How to win in Asian real estate

Bess Teng, managing partner in McKinsey’s Shenzhen office, discusses how digital attackers will shape business. This is not a zero-sum game, she says, but a collaboration. She explains how digital technology will optimize the end-to-end process of the real estate market. The current fragmented state of the real estate industry has no clear winner—but lots of opportunities.

What are the top three most disruptive, powerful forces shaping the Chinese real estate market 10 years from now?

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Technology will significantly improve the overall productivity in the real estate industry. So, after 10 years, we should expect to see construction cost reductions by 50 percent, and construction timesaving by 30 percent, with better control of quality and standards. There will also be roughly 30 percent of energy savings in smart buildings, which means in global commercial building segments only, there will be more than 600 million tons of carbon dioxide reduction issued in each year. So this is number one.

Number two, disruptive changes will happen as technology companies attack the traditional way of doing business, and take an increasing portion in the value chain. The disruptive change will happen when the technology attackers rewire the traditional ways of doing business, and take an increasing portion in the value chain. We have been observing lots of interesting examples emerging globally. For example, some leading companies actually transformed an advertising company to start a business of an instant housing transaction.

The third point? Buildings as a service. So, buildings will be transformed for user experience and efficiency. In facilities, consumer data will be used to optimize consumer experience in all daily life settings. For example, security, smart CRM (customer relationship management), traffic monitoring, etc. So if you think about it, there actually will be a digital world above all the buildings that can optimize end-to-end processes, starting from investments to daily operations.

How should CEOs be responding to these forces as they think about their business strategies for the next decade?

My advice for CEOs—number one, they should see the trends. Technology is no longer a concept to stay in the lab, but will become part of their daily business in the next 10 years. The real estate technology is still very new, and the whole industry is very fragmented with no clear winner. So, the windows of opportunity are still open.

Number two, embrace the change and make it happen. I think CEOs should look at their business, taking a new angle of technology, and import technology to rewire the whole business model and the business process.

Number three, find the right technology partner to co-build your business. I don’t believe this is a zero-sum game between conventional real estate developers and the new technology attacker. I think this is more like a collaboration game. So, find a technology partner, and make things happen in a more efficient way.

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