Real Estate

The robots are coming! What’s the opportunity for commercial property portfolios?

Discover the impact of automation and artificial intelligence on commercial property.
April 2021
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Risk warnings

Past performance is not a guide to future performance.

The value of your investments and any income from them can go down as well as up and you may not get back the original amount invested.

The value of directly-held property reflects the opinion of valuers and is reviewed periodically. These assets can also be illiquid and significant or persistent redemptions may require the manager to sell properties at a lower market value adversely affecting the value of your investment.

BMO UK Property Fund invests in assets that may at times be hard to sell. This means that there may be occasions when you experience a delay or receive less than you might otherwise expect when selling your investment. For more information on risks, see the prospectus and key investor information document.

Although often deemed a threat, technological development is a significant positive for society and wider business efficiency, in our opinion. With each industrial revolution comes change, but also progress. For real estate owners, automation is an opportunity not a threat – after all, robots need to be housed somewhere! So, in our ever faster moving world, how can we continue to build resilient portfolios?

The disruption to physical retail by the online revolution, steadily progressing over the past 20 years, has jumped forward 10 years in 12 months, causing substantial obsolescence across the UK. Meanwhile, the ‘forced’ home working experiment has altered the future role and use of the office, with the likely outcome of causing aggregate demand to fall and companies, large and small, to review their future occupation requirements. Virtual meetings will additionally reduce business travel, impacting hotels and wider hospitality.

The logistics and industrial sectors appear to be the clear winners, with notable increased occupier demand. So how could the fourth industrial revolution of automation, robots and artificial intelligence (AI) further benefit this sector?

 

Location, location, location

Many assume that automated logistics operations could enable businesses to be less reliant on availability of staff and accordingly seek to minimise the cost of their real estate. However, we believe that automation will open up higher-value locations where staff availability and cost has previously been prohibitive for an occupier. Additionally, a focus on more direct-to-consumer operations, which also facilitate a business to retain a greater element of profit, will mean occupiers will focus on urban and edge-of city-locations.

 

Building design: Big box, mid box or urban logistics?

We continue to question what building size is most suitable for automation and will attract future occupiers. With such a diverse range of occupiers across each segment of the market, there is no clear answer here, but it’s key to ensure any building is not too specialised for one occupier. Also, the intensification of use is now leading to more innovative solutions in urban areas, from multi-storey warehousing to subterranean developments. Automation may facilitate further growth of this concept.

 

Impact on rents

Automation driving business efficiencies should mean each square foot is used more intensively and theoretically enable an owner to seek a higher rent and capture rental growth. We feel this will have a relatively small impact compared to the standard equation of demand and supply dynamics of a local market.

 

Considerations for our investment strategy

We have already communicated our decision to tilt BMO UK Property Fund towards industrials and logistic assets, given the strong fundamentals and compelling drivers for outperformance forecast over the next five years. One of the key factors contributing towards forecast performance from this sector is the fact that technology advancements represent significant opportunity for both occupiers and owners of these assets for a number of reasons.

Risk warnings

Past performance is not a guide to future performance.

The value of your investments and any income from them can go down as well as up and you may not get back the original amount invested.

The value of directly-held property reflects the opinion of valuers and is reviewed periodically. These assets can also be illiquid and significant or persistent redemptions may require the manager to sell properties at a lower market value adversely affecting the value of your investment.

BMO UK Property Fund invests in assets that may at times be hard to sell. This means that there may be occasions when you experience a delay or receive less than you might otherwise expect when selling your investment. For more information on risks, see the prospectus and key investor information document.

Interested in learning more? Download the viewpoint to discover more about automation, robots and AI more generally, and the related opportunities we believe could benefit our portfolio.

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