GOALPOSTS: Property Investment over the Next Billion Seconds
INTRODUCTION
The seeds of the future are already in the present.
William Gibson put this more poetically when he said, “The future is already here – it’s just not evenly distributed.”
So we’re going to have a bit of a wander through the world as we can see it right now and I’ll point out a few things and from those things we’ll have a better sense about our futures.
And they’ll be in terms that you can clearly understand, and will give you reference points you can keep in mind whenever you’re making a property investment.
These are things that you can look for – or look out for – that will help you make that decision.
Ok, so let’s get started.
PART ONE:
LOCATION LOCATION AUTOMATION
This evening I arrived by hire car. That’s not really unusual, as I don’t own a car. I live in Chippendale not far from the intersection of City Road, Parramatta Road and Broadway, so I never really need a car.
But there are times, when traveling a bit outside the City, when I need a ride, and I’m happy to use a hire car – and very happy to employ Evoke Limos.
And it’s not just because I know one of the founders of this startup. It’s not just because they have an all-electric fleet of Teslas. It’s because every time I ride with them, I get a glimpse of the future.
A few weeks back I landed late at Sydney Airport and instead of heading home got driven to Terrigal, to deliver an early-morning talk. Evoke sent along a Tesla Model X – that’s a nearly two hundred thousand dollar vehicle – and we were soon speeding along the M1 freeway toward Gosford.
At one point the driver asked me if I needed to charge my smartphone, then took his hands off the wheel to fish around in the dashboard storage, finally producing the requisite charging cable, and plugging it into the onboard power.
I was shocked – for just a moment. Then I remembered that we’re driving in a Tesla, and I’d heard the ‘bing’ sound meaning the vehicle had gone into autonomous mode.
To be honest, autonomous mode in a Tesla seems almost like magic. There we were, cruising down the freeway at 110 kph, doing whatever needed doing, while the car minded the road, stayed in its lane, and avoided obstacles.
It feels like the future.
And it is – to some degree.
That’s where people have gone overboard.
We’ve recently heard the CEO of Mercedes-Benz claiming that within a few years all automobiles will be autonomous, no one will be driving anymore, and so forth.
Here’s the thing: Mercedes-Benz is really good at making cars. They’ve been at it longer than anyone.
But they’re not as good at making clever computers.
An autonomous vehicle is a very clever computer on wheels.
That part – the part they’re not looking at – that’s the hard part.
Because we’ve all heard about self-driving Teslas, most of us have been led to believe that’s a solved problem – cars and drive themselves.
Now it’s just a matter of putting the pieces together.
It’s not that simple. And the best way to show that is by telling you another story.
As I said, I live in Chippendale. In May I was MCing an event at Sydney Town Hall. Normally I’d walk to Town Hall from my home – it’s a bit more than 20 minutes on foot.
But I was dressed in my sharpest suit and it seemed much more reasonable to hire a taxi to drive me the 2 kilometers.
Now if you know Sydney, you know that it’s a straight shot down Broadway and George Streets to Sydney Town Hall. Easy as.
Or, well, it used to be.
Before the endless and ongoing light rail project went off the rails keeping George Street in a state of dynamic chaos.
When I got into the taxi, the driver and I had a good, hard think about the best way to get to Town Hall.
Neither of us were new to Sydney. But the prevailing conditions had changed.
And they’ve kept on changing.
It’s not exactly clear, from day to day, which sections of George Street will be open to traffic, or in which direction the traffic might be flowing. That’s evolved as the light rail project has stalled.
When we got to the intersection of Goulburn and George Street, we had a good think as we waited at the light. Could we go up a block to Liverpool Street, then down to Clarence Street, over to Druitt Street, and up to Town Hall?
Neither of us knew if all of those roads were open – and none of it was at all well marked. So we gave it ago.
We got there in the end, but I came away from that very short and very difficult trip with the clear sense that if it tested the limits of both a long time Sydney resident and a long time Sydney taxi driver then it would be well beyond the capacity of any computer we would be able to put into an automobile for the next decade – or more.
In perfect conditions – on an uncrowded freeway with plenty of visibility – an autonomous vehicle can perform well. Change those conditions even just a little bit, and things fall over.
