Real Estate

A real estateintroduction to cities and buildingsin the digital er

Written by lketr

The digital era, also known as the fourth industrial revolution (Schwab, 2016), is here. It is already affecting the way
we live, work, consume, and more broadly how most
human activities are carried out. Around us, smart cities
and smart buildings are starting to appear.
Behind the hype and buzzwords, there are many important, albeit unanswered, questions facing real estate academics and practitioners. In particular, how does
smartness in the built environment impact real estate? What
are the consequences for commercial real estate players
(e.g. users, developers, investors)? And more fundamentally, in the context of real estate, what is smart?
Answers to these questions remain unclear inasmuch as
very little academic research has been conducted on real
estate in the context of smart cities. Past research in the real
estate academic literature has focused on ‘‘smart homes,’’
for example, Allameh, Jozam, de Vries, Timmermand and
Beetz (2012). Despite its economic and social significance,
commercial real estate’s role in the context of the fourth
industrial revolution has remained mostly unexplored. As a
result, the smart city research agenda has many conceptual
holes to fill when it comes to real estate.
The physicality of real estate comes with idiosyncrasies that set it apart from other assets in economics. Most
notably, real estate is a heterogeneous asset class defined
by spatial locations and physical characteristics. Heterogeneity impacts on property market structure and efficiency. It also affects the ability to model real estate
assets. As the concepts of space and place in urban environments are being reshaped by the pervasive use of technology, digital disruption provides us with an opportunity
to rethink the fundamental tenet of asset heterogeneity in
real estate theory.
To address this conceptual point and answer to the
broader questions posed by the emergence of smart urban
environments, this article adopts a multidisciplinary
approach. It compiles a literature review from a broad
range of fields (real estate, construction management, engineering, information technology, and geography) and
explores the potential impact of smart technologies on
commercial real estate in smart cities. The analysis is conducted at two levels: first at the city level by focusing on th,pub-1336910036217970 , DIRECT, f08c47fec0942fa0

nexus between digital and physical spaces in two smart city
models (ubiquitous city and augmented city), and second at
the building level where research is required for practitioners to better define and capture the wide-ranging implications of smartness in buildings.
The main contribution of the article is to present a twotier analysis at both the urban and property levels and, in
the process, to introduce a few innovative concepts and
tools. The issue of property heterogeneity in smart urban
environments is the common thread running through this
article. As a new market for a new type of properties in
technology-embedded urban environments, the market for
commercial real estate in smart cities will need to achieve
some level of standardization to be a functioning market.
The article proposes tools to achieve just that, such as a new
property type called ‘‘omni-use’’ and the basic principles of
a scoring methodology of smart buildings. The latter is an
essential first step toward establishing a solid price index
for commercial real estate in the digital era.
The article consists of three sections. The section
‘‘Smart cities as commercial real estate’s new urban environments’’ introduces the concept of smart city as well as
the combined role of smart grids and digital skins in
enabling smartness in urban environments. It then explains
how smart environments powered by ubiquitous computing
impact commercial real estate through new conceptions of
space, place, and location. The section ‘‘Smart buildings’’
presents the current academic thinking on smart buildings
and explores how smart buildings interacting with their
users and smart cities’ Information and Communication
Technology (ICT) infrastructure are analogous to computing devices. It then explains the challenges of assessing a
building’s smartness and the requirements for a scoring
methodology to be both relevant to commercial real estate
and conducive to constructing price indices of smart buildings. The last section concludes

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