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Technology and Its Deep Impact on Real Estate

The internet is transforming the way businesses use office space, while the hotel industry faces a shake-up thanks to home-sharing

Technological advances have always brought changes to the real estate industry. These changes are well reflected in increasingly innovative architectural designs, improved construction quality and building technology. They are also reflected in the fast-growing trend of owners, investors and occupants or end users selling, buying or renting real estate online. While these changes are tangible, the impact of technological advances on real estate market dynamics is no less significant.

E-commerce generating more demand for office space

The ubiquity of the internet and smartphones has made it easier than ever for people to shop, eat, work and pay. This is creating tremendous opportunities in the e-commerce industry, consequently fuelling the rapid growth of online businesses. The fact that the e-commerce industry has become a new major source of demand for office space in Bangkok demonstrates this trend well.

Over the past 18 months, many e-commerce businesses have either expanded aggressively or established their footprints in Bangkok. For example, Lazada Group expanded its office area from 1,500 to 5,000 square metres while Zalora doubled the size of its space. Other notable instances are recent office leasing transactions by (1,200 square metres) and High Shopping (900 square metres). 

The fast-growing e-commerce trend no only includes online retailers, but also services such as property listing aggregators and hotel booking service providers.

While these businesses operate online, observations show that many of them have offices in prime buildings where rents are costly. Having an office in a well-located prime building ensures not only convenience for their employees, but also helps enhance their brand and corporate image. Some businesses use a part of their office as a place for customers who have researched or ordered online to come and inspect, handle and possibly even purchase an item.

More flexible work environments and increased efficiency result in lower office space per worker

Changes in the way companies are using office space present another good example of how technological advances affect real estate demand dynamics.

To minimise occupancy costs, more companies are putting a greater focus on efficient use of office space by introducing alternative workplace strategies. Technological advances, such as mobile internet, automation and cloud computing have made the implementation of these strategies possible.

Some of the most popular alternative workplace strategies include hot-desking (desks are used on a first-come, first-served basis), team-based environments (teams have unassigned work areas that may include couches, tables and chairs, and huddle rooms), open-plan environments, and telecommuting (employees can work from anywhere using communication technologies).

With the increased popularity of these strategies, companies are requiring less space for the same number of employees. At present, the average amount of space per office worker in Bangkok has declined to eight square metres from 10 square metres five years ago.

While office demand in Bangkok will continue to rise as businesses expand, the increasing introduction of alternative workplace strategies will likely lead to a slowdown in the pace of demand growth.

Home-sharing platforms expected to affect residential and hotel markets after 2020

In terms of accommodation, home-sharing platforms such as Airbnb are likely to affect both the residential and hotel real estate markets in Thailand. These platforms increase the efficiency with which property is used, freeing up spare capacity such as second homes and spare rooms. Thus, there could be a reduction in the total of hotel rooms and residential apartments needed to accommodate the same number of visitors.

However, according to a newly issued report from JLL titled "The Fourth Industrial Revolution: The Impact on Real Estate in Southeast Asia", Airbnb listings in Bangkok, Singapore and Kuala Lumpur currently make up just 5% of total room inventory, and potentially just 2% of occupied room nights. The impact on hotel room rates is seen as insignificant. Nonetheless, JLL expects the number of listings on home-sharing platforms to grow to 15% of total inventory and five percent of occupied room nights by 2020.

The future

Technology is likely to evolve at a faster pace and continue to affect the way people work, play, live and move. In many ways, technological advances will allow people to bypass existing infrastructure and developmental constraints, and leapfrog into the future. The impact on real estate is likely to be positive as well as transformational.

This article was printed in Bangkok Post's Spectrum on June 12, 2016.