Key takeaways from the panel discussion: “Changing tides: Navigating the evolving landscape of real estate for technology, ESG and investment”

Interest rates and inflation are skyrocketing and the drive to net zero emissions is looming heavily on the horizon. AI and large language models are exploding in popularity. And we’ve seen more focus on diversity in the workplace than ever before.

– Nadeane John, MRI Software.

A group of property professionals braved the record-breakingly chilly weather in Sydney last week (with many more tuning in virtually) for a thought-provoking panel discussion and Q&A at MRI’s Sydney headquarters.

The all-woman panel shared insights on how the real estate industry is adapting in 2023 to shifting investment priorities, heightened emphasis on ESG and the rapid progress of AI and technological innovations.

It also provided a fabulous opportunity to challenge conventional ideas about diversity and inclusion and to explore new possibilities for the future of women in the commercial property industry.

Nadeane John, MRI’s Industry Principal – Investment Modelling did an exceptional job as moderator, drawing out some great insights and anecdotes from a group whose expertise included funds management, corporate finance, sustainability consulting, industry advocacy and more.

Questions put to the panel included:

How are real estate businesses adapting to change in 2023 and how is the macroeconomic climate shaping investment priorities?

Vijitha Yogavaran, a Fund Manager at Centuria Capital, agreed that we’re operating in a challenging environment at the moment.

“One month ago, interest rates were about 100 basis points lower than what they are now, which means it’s hard for a fund manager to make decisions in terms of where we stand.” Some are thinking about recycling portfolios and looking for new challenges amidst the upheavals.

Healthcare funds are Vijitha’s niche and present their own unique challenges. “People have learned to operate a bit differently,” she said, with hospital and clinic operators impacted by Covid and doctor-patient relationships changed by the telehealth model.

“Over the past couple of years, we haven’t seen people come into the country. There’s a big shortage of doctors and nurses, which is actually affecting how these operators perform,” she explained.

Having said that, healthcare demand will never go away, and adaptation and flexibility are what make it work.

What are the main success factors in the digital transformation space for those companies “doing it well”?

Sarah Kinsela, a Partner in Climate and Sustainability at Deloitte said the first and perhaps most obvious thing is planning before diving in. “Having a technology or digital transformation strategy is really important. One that links with the business strategy and growth plans.”

Without a solid business case, choosing solutions with “all the bells and whistles” or copying what the competition is doing with technology can end up in a waste of resources.

Generally, we love to jump into solutions and get them moving to prove we’re doing something. But the planning and the engagement upfront is actually doing something. Even though you don’t have a physical thing to show for it necessarily.

– Sarah Kinsela, Deloitte.

It’s also essential to spend adequate time on testing. “There are plenty of examples, particularly with consumer-facing businesses, where they’ve done migration and not enough testing and their business hasn’t been able to perform,” Sarah pointed out.

And underpinning it all is leadership. “Leadership is really important not just at the board and the executive level. But all the way through middle management and beyond.”

What sort of ethical considerations or risks do you think we need to address in terms of this influx of data and its availability?

The panel considered the way AI is playing a central and transformative role in driving advancements and innovation across industries of all kinds. Can commercial real estate be part of the vanguard embracing its potential – in a responsible way?

Jess Caire, Deputy Executive Director, Queensland at the Property Council of Australia thought it could but with one caveat. “If we harness the energy and capacity that it brings to help us deliver our job, that’s a really great thing. But we need to be mindful of the data,” she said.

From a policy point of view, it’s really difficult because legislation moves so slowly and technology moves so quickly. I think that’s one of the biggest things we’re faced with as AI becomes part of our day-to-day.

– Jess Caire, Property Council of Australia.

Margot Black, General Manager of Corporate Sustainability at Investa explained how NSW’s Sustainable Digitisation Project provides a voluntary data governance framework for businesses operating in the built environment.

She said Investa is putting guardrails in place and triaging data to look only at the most relevant and ethical information.

What are some of the challenges of getting people on board to accept and embrace change?

Although change is scary, adapting your business and people to customer demands is non-negotiable if you don’t want to fall behind.

Sarah said, “It’s about making sure that it’s embedded in the DNA of your organisation. And that you understand what the customer wants. And nine times out of ten, they want transparency, effectiveness, and to make sure that it’s a trusted process.”

With the race to net zero emissions, we’re seeing both tenants and investors demanding change in this space. Can you give us a flavour of what you’re seeing in the market at the moment?

I think a hundred per cent of investors have ESG as a requirement in all fund discussions, whether they’re an existing fund or an emerging fund. And that’s also been driven a lot by international regulatory frameworks.

– Margot Black, Investa.

