Beyond InnovationJLL Perspectives

Technology and the next frontier of progress

#JLLinnovation @JLLBoston

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New England Market Director

Jim Tierney

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Michael DaviesChairman, Endeavour Partners

MIT Senior Lecturer & Researcher

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Transformation – affect every facet of lifeThe emergence – and a very rapid adoption and evolution – of a platform that will have enormous macro- and micro-scale impacts

1 2 3 4

Platform

Fast, cheap

5 Forces Impacts

Magical

TransformationTransforming how people go about every facet of their lives (micro-scale) leading to macro-scale changes

Empowered citizens

Unleashed productivity

Human networks

Accelerated, disruptive innovation

Sharing, on-demand economy

Economy

Social

Political

Ecological

Easy, ubiquitous

Automation

Evolvable

Travel patternsShopping habits

Residential real estateRetail real estateWork qualityOffice space demands

Socialization

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The conversation has changed

“This has gone from an economics discussion to a socioeconomics discussion.”

-December 17, 2014

Ben Breslau

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0

2000

4000

6000

8000

10000

1500 1600 1700 1800 1900 2000

Each ‘GPT’ spurred a sea change in economics and life outlook

A ‘General Purpose Technology’

World PPP-adjusted GDP per capita (2010 USD)*in relation to select technologies (1500 - 2014)

• http://data.worldbank.org/indicator/NY.GDP.PCAP.CD/countries/1W?displa y=default & http://ourworldindata.org/data/growth-and-distribution-of-prosperity/gdp-growth-over-the-last-centuries/

The ‘smart thing’ revolution, heralded by smartphones,

is not yet finished

Universal access to detailed data, social media, and analytic tools

Universal ability to interact with, create, and act on this data

Universal connectivity

Leadership from the developed world, particularly North America, while the developing world catches up as prices fall

Printing press popularized in

Europe

In 2014, smartphone penetration approaches 50%

of active adults

Steam engine power

Steel mills

Electricity

Digital computers

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Five technologies trigger this transformationWe are in the midst of the most universal technology-driven transformation in history

Information sharing and communication for everyone, everywhere, everywhen

Smartphones

Means to empower everyone, everywhere, everywhen to connect

and communicate

Modular cloud Internet of many Things

Smart machines Rise of the robots

Device agnostic; storage of information and retrieval anywhere

Connecting all devices into the world of

information sharing

Converting machines into controllable instruments providing insightful data

Time saving work automation through

machines

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The evolution of the platformAs platforms grow in capability, they begin to decisively transform consumers’ lives and businesses’ dynamics

1 Fast and cheap

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The evolution of the platformAs platforms grow in capability, they begin to decisively transform consumers’ lives and businesses’ dynamics

1 Fast and cheap

2 Easy and ubiquitous

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The evolution of the platformAs platforms grow in capability, they begin to decisively transform consumers’ lives and businesses’ dynamics

1 Fast and cheap

2

3

Easy and ubiquitous

Big data analytics, machine learning, automation

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The evolution of the platformAs platforms grow in capability, they begin to decisively transform consumers’ lives and businesses’ dynamics

1 Fast and cheap

2

3

4

Easy and ubiquitous

Big data analytics, machine learning, automation

Evolvable, scalable, modular

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5 powerful new forcesThis platform brings 5 powerful new forces to bear on consumers, businesses, and innovation

1 Empowered citizens

2

3

4

5

Unleashed productivity

Human networks

Sharing, on-demand (economy)

Accelerated, disruptive innovation

Enabling consumers to retrieve any information wherever and whenever they need it; the power of knowledge

Automating routine tasks, simplifying jobs, replacing nonintelligent work with APIs; free up workers’ time, more productive

Promoting connectivity amongst all people; collaboration, cooperation, communication; knowledge sharing

Supplying the resources and jobs when consumers need them; transitioning from ownership to pool sharing of needs

Displacing incumbents with newer, better technology; initially inferior technology for limited people but rapidly improves

• Shopping• Healthcare• News

• Remote work• All hours• Cloud services

• Social media• Knowledge sharing• Call, text, email

• Mobility - Uber, Lyft, Zipcar• Jobs - TaskRabbit, Handy• Lodging - AirBnB

• Lean Startup• Innovator’s Dilemma

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Empowered citizensConsumers access to the universal mobile platform has upended traditional consumer-business power dynamics

1 Empowered citizensEnabling consumers to retrieve any information wherever and whenever they need it; the power of knowledge

Who is affected?

