OPINION: THE above is what the world really looks like now – completely connected. You will not find this in any atlas.
Over 300 years ago, the world was made up of tribal regions – Australia, North America, Africa, South America, Asia, India, and the Middle East could all be divided thus. Following the Second World War, the victors drew up more formal borders, establishing sovereignty, trade, population movements, and local laws codifying customs, religious rites, education, taxation and defence.
That world is now slowly being dismantled, because people are better connected and those post-WW2 boundaries are less relevant to the future. The picture above shows all the rail, road, gas, electricity, oil pipelines, flight paths, internet cables and shipping lanes. It shows how utterly connected the world is – physically, digitally and with the energy sources to empower the connections. There are now over six billion mobile phone accounts on the planet with over 75% coverage in the developing world.
If, as is the hypothesis here, the world is more connected, more mobile, more able to work anywhere anytime with anyone, then this poses an enormous challenge to the value of the built environment. In the future, if you can choose where to work, rest and play – where will you choose?
For example, residential real estate is a substantial input cost to wages. We have seen manufacturing locate to the cheapest labour source globally over the past 30 years. If we take this through to a logical conclusion, knowledge work can be done by anyone, anywhere, anytime, so one of the abilities to compete will be cheaper input costs – cheaper housing – all other things being equal (such as the ability to do the work).
This poses challenges for the current first world insofar as people in the second and third world will be able to undercut the pricing of ‘knowledge work’ because their input costs are lower. We have seen the beginnings of this in the offshoring of call centres for example. Taking it a step further; how can those in wealthy suburbs compete with those in cheaper suburbs in cities such as Melbourne, Sydney and Brisbane – the simple answer is, they cannot. It is what economists call factor price equalisation.
The end game could be a homogenisation of real estate prices globally – precise location matters less as lifestyle, time zone and access to amenities matter more – the current paradigm of proximity to job which drives land prices may start to fade.
OFFICE/RETAIL: Being closer to people, better integrated into surrounding buildings, services, offerings and the lives of users.
By Tony Crabb, national director research, Cushman & Wakefield.
Property Reviewer on Australian Property Journal
