjoy their lifestyle, which is not 9-5. They are not tied into the cultural setting that most of us are used to.”

“It is having a huge bearing on how businesses operate and use their buildings. And it has only just started.”

Barker agreed with Allan – an agile working culture and workspace flexibility was key. “You may need 100 workstations, but you need to provide something else too – areas to physically meet and collaborate, which people working from home cannot have.”

Savage: “The business model will become more mixed estate.” Large corporates were already taking serviced office space to reduce their footprint and provide inbuilt flexibility, underpinned by agile working policies for employees. “People don’t want to go to the same space every day.”

Driscoll: “There is a need for a place where everyone can drop-in – there will always be face-to-face requirements.”  But, through cloud-connectivity people can often work from 4-5 locations plus home.    

Can we bridge the generation gap?

Younger generations didn’t want to be tied to workstations and tech applications were helping them to achieve that freedom. “Businesses need to be more agile, it’s not one-size fits all, there has to be choice. There are so many generations, different cultures working together in companies now and it’s technology connectivity that will make the whole thing work,” said Allan.

Driscoll stressed the need to embrace diversity in the workplace as the business case for talent acquisition and retention, not least since generational boundaries were moving further apart as employees worked beyond normal retirement.

Barker: “Most people I know are comfortable with 5-10 year traditional leases, but my grandchildren won’t be. They don’t even talk any more; they use Instagram, Snapchat etc. They will not have offices as we know them today. We ignore this breaking wave of digital technology at our peril because it’s so different.”

Driscoll noted that the Government was trying to encourage a sharing economy because employees today didn’t want a rigid, hierarchical working culture. Such an economy can offer employees work where and when they want, involving perhaps a number of different income streams from various roles.

Maintaining human needs in a digi-tech world

Making advanced technology simple to operate by the end users was essential, said Laubscher. One dial control, as used in prestige cars, was currently becoming favoured over touch-based platforms, he noted.

Technology advancement was becoming focused on personal use and also its human benefits, agreed Allan, not least in helping maintain employee wellness in modern technology-enabled workspaces.

“Being able to control the work environment – from noise, heat and lighting to reducing employee stress and improve well-being, is quantitatively becoming more important than a BREEAM building rating. Tenants are more likely to be interested in whether staff sickness can be reduced.”

Savage stated CRS ‘New Real’ research had revealed that 73% of industry respondents found quantifying the potential financial gains from improved employee health and wellbeing, the most challenging when evaluating smart building costings.

Laubscher suggested too few industry senior managers and decision-makers fully embraced today’s digital technology. “I think many are afraid of it. There is still so much paper on construction sites. We have not yet transitioned to a digital environment. It is starting to come together, but we need to educate existing staff as well as the people coming through using the new technology.”

Allan proudly announced: “All our project managers and site teams are using iPads, iPhones and 4G with applications that can source and distribute information at the touch of a button.” Adopting technology had revolutionised snagging, for example, with photographic evidence used to instantaneously advise supply chain consultants and suppliers. “Gone are the reams of lists; it is all digitally logged.”

It was now commonplace rather than futuristic technology, said Driscoll, with IT enabled virtual visualisation helping to resolve adjudication and arbitration matters on critical path construction disputes.

Decision-making in a 3D or CGI environment was also quicker and cost-effective noted Laubscher, who like Allan advised selective communication to avoid scattergun information overkill.

BIM, CGI and Virtual Reality (VR) significantly helped customers to envisage the final product, noted Allan. Such technology enabled occupiers to “live in the space before it is actually built.

“All this progressive design is becoming far more valuable in the workplace to articulate creative thoughts and understand how businesses work.”

Hill agreed. He didn’t see BIM as just a drawing tool but a technology that suits a collaborative working style, including the emerging design with client and design team in virtual reality.

Savage pointed out that VR goggles were now breaking into the consumer market. Within 20 years time that gaming experience technology will be massively important in many business sectors, he suggested.

Jeffers highlighted that the winner of this year’s Solent Business Awards ‘Best Use of Technology’ category, sponsored by Taylor Made Computer Solutions, was nDreams a leading UK software developer growing its market in the VR field, further highlighting Savages’ point.

Participants

Colin Allan: Managing director southern region, Morgan Lovell

Steven Barker: Chairman, RLF (Robinson Low Francis) construction and property consultants

Rob Driscoll: Legal and commercial director, Building Engineering Services Association

Nick Gray: Regional head of partnerships, CityFibre

Jonathan Hill: Chairman, Scott Brownrigg, architects, planners & designers

Craig Laubscher: Managing director, Uniq Management Services

John Lohan: Director, Artis, integrated construction project delivery

David Savage: Lead partner, construction & infrastructure, Charles Russell Speechlys

Joe Jeffers: Finance director, Taylor Made Computer Solutions

Peter Laurie: Head of client relations, The Business Magazine


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