Is Google’s digital city a threat to developers?

Facebook is building housing in Silicon Valley; Google is rumoured to be developing a digital district from scratch. Are developers doing enough to keep up with tech developments? And what will happen if they don’t? Most people, if they are honest with themselves, would probably draw a bit of a blank when asked to explain what building a city “from the internet up” actually means. But you don’t need to fully understand the concept to know that if Google is giving it a shot, it is unwise to dismiss out of hand. And that shot is being given. Sidewalk Labs, the urban innovation unit of Google’s parent company Alphabet, has been mooting plans to build digital cities from scratch for some time now. Noise around the idea got louder last autumn when it announced plans to transform 16 American cities into tech-enabled smart cities of the future. And now it looks as though a trial project could be in the offing. Back in May, the rumour mill cranked up a gear as Bloomberg suggested that Sidewalk Labs has plans to develop a 12-acre site in downtown Toronto into a new, high-tech district – and here is that phrase again – “from the internet up”. Reaction to the plans has thrown up some questions: The first is what does “from the internet up” actually mean? Then, is this a realistic proposition and, if so, is it scalable? What does it mean for the future of design, planning and construction? And what about the impact it could eventually have on the future of real estate developers? When the biggest companies in the world are investing their colossal pots of cash into developing their own HQs, housing scheme and now, entire districts; could this become a bona fide threat to the role of traditional real estate developers? Ubiquitous connectivity Details of the Toronto project are scarce. But Sidewalk Labs’ general manifesto around ‘building a district’ helps to clarify the definition of ‘internet up’ city planning and development. It is founded on a system of ‘ubiquitous connectivity’, something Sidewalk Labs is already rolling out through free gigabit WiFi in New York. The idea is that once the connectivity is in place, the use of sensors and subsequent data will allow future cities to be built on a tech foundation, to help ensure the urban planning and development is right first time. Some have asked if this is simply a more advanced version of Building Information Modelling, a system that the real estate sector has been using for many years with varying degrees of success. But while some of the characteristics are the same, it is not as advanced as what Sidewalk Labs is proposing. “The government has set standards around BIM here in the UK,” says David Lewis, partner at architect NBBJ. “But that is based very much around construction and management. The difference here is that it is not combined with sensors.” This function allows the collection of real time data to feed back into the buildings, and the urban environment is what could give the tech companies an edge. These sorts of tech-enabled decision-making tools to inform urban planning is something the real estate sector has struggled with. Alphabet and Google have access to the kind of software systems required for a new approach to building and improving cities, but it remains a challenge. That, says digital strategist Anthony Slumbers, is all part of the appeal. “When design and construction is becoming more and more software led, for the likes of [Alphabet co-founders] Larry Page and Sergey Brin, the real estate world presents a fantastic intellectual challenge,” he says. “They have all the money in the world to throw at this, so why not? It’s such an interesting problem for them to solve. Tech companies operate in a parallel universe. They can basically do what they like. And when these companies now have vast property portfolios of their own, portfolios they are managing themselves with their own software systems, real estate developers are going to need to be careful they don’t slip down the value chain. Unless they get abreast of the tech advances, they are in danger.” Before considering what it could mean for traditional real estate if tech companies take on a more prominent role in the delivery of the world’s urban fabric, it is worth asking , are plans to build a high-tech district in downtown Toronto feasible? And is it a scalable model? [caption id="attachment_883704" align="aligncenter" width="775"] Toronto[/caption] Tech ambitions “What we can see from the few details we have is that the Toronto plan is very ambitious,” says Chlump Chatkupt, founder of Placemake.io, an AI-enabled city mapping system. “It is good to look at similar projects Sidewalk Lab have already got off the ground like the free public WiFi in New York. There is evidence they can pull off ambitious projects. But they will need a lot of sensors to collect enough data and I am not sure if they can scale it.” It is one thing to pull off this sort of project on 12 