Automation’s Impact on CRE November 16, 2017 Ken Robertson The 21st Century Technology Revolution has had a profound global impact—touching nearly every aspect of our lives. Machine intelligence is disrupting the marketplace and rendering traditional businesses irrelevant. Netflix vs. Blockbuster. Instagram vs. Kodak. Uber vs. taxi services. The list goes on. Machine intelligence is helping companies streamline operations, improve communication, and support business functions and relationships. One of the most notable advances is the automation of tasks and human jobs. According to a Huffington Post article, approximately 47% of job categories will become automated in the next decade. Industries to watch for include transportation; wholesale retail; water, sewer and waste management; and administrative services. This demand for automation is pressuring the commercial real estate sector to modify building layouts and environmental footprints to be flexible and help reduce cost and increase efficiency for both the landlord and tenant. Because the success of the automation wave is contingent on connectivity, quality assets in bustling cores are at the top of list. Owners and tenants want buildings that are proximate to important thoroughfares and airports, many amenities, an educated workforce, and of course—reliable power supply. A growing trend is on the horizon. The desire to be in a Class A market is so great that owners/operators are targeting Class C product in infill locations—not necessarily because an adaptive reuse project is a good portfolio builder or because it offers a unique opportunity, but simply because the cost of real estate is comparably lower than replacement costs. If the structure of a Class C building in a primary Class A market is still solid, then even a complete rehabilitation would still leave some meat on the margin bone. This doesn’t mean that secondary locations will become obsolete. Many companies have gleaned from the success of Google and will opt for suburban build-to-suits, focusing more on employee relations and retention with creative programs. But as far as automation is concerned, most activity is expected to occur downtown. Automation is also impacting building designs. Offices are being carved out with collaborative workspace, lots of glass and natural light, social components and natural element finishes. Creative on-site dining service, fitness centers, and retail – along with a walkable lifestyle – are the norm for today’s modern building. Coming down the pike is automated food delivery, innovative lounge areas and other intensified amenities. The 21st Technology Revolution is here. Blink and you could miss it. That is how fast things are changing. And while automation is still in its infancy in many industries, machine intelligence will revamp businesses. Those property owners/operators who have the acumen and right locations to realize the potential of these technologies will be better positioned to succeed. Ken Robertson oversees a team responsible for all acquisition, disposition, and asset management activities for his region on behalf of KBS REIT, pension fund and sovereign wealth fund clients. His portfolio consists of 32 assets containing 12M SF.