Change them a lot – and George Street is a fine example of that – and, well, there’s just no computer anywhere that can deal with that. There’s no signage, no direction, nothing a computer can look for.
It could make an educated guess – computers are not so bad at that, these days, but the further it travels from what it expects, the more likely it is to make mistakes – and mistakes that weigh two tonnes can be very dangerous.
So we were promised a nirvana of self-driving cars ferrying us everywhere, but, that’s further away than we’d like it to be. Certainly further away than it looks when you sit inside a Tesla on the M1.
On the other hand, in reasonably good conditions – not too much rain or fog or wind – an autonomous vehicle can handle highway driving admirably well. There’s a lot of Australia that fits those conditions – just not the bits where the people live.
So it is very reasonable to presume that within the next five years we’ll start to see entire fleets of trucks going fully autonomous. But only for part of their journey. A driver will take the truck to the limits of Sydney or Melbourne or Brisbane, get out of the cab, then send it on its way to its destination – on the outskirts of Brisbane or Sydney or Melbourne – where another driver will get into the cab and take the truck to its final destination.
This is how you can tell it’s the future – because the future doesn’t operate in binaries. It’s a bit of this and a bit of that. A bit of computer and a bit of human, each doing the bits they’re best at. The computer is going to do a great, safe job on the highway driving, while a human is going to do a great, safe job doing the city driving. Everyone wins.
You might think that will throw a lot of truckies out of work; that part’s not yet clear.
We know that the economics of shipping goods across Australia will change dramatically as labor costs vanish – and that could mean there’s more work for truckies to drive trucks within our cities.
But here’s what we do know: there’s going to be a zone of really cheap transport of goods and a zone where transport costs stay close to where they are today.
That’s where it presents some interesting commercial opportunities.
I did a bit of planning work for Liverpool Council last year. They’re preparing for the Badgery’s Creek airport to open – but the thing I find far more interesting is that they sit across the junction between the Hume Highway and Sydney’s highway system.
They’re at that magic spot where highway trucks will need to pull off and get human drivers – or where human drivers will depart those vehicles to send them on their way to Melbourne and Adelaide.
It means they’re going to be developing commercial resources in an area where ground transport costs are going to become very inexpensive.
And it means that any commercial real estate in the area that depends heavily on shipping or access to flows of materials – particularly from the southern states – gains a big competitive advantage.
So this is one lens I recommend that you to use when you evaluate a real estate investment.
Take a look at the property. How smart do you have to be to reach it via road? Is it dense and busy and difficult or simple and easy and clear? Where does it sit on that scale?
Ask yourself if you can improve the property to make it simpler and easier and clearer. That’s going to be a great investment – if the the property is situated somewhere that will be accessible to autonomous vehicles.
Eventually, all of Sydney, even the most difficult bits, will be accessible to autonomous vehicles.
If we don’t change the City much, that could take thirty years. And that’s not my opinion, that’s the opinion of the best roboticists on the planet, folks who have been working in this field for their entire careers. They know this isn’t an easy problem to solve.
It will be solved. Incrementally.
Imagine a map of Sydney – the outside roads automate first, then the newest and least densely bits of the suburbs, then the older suburbs, then the more densely populated areas, then the inner suburbs, and – finally – the CBD.
Chippendale, for all of its accessibility to the City, is one of the most difficult neighborhoods in Sydney to navigate, and so it’ll be one of the last neighborhoods in Sydney to receive the benefits of autonomous vehicles.
There’s one way this future might look a bit different.
We can expect cities like Singapore and Shanghai, with strong command-and-control governments – to rip up and redesign their ‘difficult’ urban cores to accommodate autonomous vehicles.
That’s the other way to do this, rather than wait until the computers get smarter, you can simply make the cities more accessible to not-quite-as-smart vehicles.
There’ll always be a question about whether this is the right thing for the people who live in the city – which is why it’s less likely to happen in Sydney than in Singapore – but, for larger commercial developments, think about designing from the ground up for autonomous vehicles.
Even if they never leave the area, a larger development that can accommodate autonomous vehicles will inspire the kinds of services that we’ll find very hard to offer in our jumbled urban cores for many years – and that could be an attractive drawcard.