acres of empty land, but quite another to transform fully operational cities. “This is a piece of underdeveloped land in Toronto,” Chatkupt says. “You don’t have to deal with displacement, disruption, moving people who live and work in the area and ultimately dealing with other people.” Dan Harvey, head of occupier services for CBRE’s Bay Area office, says the Toronto play makes sense and feeds into a natural progression for Google and Alphabet: “Google has built an infrastructure play that has been mostly driven by software but now, like many of the big players including Amazon and Facebook, they are starting to realise there are huge opportunities if they get involved and drill down into the hardware side. “When you look at a smart city, with all of these sensors and having access to so much data, it makes sense. It could create a physical ecosystem that puts cash on the balance sheet all stemming from the software and operating systems. I am not sure what Larry [Page] and Sergey [Brin] are thinking long term but I suspect they are looking to create an ecosystem that lives in that 12-acre space in Toronto to see what happens when you try to create a city from the internet up.” It seems there is plenty of support for the Toronto test, not least because it makes sense to start here from a geographical perspective: “Canada is moving into a fresh period of progressive leadership,” says Earle Arney, director at architects Arney Fender Katsalidis, which has worked on a number of Canadian schemes including Deliotte’s new HQs in Toronto and Montreal. “It is recognised here that the internet and connectivity is a vital utility.” Despite questions over scalability, this should be enough to get the real estate sector thinking. After all, Sidewalk Labs is not the only tech company looking to make a mark on the built environment. In the pipeline In July, Facebook announced it would build a 1500-unit social housing scheme at Menlo Park in Silicon Valley, and WeWork announced it had raised $760m (£584m) to focus on designing and developing its own buildings. Speaking to EG in June, Lord Norman Foster, the architect behind Apple’s new $5bn California HQ, said he would rather work with the tech giants direct than deal with developers: “As a rule, developers just follow the market. Entrepreneurs and enlightened individuals lead it.” Slumbers says this is an issue the real estate sector cannot afford to ignore: “Developers should be doing everything they can to get their heads around the technology otherwise what are you bringing to the party? No one wants to end up in a position where a company comes to the property sector and says ‘We have planned, designed and built this, can you just stitch all that together for us please.’ “What we are seeing now with tech companies designing and developing could be a restructuring of the value chain within the industry. There will be some very big winners, some very big losers and nothing in the middle.” As to how the real estate sector can make sure it falls into the winner’s camp, the answer is: embrace the technology. The time has come to accept that a new way of working, planning, developing, designing and living is here. “Ultimately I think Alphabet’s plan is heartening,” says AFK’s Arney. “The way we have been building is so out of date and technological advances will drag the property and construction industries into this century. So I am not worried at all about the impact this will all have on the sector. It has been lagging behind.” Placemake.io’s Chatkupt says: “For the real estate sector, it has to come down to deciding how they are going to work with tech companies. If they don’t, the tech firms will increasingly take things into their own hands, because they can. They have the resources and I like their approach. Technology is quantitative. And that is a great fit when it comes to real estate development.” Slumbers has some reassuring words for the property industry: “Tech companies developing cities won’t happen just like that. This is a slow burner, the canary in the coalmine. I can see the role of developers changing because of these sorts of developments, but it will be over a long period of time.” If none of that is enough to get the real estate side onboard, NBBJ’s Lewis has a closing thought: “This could mean we almost build for free,” he says. “If we reach a point in time where ‘internet up’ cities mean we can generate income through the data, in the grand scheme of the cost of a building over its entire lifetime, that income could eventually offset the construction costs. It would need to be a very smart city indeed to support a system like that. But it’s possible.” This article is part of EG’s Global Investor Guide series. Register to get full access to the latest guide here EG and Pi Labs have launched an exciting new competition for tech firms. Click here to find out how to get up to £150,000 of investment. To send feedback, e-mail emily.wright@egi.co.uk or tweet @EmilyW_9 or @estatesgazette