According to Margot, Investa undertook tenant research a year ago which uncovered the fact that about two-thirds already had net-zero targets. “The world has changed a lot in a year,” she added, “So I would suggest that’s a lot higher. And of those two-thirds, at least one-third have got a hundred per cent renewable energy target.”

Investa is using the information to work with tenants on energy optimisation and a strategy around reducing “scope three emissions” (that is, indirect, downstream and flow-on emissions).

The office sector has been hugely impacted by the pandemic. Demand is recovering most noticeably in the premium tier and highly-sustainable office space. What about buildings that aren’t in that grade?

Margot believes that “the lower-grade stock that hasn’t had the love in the past”, is certainly the new frontier and an area of opportunity. She pointed to new research by CBRE that says buildings with a 5.5 or above NABERS energy rating have a high 7% higher occupancy level than those with 4 stars or less.

“We’ve just started up a fund (for) the adaptive reuse of some of those older buildings,” she confirmed. “Because you can have a huge impact in terms of reducing embodied carbon in those buildings. And actually, a change from a 2-star to a 4 or 5-star NABERS is a lot bigger impact environmentally than going from 5 to 5.5.”

Can you give us a sense of how successfully we’re balancing the need to get returns for our investors against the ESG mission?

We have plenty of methodologies to monetise the benefits of sustainability initiatives and projects. When they’re linked to business strategy and to supporting that strategy, they make business sense and are easy to implement.

– Sarah Kinsela, Deloitte.

Sarah believes that ESG and profitability aren’t mutually exclusive and it comes down to being pragmatic. Again, “It’s about choosing the things that align with the business strategy and the way the business makes money.”

“With placemaking, for example, if you’re a fund manager and you’ve got mixed-use precincts, social sustainability for a place is incredibly important to your return.”

Diversity of spaces and uses, along with safety, foot traffic, green space, and enjoyment, contribute to the activation and social sustainability of an area. And, of course, these elements become tangible when they are directly linked to the success of retail tenants.

“And I think probably we’re talking about data as well,” she added, “The importance of being able to actually collect that data and measure it so that we can link it to the benefits as well.”

Let’s look at the “S” in ESG – the social outcomes. How far do you think we have to go in terms of diversity, inclusion and equity in our industry?

There’s an incredible talent pipeline of women in this sector. It’s incumbent on all of us if we’re not seeing that level of diversity, that we ask the question – why is this not happening within our organisation?

– Jess Caire, Property Council of Australia.

Nadeane pointed out that the current event’s exceptional level of female representation was sadly not usually reflected in the industry as a whole. So what does diversity mean and how is it being advanced?

Jess highlighted the PCA’s efforts to drive gender diversity and said, “I’m really proud that we lead by example (as) six of our jurisdictions are led by female executive directors. Four of those have a female senior leadership team, which is incredible when you think about the level of engagement and influence and decision-making we are able to be part of.”

An important initiative is the PCA’s Girls in Property Program, which brings high school students together to showcase the range of property industry careers available to them. Vijitha experienced the program first-hand at Centuria and commented on how impressed she was by the students’ idea pitches, their level of commitment and how it opened their eyes to the multitude of roles women could pursue beyond the stereotypes of “real estate agent” or “lawyer”.

As Sarah pointed out, “diversity” isn’t just about diverse representation but also about thinking more broadly. “It’s really important when we’re designing cities, spaces and buildings we need to start thinking more about the different people that are using them and occupying them,” she said. It’s a skill that women often naturally bring to the table, Margot added, by virtue of having such varied roles in their families and communities.

Evidence shows that job applications from women surge when the organisations involved are committed to a flexible workplace policy and that it can be a huge driver of talent acquisition and retention.

As one audience member pointed out, forward-thinking employers are prioritising flexibility and even allowing employees to combine careers with other part-time interests like professional sporting involvement.

How important is it to have industry-wide collaboration in the sustainability space?

As the Deputy Chair of the PCA Round Table, Margot considers that sustainability should be a “non-compete space”. A strong culture of collaboration is part of the reason that APAC is a world-leading region for ESG.

(The) Australian real estate sector is in the top 10% of sustainability performers globally. A lot of our global investors sit down with us and say, how did you do that? What are you doing? So, collaboration to me means that it’s not just happening for one company, it’s happening across the board.

– Margot Black, Investa.

She adds, “As a sustainability professional, you want the world to be a better place. You want to leave a legacy for our children and grandchildren and great-grandchildren. When someone does come up with a better way of doing something, we certainly share how we do it.”

MRI Software was proud to host this event as a committed supporter of diversity, inclusion and real estate industry collaboration. Keen to watch the full replay? You can access it here.