The future isn’t all one thing. It’s not all robots, and it’s not all humans. It’s a mix. Where we set the mixture between the two, that’s up to us – that’s going to be driven by our needs and by what we’ve planned for with our investments.
If we want autonomy – if it makes good business sense – then we can build for it, or rebuild for it. If it’s not important, we won’t need to change much.
But the location of every commercial property has value now not just because of its foot or vehicle traffic, but because of how easy it is to get an autonomous vehicle to and from it.
That’s a new factor, and one you’ll need to consider closely as you plan your investments in the years immediately before us.
PART TWO
AGE OF EXPERIENCE
A few weeks ago I had a spare hour on my hands before an appointment, so I ventured into the library at King’s Cross. I’d never been to that branch before, and wanted to have a look around – as well as somewhere to wait out a particularly rainy and windy day.
No sooner do I hit the entrance than I spy a whole virtual reality setup.
Virtual reality isn’t new to me. I’ve been working on it, in one way or another, for nearly thirty years. But it is new to most people – certainly most of the people who pop into the King’s Cross branch of the library won’t have seen any virtual reality – except in films and television. But not in reality.
Here, however, library patrons could lie back in a comfortable chair while they went on a brief tour of the Murray-Darling, all in fully immersive video – courtesy of Qantas.
They say a change is as good as a holiday. That two minutes felt like a change and a bit of a holiday. Just enough, not too much – and certainly enough to leave you wanting to explore a bit more.
That kind of total immersion into another place, far away would have seemed the furthest science not many years ago – and now it’s on offer when you walk into your local library. What used to be rare is now inexpensive and growing increasingly common.
And the more of it we get, well, here’s a curious thing: We thought that all of our tools for long-distance communication would mean people would want to travel less. Instead, the opposite has happened – it’s made us want to travel even more.
We’re looking for something that can’t be delivered comfortably in a library.
We’re looking for something that feels, tastes and smells authentic.
We’re looking for the experience.
We like to think that within a few years – when Amazon and Harvey Norman and Myer sort it all out – that we’ll be buying everything online, that bricks and mortar retailing will simply cease to exist in a world where everything comes to us.
We like to think that, but really we’re looking for something that can’t be ordered comfortably from a laptop on the lounge in front of the telly.
Another story…
A few months back I needed to buy a new sofa, so I convinced one of my friends to drive us to IKEA over in Tempe.
He’s not a very materialistic sort of bloke – more of an artist – and he reckoned he wouldn’t be buying anything himself.
And over the next three hours we did the tour of IKEA.
I say ‘tour’ deliberately, because this is really the whole of the point – you start out on a journey at IKEA and you are directed from point to point to point on that journey. It’s a complete story told from start to finish – the massive lineup of checkouts.
In one way, that’s simply IKEA ensuring that you get to see all of the thousands of items they have for sale. In another way – and here I reckon it’s far more clever – IKEA is delivering an experience.
You think about it, people tell you when they’ve been to IKEA.
It’s something between an endurance contest and a spending spree, with elements of both. And a nice pause at the cafe conveniently situated at halfway point, so you can rest and refuel for the rest of the journey.
IKEA is as carefully designed as Disneyland, with a path and a journey and a narrative that make everyone who visits feel as though they’ve had quite an experience.
So when we get to the end of the journey, I’ve got about sixty dollars of purchase in my cart – just little things. No sofa, not yet.
But my friend, my very non-materialistic friend?
He’s rung up seven hundred dollars in purchases – on twenty or thirty items he had no idea he needed before he walked into IKEA. Before he had the IKEA experience.
Even he couldn’t quite believe himself.
It’s the experience that sells, and it’s the experience that will get people off the lounge and into a retailer.
As Amazon and AliBaba – do you know about Alibaba? – get better at meeting everyone’s online needs (and they’re getting very good at this) the only reason anyone will go into any retail space is to have an experience.
Luxury retailers already understand this. Go into a Louis Vuitton store, Prada, or Jimmy Choo, they’re creating a retail experience – on a small scale.
Scale that up and you get an IKEA. Retail as experience, retail as destination.
Consider the careful design of a Harris Farms: it’s the run-of-the-mill F&V done up as a destination experience.