Retail Transit Healthcare Education

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Unleashed productivityWorkers will reclaim their time for meaningful challenges as platforms flourish all routine labor disappears

2 Unleashed productivityAutomating routine tasks, simplifying jobs, replacing nonintelligent work with APIs; freeing up workers’ time to be more productive

Who is affected?

Retail Transit Healthcare Education

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Human networksMore humans are connected across more platforms than ever before – transcending location

3 Human networksPromoting connectivity amongst all people; collaboration, cooperation, communication; knowledge sharing with less barriers

Who is affected?

Retail Transit Healthcare Education

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Sharing, on-demand (economy) Consumers are empowered, and businesses are disrupted, as microtransaction-driven markets aggregate supply and demand

4 Sharing, on-demand (economy)

Supplying the resources and jobs when consumers need them; transitioning from ownership to pool sharing of needs

Who is affected?

Retail Transit Healthcare Education

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Accelerated, disruptive innovationNimble and scalable innovation models lead to business disruption and consumers empowerment

5 Accelerated, disruptive innovation

Displacing incumbents with newer, better technology; initially inferior technology for limited population but rapidly improves for all

Who is affected?

Everyone

Documented through The Lean Startup and

The Innovator’s Dilemma

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5 powerful new forcesThis platform brings 5 powerful new forces to bear on consumers, businesses, and innovation

1 Empowered citizens

2

3

4

5

Unleashed productivity

Human networks

Sharing, on-demand (economy)

Accelerated, disruptive innovation

Enabling consumers to retrieve any information wherever and whenever they need it; the power of knowledge

Automating routine tasks, simplifying jobs, replacing nonintelligent work with APIs; free up workers’ time, more productive

Promoting connectivity amongst all people; collaboration, cooperation, communication; knowledge sharing

Supplying the resources and jobs when consumers need them; transitioning from ownership to pool sharing of needs

Displacing incumbents with newer, better technology; initially inferior technology for limited people but rapidly improves

• Shopping• Healthcare• News

• Remote work• All hours• Cloud services

• Social media• Knowledge sharing• Call, text, email

• Mobility - Uber, Lyft, Zipcar• Jobs - TaskRabbit, Handy• Lodging - AirBnB

• Lean Startup• Innovator’s Dilemma

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Higher-order impactsThese forces have brought about dramatic changes across multiple sectors of human activity

Economic impact

Political impact

Social impact

Ecological impact

• Transforming industry and global economic outlooks

• Connecting similar and disparate networks of people to share ideas

• Facilitate mobilization of people

• Empowering citizens with global and local knowledge

• Connecting political movements and enabling activism

• Informing the world of planetary impacts

• Allowing local and global energy optimization through information exchange

Transformation:

• Living• Smaller spaces

• Moving• Sharing, on-demand

economy• Multimodal

• Interacting• Social networks• Multi-communicable• Collaborative

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The future is already hereIt’s just not very evenly distributed

Kendall Sq. represents a technology epicenter of early adopters; Cambridge, MA shows the future state for which lagging areas

will develop into years later

Technology exists in advanced hubs

• Well-educated• Young• Urban• Developed world à North America

Archetype: Cambridge, MA

Global smartphone penetration* **(% of population smartphone subscriptions, 2010-2020)

*Removes 14% of the world population that lives in extreme poverty and 8% over 65 years old** Smartphone subscriptions data and forecasts derived from Ericsson Mobility Report 2014 and 2015

0%

20%

40%

60%

80%

100%

2010 2012 2014 2016 2018 2020

By 2020 globally, every active adult will

own and use a smartphone

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Shift in travel patternsUrban centers are witnessing the ascendance of the carless generation and the rise of multimodal transit

Traditional travel Emerging travel transformation

US car ownership

• Car ownership

• Single driver per a car• Driver requirements

o Parking, insurance, gas

• Unimodal

On-demand sharing economy

• Carless population increase in cities

• Transit when and where needed• Less requirements• Multimodal

o Walking, biking, public transit, driving integration

• Change in city traffic patterns

• Sharing economy: more about collective needs to resources than individual ownership

• Smartphones: connecting consumers to real time information and providers

• Integration: multimodal usage to increase transit efficiency

Insights

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The rise of UberAfter only 4 years, Uber has become a globally dominant enterprise with a PR problem

Financials• Valuation >$50B

• Received $8.21B funding• $1.2B funding raised for China• Earned $2.91B for 2015 bookings• Expects $10.8B for 2015 bookings

• Expects $26B for 2016 bookings

“You’re changing the way cities work, and that’s fundamentally a third rail.” – Travis Kalanick

