Exploring alternatives to traditional real estate

As innovations in the use of built spaces and infrastructure introduce entirely new models of their utilization, avenues are emerging that the real estate industry can employ to widen its activities. Until very recent times, the sector has largely been focused on residential and commercial properties that reflected the established practices and norms. However, as disruptions, such as coworking offices and other dual or multi use spaces begin to increase in number, taking the lead in proactively addressing these requirements presents new opportunities. Alternatives to traditional areas of interest for the real estate industry extend even further. The typical historical emphasis on residential, office, hospitality, retail and industrial spaces has extended to include several secondary areas of specialized infrastructure, such as warehouses, hostels, hospitals, data-centers, self-storage and more.

While this shift in approach may seem to indicate new ground for the real estate industry, it actually reflects an established pattern as well. The specific kinds of infrastructure might be new, or previously undercapitalized, the fact of the matter is that the industry has always sought to address the needs of society, since time immemorial. Real estate has always been driven by demand, and as society reorients its use of buildings, the industry will inevitable adapt to supply those needs. For instance, with the startup culture gathering momentum across the globe, a very considerable chunk of seed investment is being directed towards disruptive new innovators leveraging emerging technologies that will redefine our world. Once only a means to limit initial exposure to overheads for startups, highly interactive and collaboration enabling coworking spaces are becoming the favoured option for established companies seeking to leverage innovation as well. The rapid proliferation of ecommerce companies, with online retail sites rather than brick and mortar stores, is driving a demand for state of the art warehouses with specialized digital infrastructure. Likewise, the preferred minimalist and low-maintenance lifestyles of millennials and Gen Z is creating an impetus for hostels and self-storage, while breakthroughs in healthcare are redefining what facilities in that field require, in order to effectively provide their services. Given the changes these trends are ushering in, it is inevitable that the real estate industry should try to mirror the preferences of its customers, as well as explore the possibilities that this economy presents.

Gemini Property Developers Chairman, Mr. Sudhakar Rao believes that these emerging areas and practices reflect a new model for social and economic organization. A strong believer in exploiting the opportunities that change enables, Mr. Rao points out that several of these innovations are both commonsensical and an improvement on less efficient and sustainable models, and hence likely to proliferate further, with time. In addition, according to Mr. Rao, several of the options in this palette of investments, allow highly centralized operations, with specifically controllable parameters, making them ideal vehicles for reliable, consistent returns and viable as a means for businesses to expand rapidly. Mr. Rao expects the ongoing diversification and expansion of the UAE economy to provide a further impetus to these alternative options for investment, and the engaged and business savvy developer community in the region to respond proactively.

An assessment of the trends in ‘alternative’ real estate sub-sectors, globally and within the UAE  

Perhaps the most compelling argument in favour of an enthusiastic expansion into alternative investments, by the real estate industry, is the very kinetic expansion that these facilities are experiencing worldwide. The trend, especially in some specific categories, is very robust in the UAE as well – when compared to the global average. The case for early adoption, in the light of returns and marketshare, is strong.

The impending rollout of 5G technology will facilitate a new kind of datacenter, driving a demand that will be both large and impatiently immediate. Competition over delivery times compelled ecommerce businesses to include smaller dispersed warehouses as part of their strategy, rather than relying solely on centralized mega-storage. In much the same way, the nature of 5G connectivity will create the need for distributed and leaner data centers, to leverage the extremely low latencies the technology can enable(1). Not only is the need for this infrastructure likely to be plentiful, its dispersed nature will inherently result in demand of considerable scope and volume. Turning our attention to coworking spaces, the EMEA region was collectively already the second largest adopter of the practice – ahead of the Americas in third place and only behind the Asia Pacific region(2). A lot of this infrastructure and these categories of interest, can be said to be in alignment with the emerging sharing economy. With an interest in taking ownership of sustainability goals at an all-time high within the general population, this new vision of social organization is will find even more adherents in coming generations. The rationale behind the real estate industry’s increased attention to these alternatives is therefore both plain to see and easy to understand.

According to Mr. Rao, the vision that the UAE has articulated for its future will create a natural space for these alternative asset classes to flourish. Whether it is the push to enable smart infrastructure and people-centric facilities, the strong growth in the online retail sector, increase in the number of state-of-the-art specialist medical care facilities, or the growth in demand for affordable accommodation and office space, Mr. Rao believes that the UAE real estate community will be well served by taking advantage of these emerging opportunities to cast its net wider than the areas of interest it has traditionally focused on.

Engaging with an emerging worldview

It’s difficult to isolate the latest iteration of technology and innovations in approach, from the goals and preferences favoured by the market. The two tend to be intrinsically and inextricably linked. Possibilities drive behaviours and they, in turn, refine the possibilities themselves. According to Mr. Rao, what makes the alternative asset classes attracting the real estate industry most worthy of the attention, is the fact that they reflect an organically rising consensus about what constitutes the most sensible way to share and use our resources. Mr. Rao believes that the increased efficiencies, that these new models of built infrastructure will enable, will prove to be a highly profitable wave for the real estate industry to ride. The choice for the industry is between crowding an already competitive legacy space, and spreading operations into the assets that will support the emerging economy, while they are still niche. In Mr. Rao’s opinion, the argument to look beyond the norm is clear, compelling and obvious.

  1. https://www.theinvestor.jll/news/us/alternatives/how-5g-is-set-to-spur-new-data-center-construction/
  2. http://ergonomictrends.com/coworking-space-statistics/

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