Retail as destination is the future of retail. The profitability of real-world retailing will increasingly depend on the experience that retailer delivers to its customers.
Within twenty or thirty years, experience will be the only thing that matters to customers. It will be the only reason they shop at all.
For the experience.
You can already see how this is going to drive some retailers out of business.
On Saturday I went to the Target in Westfield Bondi Junction – which sits one level above a range of luxury retailers – to find that they’d completely automated their checkouts.
We expect to see this in a supermarket – though they’re often more trouble than they’re worth – but it feels disappointing in a department store.
I felt let down by Target. Someone at Target has decided to sacrifice experience for profits.
And that’s going to be why they get driven out of business by Amazon and AliBaba and every other online retailer that doesn’t need to deliver an experience.
And actually Amazon is creating an experience – one that’s really clever, in that it’s not really just online, but wherever there’s an Amazon Alexa or Amazon Echo, that’s effectively an Amazon store, where you can place orders just by asking.
This has led to a five year old who knows how to order a pizza for dinner by simply shouting “Alexa, pizza!” (And has made the child’s mum worry about his manners.)
So even Amazon understand the importance of experience, and decided that their experience is a home experience, so that’s where they’re focusing their efforts.
Everything between these two, between IKEA’s retail as destination experience on one side, and Amazon’s we’ve turned your home into a retail experience on the other, everything else is going to find it hard to compete.
We can already see this. Myer is failing. David Jones is treading water. As is JB Hifi. The biggest retailers need to reinvent themselves as experiences, but they can’t afford to. So what will they do?
We’re going to get to decide where on the dial between virtual and real we want to be doing our shopping. That’ll change from day to day, and depending on what we’re shopping for.
The tactile experience of shopping for vegetables at the local F&V, or the smooth and clean experience of packages delivered to us at home by Coles or Woolies or ALDI or Amazon.
So retailing isn’t going to go away, but it is going to have to find its sweet spot of experience and lean into it.
Which means, when you’re making investments in retailing, you have to think carefully about the destination aspect of the properties.
Does the retailer know how to tell a story? Or is it simply another place to shop?
This is also going to be the story for the entire culture.
The further we move into the 21st century, we will tend to favour experience over things. We want to possess the sorts of things that we can’t order on our smartphones.
Experience is becoming the great organising principle of our culture. We are entering the Age of Experience.
IKEA already understands this.
PART THREE
BETTER TOGETHER
Now the world is getting a lot smarter. It’s not just cars. It’s everywhere.
That’s changing work for all of us.
We worry about robots putting us all out of work – that we’ll go the way of interstate truckies.
But it’s not that simple. And a story shows why.
One of my friends runs all of the online projects over at CHOICE.
Everyone loves CHOICE – they help you make better-informed decisions as a consumer. They help you get the most for your money.
A few weeks ago, they set up the CHOICE Transformer – it compares the details of 3,000 energy deals. Deals that change every day. And manages to do that against the energy usage profile in your electric bill.
That’s a lot of work right there – the kind of fiddly, detail and memory oriented work that humans really aren’t very good at, but computers excel in. It takes a well-trained human expert hours to do this – saving the customer an average of $400.
So the savings isn’t worth the cost of the expert’s time.
But they automated it. Here’s what my friend says:
“…with robots doing it, it’s affordable. We didn’t automate away an existing job: automation made the job possible and now we are hiring more human software developers and customer service agents to improve and deliver the service.”
He’s not worried about a robot putting him or his staff out of work. Quite the opposite. He says, “More robots means we can do more and different stuff. I don’t think we’ll ever run out of problems.”
My friend points to a big feature of the coming years – the human-machine alliance.
Each of us will be doing what each does best – just as the humans will be driving in the cities while the autonomous vehicles handle the highways.
It means our work is changing, again.
A hundred years ago machinery removed most the repetitive physical labor from human work – most notably in farming, which went from eighty percent of the labor force to about two percent.
We’re in the midst of a similar transformation around repetitive intellectual labor – whether that’s filling out forms or checking for compliance or any of the multitude of simpler tasks that many folks perform as a basic part of their work.
That might be eighty percent of the labor in the service sector – and that will move to two percent, as the machines step in.