Disruption• Uber in SF is more than 2X its taxi market

o SF taxi market revenue: $140M/yearo SF Uber revenue: $500M/year

• Ridership growtho SF: 3X increase/yearo London 5X-6X increase/year

• Serving low-income communities traditionally ignored by taxis

Regulatory backlash• Safety concerns of the drivers

o Insufficient background checks

• Operating in over 50 countrieso Protests and bans across

multiple cities, countries

• “Technology company” labelo Not adhering to transit laws

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The inevitability of AirbnbAirbnb represents the heart of the sharing economy; everyday consumers sharing their possessions as micro-entrepreneurs

Financials

• Valuation >$25B

• Received $2.29B funding Completed 40M rooms-night 2014

• Expects 80M rooms-night 2015• Forecasts a $150M operating loss to

expand in 2015

“The community is the first recourse, the platform is the second recourse, and the government is the third recourse, rather than the

reverse.” – Brian Chesky

Disruption

• >1.5M listings in >35K cities in 190 countries

• Offers more rooms than largest hotel groupso Airbnb boasts >1M (not year round)

• Projected to outpace hotels for booking rates• Large hotels suffer investor downgrades

o Analysts expect hotels to lower prices to compete with Airbnb

Regulatory backlash

• Health and safety concernso Not adhering to hotel codes

• Displacing the traditional rentero Apartments coopted for full-time

Airbnbs squeezes out local housing

o SF and NY case studies

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Shift in shopping habitsConsumers are empowered to discover and buy the best item at the most competitive price

Traditional shopping Shopping transformation

US shopping habits

• Brick and mortar store• Advertisements through newspapers,

radio, physical signs• Items fully stocked in store• Mass produced, homogenous

products

Online price comparison, experiential stores, customizable

• Online (exclusive) retailers• Applications to price compare • Pop-up stores, guide shops• Decoupling of supply chain from retail location

• Major shifts in supply chain• Customizable, made to order stores• Enabling the consumer to be a seller• Subscription and renting based shopping

• Empowered consumers: smartphones, online platforms enable consumers to discover an item at the best price

• Personalized shopping: consumers receive personalized products and shopping experiences

Insights

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Shift in socializationUsers constantly connect and communicate, enriching socialization regardless of physical world boundaries

Traditional socializing Socialization transformation

US socializing habits

• In person interactiono Limited in time and space

• Pre-set plans for when and where• Restrained in communication

Everywhere interaction,real-time planning

• Virtual and physical world interaction• Platforms for social profiles• Unrestrained by time and space, ability to

archive and share various forms of media• Real-time communication, impromptu• Multi-communication means

o Words, images, videos, songs

• Influencers: consumers follow friends, favored brands, industry leaders to influence them

• Targeted marketing: consumers’ preferences, demographics, and publicly available information leveraged to provide targeted marketing for shopping

Insights

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Shift in residential real estate Young urban dwellers are not as fettered by traditional transit and space concerns, and prioritize location

Traditional urban housing Emerging housing transformation

US city housing

• Urban planning around parkingo Public transit secondary

• Minimum living space to accommodate all the physical objects to store

On-demand economy reducing spatial needs

• Carless generation not bounded by parkingo On-demand mobilityo Shopping services

• Needs less physical space due to on-demand storage and retrieval

• Urban planning moving away from parking to public transit

• On-demand economy: consumers no longer require as much space or a car to move around or effectively shop

• Urban planning: city planners are adapting to residential changes in needs and preferences; prioritizing public transit near housing

Insights

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Shift in retail real estateBusinesses’ physical space requirements fall as logistic capabilities increase

Traditional retail real estate Retail real estate transformation

US retail location

• Large real estate footprinto Houses all products in one

location• Supply chain and retail location

directly coupled• All products housed in store

Decoupled supply chain to retail locations, integration with delivery

• Smaller, smarter spaces integrated with delivery services

• No longer housing all products in the storeo Decoupling of supply chain to retail

location

• Efficient supply chain: retailers upgrade their processes to transport the right amount of product to the right location

Insights

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Shift in work: when, where, qualityThe meaning of work is revolutionized as the type and methodology of work shifts

Traditional work Emerging work transformation

US work characteristics

• Set location and time• Owning all the resources, property,

and labor• Individual work output

o Limitation in co-working• Monotonous, mindless jobs exist

Automation of routine work,reduced barriers to knowledge work

• Geographic and time disperse for remote collaboration

o Unbounded by office space, hours• Tools and resources support greater co-working• Automation of routine task

• Reintroducing meaningful work: automation of routine labor creates an opportunity for meaningful, engaging work revolution

Insights

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Oxford study on job automation

