2020 has been off to a rough start. 2019 ended with the expectation that things would normalise – at least for the UK – with Boris Johnson winning a full mandate to carry out Brexit. Regardless of one’s personal opinion concerning the decision to leave the EU in the first place, the wait was over and we could finally move on. Then 2020 happened, with a series of setbacks both near and far from home, ranging from the Australian fires and massive flooding throughout the UK, through to the geopolitical turmoil in Libya that some were calling the start of World War III, to the coronavirus outbreak which is now threatening to seriously stall the global economy, if not push it all the way into recession.
It is a grim backdrop against which to look optimistically at anything, but we still should. After all, though it is easy to succumb to the doom and gloom, these are nothing more than temporary glitches against what is ultimately a positive long-term outlook for the UK economy in general and for real estate in particular… despite everything that is happening.
Real estate and construction stand to benefit significantly from the advent of proptech. For those not familiar with the term, proptech is the acronym used to describe any technology in the real estate space: from software to hardware, from materials to manufacturing. Although still dwarfed by its older cousin fintech, investment in proptech has soared sky high. Since data was first available in 2011, investment into the space has gone from $186 million globally to $24.6 billion in Q3 2019, with estimates for the year indicating that global venture investments into real estate technologies will have comfortably exceeded the $30 billion mark.
So, why is technology so significant? Leaving construction aside for the time being, the one-word answer to this question is: service. Asset management is shifting away from the traditional transactional model, in which you buy building, collect rent, and hope your tenants won’t bother you too much and into what is known as the “service” of real estate. The asset has been replaced by its users as the pivotal element in real estate, and management has evolved from spreadsheets to customer experience management-enabling end users, whether these be residents, employees in an office or shoppers, to have the best experience possible in an asset. Landlords have clued into the fact that happy end users equate to a stronger portfolio performance.
Why is technology essential?
Technology has become an essential element in this equation because the goal is to fine-tune the services on offer down to the segment of one. As we become more and more engaged with spaces and their users, both through sensors and digital applications, we capture data. This increasingly big data, in turn, can “feed” the algorithms that power the artificial intelligence (AI) and machine learning (ML) based software that allows us to fine tune the real estate-as-a-service offering to the segment of one. Off the back of this, owners and operators can confidently build more flexibility into their real estate business models.
Here are some instances of how proptech can be deployed to better the customer’s experience – and increase the owner’s and operator’s bottom line – in the retail, office and residential space.
There is a lot of tech being used in the retail space. Think of the algorithms behind layout optimisation, that use a mixture of cameras and sensors to figure out how shoppers live a space and thus the best way to dynamically adapt it, and the product placement within it, to maximise sales. Many FMCG retailers use smart shelves to seamlessly manage logistics and restocking and some like Amazon are experimenting with automated checkouts as well. Retailers are also taking the shopping experience out of the store, with RFID beacons used to notify nearby potential shoppers and will them into the store.
Then, there is the whole concept of flexible retail, where owners and operators have adopted new strategies, inclusive of tech, to adapt to a world in which the high street is slowly dying out. This ranges from pop ups to ops to online to offline models all the way through to offering co-working or co-living space in malls!
Offices are probably the asset class that has most embraced tech, largely thanks to bigger portfolio sizes and lesser privacy concerns than in residential. Smart offices are not just a vision for the future any longer, and this comprises tenant facing apps that are devoted to maximising the use of the space you work in, access control systems that are often managed through the apps, and sensors. These sensors have an enormous range of uses – from helping residents figure out if a parking space or a meeting room is free, to helping building management monitor environmental parameters, or quite simply to efficiently schedule maintenance work. Finally, they help owners and operators to analyse granular data and determine how best to maximise the use of space while keeping the user experience at its optimal level.
In the residential space, the use of technology is curtailed by legitimate privacy concerns. Nobody wants Big Brother in their home, and thus tech tends to mostly end at the front door and is limited to operations otherwise. Here, proptech can be easily split into front end and back end services. On the front end, you could get a tenant app for concierge services, bills payment and the like. On the back end, management can be optimised once again through sensors (for example for leak or energy usage monitoring) or through management platforms that bring efficiencies to maintenance and other services.
Construction is a phase in the asset life cycle which must be considered separately and is particularly ripe for disruption. According to the McKinsey Global Institute, if construction sector productivity were just to catch up with that of the total economy, there would be a cumulative productivity boost of up to 60 percent, translating into a 2 percent global GDP boost. There are a host of startups looking to achieve just that at present. While some are working on highly-ambitious projects such as robotics that will change the sector forever when they eventually work, most are focusing on improving the construction process as we currently know it through design, workflow management and AI-driven sensor-based site safety. These, coupled with advances in offsite manufacturing methods, are industrialising the construction process and will deliver the productivity gains cited earlier, as long as it is the customer that drives this change. In fact, the construction industry is hampered by a traditionally adversarial relationship between customer and contractor, and tech can only become widespread if it is introduced from the top down, rather than proposed from the bottom up.
Proptech is becoming ever more mainstream, with large real estate companies of all sorts deploying investment into the sector both through corporate venture vehicles and through proptech-specific venture capitalists. Despite the troubles that the beginning of this year has brought, the outlook for this this sector is overwhelmingly positive, and will bring great benefits to real estate and construction.