That frees up human labor, and people worry that this definitely means unemployment.
But this isn’t a transformation that lies before us. We’re already in the midst of it.
My mum spent her entire career working as a secretary. By the end of her career, as word processors and email and mobiles started to make a lot of what she did as a matter of routine obsolete, she became an ‘executive assistant’ working for C-suite executives at mid-sized companies.
There aren’t any secretaries, these days.
But we do have lots and lots and lots of executive assistants. The role migrated as more automation came in.
As automation comes in, we change the definition of the job.
We move the goalposts.
We’re getting very good at moving goalposts now — and this is exactly why the youngest workers have learned to be very flexible in their career choices.
It looks disloyal – like they’re just on the hunt for the next good deal – but the Millennials have grown up in a time when the goalposts have been moving, so they’ve designed their careers around this fact.
They need to be flexible, they need to be on the move. Because the whole world is moving, and they don’t want to be left behind.
In order to be flexible, they have to be capable – and that means we’re entering a time when we’re nearly always learning new skills.
Education is no longer something that happens from age six to age twenty. It’s something that begins when we’re small and never really stops.
Within about a decade, workers will spend about half their time learning the next skill they want to master, and half practicing the skills they’ve already mastered.
The goalposts are moving, and everyone will be moving along with them.
That’s exactly why there won’t be massive unemployment as automation steps in. We aren’t standing still.
This has enormous implications for commercial properties, because employment is on the threshold of becoming far more dynamic than ever before.
The number of people working for themselves has been growing steadily and is reaching a tipping point, where most people, most of the time, will be working for themselves.
They will be flexible in where they live, where they work, how they travel between the two, and how much time they spend in both situations.
We’ve seen the rapid growth of co-working startups like WeWork, tailoring commercial property holdings to meet the needs of this new market.
We’re starting to see the emergence of co-living startups like WeLive and StarCity, who create flexible easy-to-move-in-and-move-out accommodations for temporary, but talented workers.
That’s just a small percentage of the workforce right now, but that percentage is growing.
We’re growing a new professional class of workers who are well-skilled, continually skilling up, and continually on the lookout for the best place to put those skills to work at any time.
If you can identify where these workers want to co-work, and where they want to co-live, and build the facilities to suit their needs, you’ll do very well – you’ll be leaning into the workforce of the middle 21st century.
And you’ll have excellent tools to help you identify where those opportunities lie.
Let me close with a story that tells you something about the kinds of tools you’ll soon be using.
A year ago a computer program named AlphaGo became the best player of the game of Go in history, wiping the decks in five-games-out-of-five with Ke Jie, the best human player.
OK, so humans are done, right? Not so fast.
When you’re the best Go player in the world, where can you find the kind of opponent that can make you a better player?
Ke Jie, who got so badly beaten by AlphaGo, started using AlphaGo to improve his skills as a Go player.
He’s climbed even higher in the rankings of Go grandmasters – higher than any other person in history – because he’s been using AlphaGo as a tool to aid his education.
The future isn’t about machines taking over.
It’s about us building an incredible new range of tools to help us be better at whatever we want to do in our lives.
Including investing.
Right now there’s a whole bunch of ‘robo-advice’ on offer that gives canned advice useful to investors with basic needs.
Not exactly the advice you’d need.
Over the course of this talk I’ve outlined ways you can identify the best locations and opportunities for commercial property investment over the next years.
A lot of this is hard yards, requiring the analysis of heaps of data.
That’d be very expensive for a human to do – but computers can do it quickly and cheaply.
So it’s time to think about the kinds of tools you need to help you make the best possible investment decisions.
You won’t need to build them – but you’ll need to have a clear idea of the kinds of answers you’ll want from them.
Then, talented folks – from within this smart, opportunistic, flexible labor force – will make those tools real.
Those tools will become your indispensable aids to investing. They will make you better investors.
They will help you meet the needs of the class of smart, opportunistic and flexible workers who will need to services you can provide for them.
They’ll build the tools to show you how to invest in ways that allow you to meet their needs.
Your goalposts are moving too.
The whole world is changing, so the investment climate is changing.
The way we evaluate property is changing.
You’re going to have to be smart, opportunistic and flexible.
Listen to the audio here:
