Reconceptualizing Real Estate Development as a Business Incubator for Sustainable and Smart Urban Products

Abstract

The financialization literature describes how the increasing mobile capital in the coming years will put a pressure on real estate to be transformed into high quality investible financial product (Haila, 2021). Even though the proportion of real estate in an investment portfolio has increased every year reaching 25% and real estate comprises up to 50% of the total value of words assets, however only 10% is high quality investible property with a profitable return on equity (Hartzell and Baum, 2020). The investors are challenged to implement main structural changes driven by digitalization, sustainability and the rapidly changing market trends some accelerated by COVID. But, the yieldable property became scarce and more active measures need to be taken by investors to increase the net operating income. There is a need for re-engineered business models to make sustainability and digital transformation the new drivers of performance. Based on a systematic literature review to identify the main drivers of structural change: sustainability, digitalization and investment market trends, the reconceptualization of the Real Estate Development (RED) is proposed to become a business incubator for sustainable and smart urban products. In a second stage, a re-engineered business model for real estate investors is proposed. Within the context of direct investment in real estate development (either by building new, partially demolish or major conversion of existing building stock) the research explores new value creation systems based on the drivers of three major structural changes: digitalization, sustainability, market trends. Entrepreneurial management, an important quality of the RED process is a key element for initiating the sustainable and digital transformation of the built environment by bringing ideas to reality. Miles (2015) points out the distinctive entrepreneurial spirit present in a development process and needed to realize a vison by stirring the processes of design, finance, building and leasing processes. By taking the role of an entrepreneurial innovator and making use of the existing digital technologies, real estate investors have the potential to generate innovative sustainable and smart city concepts. The current market conditions require a re-conceptualisation of real estate development as a more agile process to challenge the real estate asset class established characteristics, make the transition from project to product and become a tool for real estate investors in reaching value-add strategies by integrating ESG goals, smart building technologies and rapidly changing market trends.