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Smart Cities – what does this mean for the Property world?

26 October 2017

One of the trending topics in property circles at the moment is the rather confusing term ‘Smart Cities’. Whilst there is a great deal of buzz around the topic the main question is what exactly is a ‘Smart City’?

Although there is no set definition, there are a number of key examples which show how the world is evolving through technology and how these changes will impact the way in which cities will operate in the future. While some see Smart Cities as a way of using technology to allow individuals to feel enabled, others see it as a way of using technology to increase efficiencies.

With the emergence of crowd-funding platforms for civic projects, and digital platforms to obtain feedback from the people on the ground, the ability to find out exactly what individuals need from the city they live in through data collection has never been more prevalent. The aim of such technology is to give people living in cities a platform to voice their views and provide feedback on matters which they feel need to be addressed.

Whilst at first glance the platforms described don’t appear to share many parallels with the property market, it’s likely that local authorities or developers will use such data to enhance planning policy or steer development. There are, however, other aspects to Smart Cities which could potentially have more obvious implications for the property world. Smart Buildings are a clear example of this. Smart Buildings include state of the art systems designed to improve energy efficiency and performance. Motion-activated sensor-lighting and sensors in toilets to analyse usage and so inform when facilities need to be cleaned are obvious examples of smart technology in action.

Smart Buildings are also rolling out into the retail industry. Here we are seeing a move towards improving customer experience, by for example, including digital walls on the shop floor and introducing virtual changing rooms that are personalised to individuals based on their location and preferences. As you can imagine, the property implications with the emergence of such buildings are extensive, with both landlords and tenants having a great deal to think about when negotiating a lease. Landlords will need to keep up with market demands and ensure that their buildings are up to date and in line with what tenants want. Tenants, on the other hand, will need to have a clear idea of the type of building that they require. Care will however need to be taken when considering the service charge implications of such buildings: the more technologically-sophisticated the building; the more expensive it will be for the landlord to run. Tenants will need to ensure that they take these costs into consideration before delving head first into a state of the art building.

As the technology in buildings increases, new companies have emerged, aiming to provide landlords and tenants with the tools to measure the level of technology within a building and importantly, to compare different buildings. Providers are now able to test the connectivity of a building by using a graduated rating system. Not only does this provide landlords with the ability to understand, improve, and promote their building’s digital infrastructure; tenants will also be able to judge if the building they are going for is sufficient for its purpose. Ultimately, this technology creates a technological screening system to filter out properties that might simply not be fit for purpose allowing those retailers or corporate occupiers requiring high tech real estate to be comfortable that the building they have chosen will support their needs now and in the future.

Whilst it’s clear that Smart Cities are leading to the emergence of technologically enhanced buildings, the technology behind Smart Cities goes beyond this, by impacting the development process itself before any such infrastructure is built-out. Developers are using improved technology to get a better understand of how buildings and developments will practically work. Through the use of 3D printing, developers are able to visualise how developments will be able to fit together and can make adjustments prior to construction. Virtual walkthroughs and real time mapping to understand rights of light and the impact on neighbours are now possible, ensuring that issues can be headed off at the outset. Through this approach, developers are able to efficiently carry out the construction with fewer delays as unanticipated issues should start to become a thing of the past.

Other technological changes encouraged by the Smart Cities phenomenon, whilst not directly linked to real estate, are still likely to have an indirect impact on the market. Driverless cars are a clear example of this and are a technological evolution which is closer to reality than we might think. With the likes of Google and Uber currently running trials, it won’t be long before these cars really take off. The ability to commute without needing to drive or catch public transport could really affect the way people use that time when travelling to work. Theoretically, driverless cars can drive closer together, allowing four cars to drive beside each other on a three lane motorway. This will reduce congestion by making more efficient use of space. As the cars will be wi-fi connected they will allow the average commuter to work throughout their journey and use their time in a more efficient manner. The real estate implications of this could be wide-reaching; allowing commuters to travel further (on the basis that their time is not being wasted) thereby affecting the residential market. Real estate has traditionally been influenced by transport; property closer to transport links tends to be costlier and more in-demand. With the emergence of driverless cars, this concept might be made redundant. From a retail perspective, such facilities might create a change in location of shopping centres, allowing retailers to locate themselves further out from city centres as they need not focus on transport links. Furthermore, with the likes of Uber introducing delivery services, driverless cars might change the future of courier services, allowing pick up and drop offs of parcels to be easily undertaken in much the same way.

As a side note, with such change, developers and planners will need to keep an eye on this technology, as the need for car parking in major developments in future years might be a thing of the past. Shopping centres and offices might need to be re-modelled, with fewer requirements for car parking and taxi ranks and a greater need for driverless pick up and drop off points. No doubt this is something that the 3D printing and virtual walkthroughs will assist with!

It is clear that developers have to turn their hands to tailor-making properties geared to what occupiers or retailers really want. With businesses and individuals driving demand for quicker delivery times, distributors need to change the way they work and respond faster. Technology companies are recognising the need for this quick response and so have developed changes to distribution and logistics by implementing overnight deliveries with the likes of Amazon Prime and the use of drone technology. It follows that developers will need to ensure that their developments are not only set up to receive such fast serving services, but also ensure that the developments are located near to inner-city distribution centres which will be required to keep up with demand.

The impact of the Smart City phenomenon is far reaching. A number of sectors within the real estate market are going to be affected, not least those in the retail and corporate occupier sectors. While it is difficult to narrow down the most important implication of such change, one of the key points across sectors will be that landlords and tenants will have a whole host of additional points to consider when choosing suitable premises, including the impact of these advances on service charges and repairs. Undoubtedly, many more issues will arise in the future.

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