In an earlier post, I shared the ways that financial technology—or “fintech”—is shaking up the financial industry. And now, let’s examine the impact that fintech developments hold for the commercial real estate market.
Within the traditional finance industry, I see a number of potential implications for commercial real estate, such as:
- Increased automation will create more opportunities for split operations, such as relocating back-end operations from the central business district (CBD) to decentralized office nodes in areas with lower rents.
- A potential reduction of headcount due to automation could decrease the demand for office and retail space from banks and other finance institutions.
- Increasing tech integration will encourage tenants to look for energy-efficient buildings with modern technology infrastructure. High-speed internet, seamless wireless connectivity, energy-efficient electricity systems and space for storing tech equipment will be essential facilities.
- With bank branches shifting away from a focus on transactional services to more advisory and consultancy, branch design and positioning will also need to change. While the number of branches could decrease thanks to automation, the unit size of remaining branches could increase as these branches will integrate a wider spectrum of services in more open layouts.
- Fintech accelerator and incubator programs within traditional companies may create demand for temporary office solutions such as co-working spaces or subletting spaces.
The commercial real estate impacts from the fintech start-ups are somewhat different. Given that the majority of these emerging companies’ clients, mentors, investors and employees are likely concentrated within the CBD, it’s important for these companies to also be located in or near the CBD.
However, it might not be easy for small companies to access prime spaces in major finance hubs, due to high rents with long lease terms and landlords who may be hesitant to lease space to new companies. Within the Hong Kong market where I am based (and I suspect other areas of the globe as well), many emerging fintech companies are employing these two strategies:
- Using flexible work solutions such as serviced offices and co-working spaces. These spaces offer more flexibility in lease term, location choice and unit size compared to a traditional lease. Tenants can adjust the size, lease length and location of their office spaces to meet business growth requirements.
- Locating their businesses in fringe CBD areas. Operators can occupy lower-rent space compared to the CBD while still being close to clients.
FINTECH IS HERE TO STAY
The “Uber-ization” of the finance industry is likely to continue. There is no doubt that the commercial real estate market will see changes as a result—which may create opportunities for those working to stay ahead of the curve.
To learn more about the fintech industry’s impact on commercial real estate within the Hong Kong market, download the Fintech: Strategies for the Surge report.
Yasas Wickramasinghe is a Senior Research Analyst for Colliers International in Hong Kong, where he provides analysis and insights on Hong Kong office property market.