Real Estate’s Ten Plagues

Things that seemed crazy a year ago are now blatantly obvious.

I finished writing Rethinking Real Estate fourteen months ago. The book called into question many of the things we all take for granted: How we work, where we live, how cities are zoned, how buildings are toured, operated, and valued, and more. Many of the book’s radical predictions are now going mainstream. But understanding the problem is only the first step. The book also provides a roadmap on how to profit in such an environment.

Looking at all the various media reports and predictions, I thought you’d enjoy the below excerpt from the book’s final chapter, from a section titled Real Estate’s Ten Plagues.


Technology undermines the inherent value of real estate assets. It makes assets more dependent on their operators. It also makes these operators more dependent on specific customers and activities. As a result of this process, many of the assumptions that make real estate attractive to institutional investors are being challenged.

A building’s location is becoming less important and insufficient to define and defend its value. Humans can work remotely and many choose to do so, at least some of the time. A significant portion of commerce is shifting online, providing more people with convenient access to goods and services that previously required physical proximity. Meanwhile, technology drives a yearning toward other physical and communal experiences that have their own impact on where people choose to live and work.

A building’s visibility is no longer restricted to the offline world. The way an asset looks online has a growing impact on its value. This is particularly true for assets that offer instant bookings such as hotels, shared apartments, and short-term meeting rooms. It also applies to longer-term multifamily, office, and industrial leases. Even when end users are already inside a physical space, they often value it based on how it would look when shared with their friends and followers on social media.

Likewise, the meaning of accessibility is expanding. New ways of moving people and goods are diminishing the relative value of property along old transport routes while increasing the value of new and peripheral locations.1 For a growing number of retail, office, lodging, and industrial customers, access is no longer about a single location but about being able to move freely within a network of spaces. The ease with which physical spaces can be booked and accessed is becoming a key differentiator for many uses. Soon enough, many of the procedures we currently use to sign a lease, move into a space, or even acquire an asset will seem outdated and inadequate.

Even buildings in the best locations are expected to offer a comprehensive solution in order to draw tenants. These solutions include not only functional benefits but also experiential and symbolic ones. This is leading to the emergence of branded operators that focus only on the needs of some customers and adapt their assets accordingly. This is already the case in most hotels, but it is becoming more common in office, multifamily, and even industrial buildings. As a result, assets, tenants, and operators are losing their fungibility and are becoming less interchangeable. In many cases, it is becoming costlier for an asset to take on a different operator, and for an operator to change its focus to a different group of tenants.

Customers are becoming more demanding and less willing or able to make long-term commitments. Offering differentiated services and flexibility will make it possible to extract more value from real estate assets. But service revenue and less traditional leases will make income less predictable and less bond-like. In a sense, many properties will no longer be assets in themselves but will serve as inputs and components of other operating businesses. This might make buildings more valuable than ever, but it will also affect their ability to fill their current role within institutional portfolios.

As their operational intensity increases, the financial performance of office, multifamily, and industrial assets might become more correlated with other businesses in the overall economy. The performance of hotel properties, for example, is already more correlated with the overall stock market. A growing correlation with other asset classes will affect real estate’s position as an alternative asset class. Institutional allocations will have to be adjusted to reflect this change. Operators that can deliver consistent and stable results will be in high demand. This, in turn, means that owners and investors will have to share more of their buildings’ income with branded operating platforms.

Many of these operators will be new. Old habits and old relationships will fall by the wayside unless they can deliver a return on investment that meets or beats the market. Institutional real estate capital will back or partner with companies that have the brand(s), technology, and know-how to attract and retain tenants and maximize the value of underlying real estate assets. Venture capital will continue to fund the launch of new operators that can one day attract real estate capital. Traditional lenders will initially be wary of assets with management-intensive operating models such as coliving, home-sharing, flexible office, flexible warehousing, and others. As these models become ubiquitous, lenders will look at their operators more favorably and even require their presence.

Information that was previously proprietary is now easily accessible online. Tools and capabilities that used to be exclusive to large investors are becoming commodities, available to anyone at a reasonable cost. New data sources that are controlled or aggregated by new companies are growing in importance. Old data sources are becoming more valuable in the hands of those who can utilize and analyze them to produce valuable insights. Often, that means that new competitors and service providers can use landlords’ data better than the landlords themselves.

Zoning is losing its power. New ventures are able to reach a meaningful scale before regulators (and competitors) react. The boundaries between different uses are blurring, with people lodging in apartment buildings, living in hotels, working in restaurants and retail malls, and sleeping or socializing at the office. Disruption of demand for some uses (e.g. retail) creates a glut of inventory that can be repurposed for other uses. Further ahead, new mobility on land and air will likely reshape formal zoning ordinances and reshuffle the value of land.

A multitude of powers is converging to question the very idea of scarcity. In many cases, end-users face an abundance of choices for where and how to work, live, shop, or store their wares. This includes new spaces as well old ones that are suddenly easier to find, easier to access or offer more compelling services and solutions. Technology also makes it possible to use existing buildings more efficiently, making it possible for the same assets to serve a larger number of people.

We do not mean to imply that scarcity as a whole no longer matters. The supply of land and buildings is still constrained, and many markets have a shortage of different products. But technology is changing many of the assumptions about the amount of space required for a certain number of people (and goods) or for a certain level of economic activity. This, in turn, invalidates many of the most common models used to estimate future demand for real estate based on demographic and economic indicators.

As the old defenses are eroding, real estate is becoming a more competitive business. The good news is that assets can be operated to generate more value than ever before. The bad news is that they must be operated this way. Assets that aren’t will sooner or later change hands. This has always been true, but it will happen faster and leave fewer corners of the market unaffected. The new economy’s low-hanging fruits have been picked. Scores of venture capital-backed companies are now looking to transform the more physical, more challenging parts of the economy—with real estate as a primary focus. These companies are looking to optimize every process and exploit every arbitrage opportunity. Some of these venture capital-backed companies will work with existing property companies; others will take them on directly.

The competitive landscape is becoming broader and more complex for real estate investors, owners, developers, operators, and other professionals. This is true at the level of individual assets as well as for whole companies and investment portfolios. As a result, real estate is shifting from an industry governed by operational effectiveness to an industry governed by strategy. It is evolving from an industry that thrives on well-run assets to an industry that thrives on well-run businesses.

What does this mean in practice? The book offers a roadmap you can use in your own venture or project. If you’re designing, operating, or investing in offices, be sure to look at the Future-Proof Office Course as well.