“Hence, in short, generalist occupations requiring knowledge of human heuristics, and specialist occupations involving the development of novel ideas and artifacts, are the least susceptible to computerisation.”*

* The Future of Employment: How Susceptible are Jobs to Computerisation, page 40

FIGURE I. A sketch of how the probability of computerisation might vary as a function of bottleneck variables.*

Effectiveness of non-automatable workers will rise due to:• Increased compensation• Ease of contact• Better access to knowledge,

analytics, and productivity platforms

Logistic, office, administrative, and production jobs will be subsumed by platform-based automation

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Shift in office space demandsBusinesses are embracing the sharing economy by using resources as and when they them

Traditional workspace Emerging workspace transformation

US  workspace

• Traditional closed office and cubicle layout

• Owning or renting the entire property

o No intermingling with other businesses

• Sitting office desk and chair

Automation of routine work,reduced barriers to knowledge work

• Shared, flexible office space to match worker’s and work’s needs

• Open, interactive environments to promote discussion and collaboration

• Emergence of standing and treadmill desks to replace sitting ones

o Standing conference rooms to expedite meetings

• Sharing economy: businesses benefit from the flexibly of using the type and quantity of space they need as they need it

• Collaboration space: office space design is centered on bolstering collaboration and innovative thinking

Insights

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Death of the cubicle

Routinized labor is defunct:• Routinized office spaces will stifle

productivity and signal an anemic company outlook.

• Encourage departments to share common spaces to foster cross-disciplinary insight and collaboration

Greetly replaces the front desk:• An iPad with basic receptionist

functions greets visitors through cloud software

• Clientele consists of small and medium businesses looking to save money and increase productivity

Knowledge workers will demand flexibility and speed from their workplaces to address complex tasks

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Clients will expect transparency, control

Consumer brands are building user expectations that the

physical world is accessible and controllable through a friendly

digital interface

&

This rise of the Internet of Things will increase client expectations

of 24/7 control and software-level access to system functions

(APIs)

The ability to sense, monitor, and control through smartphones will be table stakes for user services – even corporate users

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Smart cities emerge from the bottom, up

* http://www.simudyne.com/case_studies/hospital-evacuation/

Dense areas of innovation – Kendall Square, not Silicon Valleys – will evolve into smart cities due to:• Public-private data sharing• API access and analytics*• Great connectivity• Engaged institutions and citizens

• Future smart cities will not emerge from multi-billion dollar IBM, Cisco, and Siemens projects

• Instead, they will emerge from incremental progress and public-private data sharing

But smart cities will not be catalyzed by top-down initiatives

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The perfect storm of innovationThere’s a new set of imperatives for leaders

Leverage

Magic• “Any sufficiently advanced technology is

indistinguishable from magic” – Arthur C. Clarke

• “[The essence of platform leadership] is a vision that says the whole of the ecosystem can be greater than the sum of its parts.” – Annabelle Gawer & Michael A. Cusumano

Love• “Do you know what my favorite

renewable fuel is? An ecosystem for innovation.” – Thomas Friedman

Change

Focus

• “The future is here, it’s just not very evenly distributed.” – William Gibson

• “The best way to predict the future is to create it.” – Peter Drucker

• “We didn’t have money so we had to think.” – Ernest Rutherford

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What does this all mean for real estate?The 5 forces have created a ripple effect from the macro-scale to the micro-scale

1Empowered citizens

2Unleashed productivity

35Human networks

Sharing, on-demand economy

Accelerated, disruptive innovation

Macro-scale/Socioeconomics

DiversityFlexibilityDensity

ConnectivityControllabilityConfigurability

Building demandsNeeds Services

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Physical cities

Smartphone controlDelivery servicesShared mobilityMultimodal

Mixed use spacesCo-working spacesHome offices

Macro-uncertaintyPlatformsPartnerships

Ease of useAutomationIoT

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Buildings as platforms – vertical villagesSegmented silos of activity are turning into integrated function centers

Pop-up store Cafe Maker space

Residential tenants

Flexible working space

Limited foot printTransient

Collaborative spaceImpromptu meetingsIrregular clients

SustainabilitySupports various sized meetings

Close proximityVertical VillageBuilding requirements

• Supports great connectivity and IoT

• DAS• Wi-Fi

• Tenant controllability• APIs• Automation• Digital concierge• Ease of use

• Modularity, scalability, flexibility

Tenants can configure the space for themselvesNo more analog time patterns; coming, going at all timesCompatible with the sharing, on-demand economy

Scalable, modular, adaptable work space to support client needsRotating clients utilizing the space

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Global Technology Presence Director

Senior Vice President

Pushpa Gowda