The real estate industry is undergoing fundamental shifts to reflect social change, rewriting the rule book on how property is viewed and used. Technology has been a primary driver, enabling:

• Accessibility to services, rather than ownership of space, leading to the rise of flexible offices, co-living environments and Airbnb.
• The stratospheric rise of ecommerce, leading to new forms of property to satisfy last mile delivery and click and collect. 
• Employment becoming more flexible and the gig economy emerging, with co-working appearing in all industries.

Consumers now demand flexibility, service, experience and convenience of everything they use, including property. Real estate mustn’t just satisfy a need, but also wider aspirations, desires and lifestyle choices, for example:

• An office doesn’t just provide a desk, but experience, collaboration and promotes work-life balance.
• A shop doesn’t sell goods to satisfy needs, but either offers experience by embodying philosophies and lifestyles to fulfil aspirations and desires, or convenience, to give time-poor consumers what they need quickly so they can get on with their lives. 
• A home doesn’t just provide accommodation, but delivers a lifestyle, wellness benefits, comfort and a high quality of life.

Users want vibrant, urban, liveable, walkable, accessible environments where ideally all these aspects can be fulfilled close to each other.

Changes in supply

This has led to new ‘blended’ real estate uses to satisfy user demand and also to maximise the return potential of every plot of land and building in rapidly urbanising European cities. The traditional breakdown between office/retail/industrial/residential has become less relevant and the borders between uses more blurry with hybrid concepts emerging.

All permutations and combinations are now available between civic, commercial and residential uses, with the common thread that they prioritise the user, for example, offices+hotels, hotels+residential, logistics+retail, retail+residential and transport+leisure.

These blended spaces go further than mixed use, where different uses are provided but clearly differentiated. Today they cohabit the same spaces, happening concurrently, leading to the birth of new uses such as co-working spaces and co-living residences.

With service and flexibility at the core of these spaces, the whole model resembles the hospitality sector, so an operator or well-known brand is needed to deliver the new type of supply. Brands such as WeWork in offices and Student Hotel for student housing/hotel have harnessed this to its full potential, leading with one dominant use but bringing in elements of others.

Investor impact

The days when investors bought a conventional asset for capital appreciation or secure long-term income stream with relatively little asset management are long gone. In a low cap-rate world rental income streams become important and inevitably the focus is on what occupiers want. All types of buildings require active management and operational experience to attract users and enhance the asset’s value.

The distinction between ‘core’ and ‘alternative’ property investments was disintegrating in many investors’ minds, and these new blended spaces will accelerate its demise, as well as requiring the industry to adopt new business models in order to manage and react to them.

Further information

Read more Spotlight: The future for serviced offices in Europe