In the computer industry and other sectors, it is the software that makes the most money, not the hardware. This could soon be the same in the real estate industry.
Hardware is the generic term for the physical components of a data processing system, as a complement to software. In the course of progressive digitalisation and the increasing importance of data, most things in our everyday lives are gradually being transformed into these data processing systems.
Real estate is no exception. Behind some of the 'flexible workspaces' and general 'space as a service' models is ultimately the attempt to supplement the ‘hardware’ real estate with suitable software, ranging from apps that manage the space better to concierge service, in order to make the hardware both more accessible and more customisable. Some of these initial attempts may fail, but nevertheless the niche will turn into a mass market over the next 10 years.
After all, few people today would think of buying a computer without a good operating system. Most even go for devices that also have the usual applications pre-installed.
Experience shows that the margins of hardware manufacturers start to fall as soon as the available software has reached a certain level of maturity. In extreme cases, the manufacturers even pay more for the production of many smartphones or game consoles.
Similarly, the properties themselves could make less money in the future than they do today for property investors and owners. However, software cannot exist without hardware. Real estate will therefore continue to be an indispensable part of the value chain, even though the majority of value creation takes place elsewhere.
In addition, the right software can satisfy user needs in a way that pure hardware can only do at considerably higher costs or simply not at all. Experience from flexible workspaces and serviced apartments has shown that users are happy to pay for the additional services.
As a result, real estate investors who are able to offer the right products and services can achieve significantly higher returns than in the days when real estate was nothing more than bricks and mortar.
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