How to Make the Most of Real Estate’s Technological Revolution

The interplay of technology and demographics promises to transform the drivers of real estate investment performance for the foreseeable future, says Dan Tangherlini, the former chief of the U.S. General Services Administration.

Demographics and technology will continue to impose “massive disruptive change” on the commercial real estate sector, said Dan Tangherlini, the chief operating officer of Artemis Real Estate Partners, during a keynote address at Privcap’s Real Estate Game Change event.

As the former head of the U.S. General Services Administration, which manages federal government property, Tangherlini engineered significant savings on electricity and spearheaded efforts to reduce space usage. He’s now bringing that insight into the private sector.

The U.S. population is growing older at the same time that millennials are exerting massive influence on home ownership, retail shopping, and other fundamental drivers of real estate use. “That’s going to have tremendous impacts on the way people relate to our industry, what their expectations are on our culture, and the way people make investments,” he says.

Technology transforms industrial and retail

As the population evolves, Tangherlini says the increase in Internet connectivity is “the tip of the technological iceberg…that’s dramatically changing the way people relate to each other and to the economy.”

In 2014, two-thirds of American adults had a smartphone—up from just 35 percent in 2011—while 2.3 billion people globally had broadband Internet access via smartphones. That means the best-performing retailers will be those that have both a successful brick-and-mortar strategy and a successful e-commerce strategy, he says.

The rise of e-commerce is, in turn, driving changes in industrial property as major tech firms like Amazon and Google re-engineer the country’s logistics system. “I saw a Google truck in my neighborhood the other day,” says Tangherlini. “It wasn’t the Google Earth one. It was a Google delivery truck. That, in and of itself, is an implication for logistics, for storage, for transfer, for our industrial space.”

Aging population pushes capacity

By 2030, nearly 17 percent of Americans will be 65 or older—the largest proportion of older people in the country’s history. That promises to fuel increased investment in real estate designed to meet increasing demand for medical services delivered in a homecare environment. “Older parents are getting a lot older, and their medical intensity is increasing dramatically,” Tangherlini says. At the same time, he adds, the capacity to actually deal with that in-home is limited.

Building management takes center stage

The greatest opportunity for improvement resides in the building-management and administrative functions of real estate investment companies. “Technology is really going to have a dramatic disruption in the near term in the way that we actually go about our business,” Tangherlini says, adding that Artemis invested half its money through emerging manager operating partners—only 14 percent of which used any kind of energy-management software.

“Given the fact that, in commercial real estate, the estimates are as high as 30 percent potential savings through improved energy management, there’s a huge opportunity for dramatically improving NOI,” he says.