International Outlook

Tech will dominate the decade

By Neal Gemassmer on Jan 15, 2020 in Global

Editor’s note: the below perspective on 2020 and the decade ahead for technology and real estate comes from Neal Gemassmer, vice president of international for Yardi. Originally published in Property Week, it is reprinted here with permission.

The festive period was an invitation to reflect on the year gone by and the year ahead, even more so than usual. After all, it was the end of one decade and the beginning of another.

Naturally enough, all eyes are on Brexit, but from a real estate perspective the impact that technology is having on our industry offers the most interesting food for thought.

New technology has had a greater impact on property in the last few years than in the previous three or four decades combined. In 2010, the term ‘proptech’ had not even been coined; today, it is ubiquitous. However, in my view we have barely scratched the surface in terms of its influence. In the years to come, it will redefine how real estate functions. Here are a few ideas as to how.

First, consider the build-to-rent (BTR) market. More and more investors are moving into the sector and technology has the potential to act as a major enabler. Digital technologies can allow owners and operators to cut out the middle-man – the letting agent – and communicate directly with potential customers, who can view different buildings and get a feel for the quality of the accommodation and the amenities on offer.

Virtual reality lets potential tenants view a property remotely, while online tools can arrange physical visits without the need to call or email ahead. Applications and background checks can also take place digitally and customers will be able to sign their lease and pay their deposit online. The whole process will become virtually frictionless.

Of course, this is not good news for letting agents – it puts their entire business model at risk. However, it is no more than what has happened in other industries. For instance, most travel transactions are now done online, either directly or through a digital mediator, and banks have also moved most transactions online. Letting agents will still exist but they will be fewer in number and have to add a lot of value in terms of customer experience – just like travel agents.

Once a customer has signed on the (virtual) dotted line, apps can make it easier for them to obtain services from their landlord. That might include making payments online for additional services or registering a maintenance issue and booking someone to fix it. Apps can also help residents integrate into their new community. Building managers can notify residents of events they are organising, but so too can individual residents. Technology can help enhance the overall resident experience and also build a sense of community.

Furthermore, online tools allow operators, developers and landlords to collate data about their schemes, such as how various amenities are used or the amount of snagging after a development is completed and residents move in. In this way, designing both developments and services becomes an iterative process, with each scheme being tailored to changing market requirements.

Flexible office sector

Another example is to be found in flexible offices. The concept of business centres itself is not new – IWG (Regus) has been doing it for decades. But WeWork, The Office Group (TOG) and others have shifted the sector away from individual entrepreneurs, start-ups and SMEs and towards major corporates with requirements for hundreds of desks.

These new providers offer a turnkey solution for major corporates. A company with hundreds or thousands of employees looking for new space can do a custom deal with a flexible office provider that will manage the whole time-consuming and non-business-critical process on its behalf. Flexing up or down is also far easier and less expensive compared with the traditional office leasing model. Landlords that continue to lease space exclusively on traditional terms will increasingly find themselves stress-tested.

Technology has played a huge role in the flexible office revolution. It allows owners and operators to market space directly to occupiers and manage spaces more effectively and efficiently. As with BTR, apps can help enhance the tenant experience, allowing them to order additional services and report problems, as well as access internal networks to either win new business or organise social events. Technology has turned what was once seen as a last-resort option into a positive choice – a choice that helps attract and retain millennials who do not want to work in a traditional office setting.

Then there is sustainability. Energy consumption in real estate is still one of the biggest cost factors for companies alongside maintenance, repairs and operations. But it is also one of the most controllable costs. Organisations generally settle their utility bills on time and most try to be environmentally friendly and sustainable. Not many organisations, however, are very good at understanding what their consumption is and how that can be benchmarked against other buildings or their peers.

Sustainable future

But things are changing. In our experience, more and more companies are focusing on developing a strategic view of energy management and sustainability. Environmental, social and governance reporting is increasingly important for large companies in particular, which means that greener buildings are increasingly sought after. This will only become more prevalent, not least because institutional investors are also demanding that their portfolios are ever more sustainable. This is good for the environment, of course, but it is also good for occupiers’ bottom lines as they spend less on utilities.

Again, the use of technology is vital in this regard as buildings, both existing and new-build, become ever smarter. Technology will drive the adoption of better practices. Our view is that the starting point is to understand consumption, but meters need to be integrated to provide real-time data. Once this data is obtained, machine learning and AI can provide intelligence on when a building needs to be heated or cooled, for instance, or predict when maintenance is required. Both are important for cutting energy use.

The theme that runs through all the examples cited above is data. It is commonly said that data is the new oil. In my opinion, data has always been oil. It is nothing new. However, when data is stored across multiple unconnected systems it becomes difficult to make intelligent decisions or carry out predictive analysis. Increasingly, however, companies are adopting an integrated system so they have a single source of truth for all their data. Only by doing so can they take advantage of the benefits that leading-edge technologies such as machine learning and AI can offer.

The logical upshot of all this is that there will be boom times for proptech companies in the years ahead. However, my sense is that up to a quarter of proptech start-ups will fail in the next 12 to 18 months because they are going to run out of money. These companies only have so much runway in terms of capital from their initial investors and time to build a business that adds value and generates sufficient revenue.

This is not necessarily bad news for the industry as a whole. There will be casualties but at the same time there will be a new wave of start-ups. Increasingly, capital is focused on the next generation of start-ups. And that should be cause for excitement. The technology that we have is already revolutionising real estate and will continue to do so. We may not know all of the benefits the next generation of technology will bring, but it will be exciting to see how the market continues to innovate. I, for one, am very excited to kick off the next decade in 2020 and beyond.