Real Estate digital transformation

In recent years, Real Estate has started becoming even more important to how a nation develops, a company operates, or a person lives. Buildings are typically around for decades or even centuries, and each “step” in the life of a building has frequently been approached in isolation of the prior. The Real Estate sector working in silos is an often-used cliché.

Part of the attraction of Real Estate and the built environment is it is tangible and offers relatively low investment risk. The built environment employs huge numbers of people around the world, often including some of the brightest talents, but the skills and business models that have been developed over years are designed to serve the market as it was, not as it might be in the future. The speed of business decision-making and the appetite for risk can be low across the sector whilst the skills needed for innovation and change management haven’t been developed as much as other sectors.

In 2018, Amazon is expected to spend $22.6bn on R&D. Notwithstanding the size of Amazon, and there being no Real Estate equivalent, this equates to 12.7% of its revenue. Something that few companies in Real Estate could claim. Amazon has already had a significant impact on retail and industrial markets and is now increasingly active in the residential market.

The use of technology is not in itself a new thing. However, the rate at which it is evolving is having a significant impact on our economy. With 90% of the world’s data having been created in the last two years and the continuing validity of Moore’s law (suggesting that the growth of computer processing power grows exponentially), the ever-increasing impact that technology can and will have is set to continue. From the survey of our senior leaders, 93% saw digital transformation as essential for the future of the Real Estate sector.

“PropTech” is literally the fusion of “property” and “technology” and is the catch-all label often attached to the digital transformation that every part of Real Estate is undergoing. Within PropTech is a range of other acronyms that focus on more specific parts of this ecosystem.

A key development in recent years has been the drive to an increasingly connected world which in turn allows technology to be delivered “on-line” as a service. Examples of this are Software (SaaS) or Data (DaaS). However, the ability to deliver in this way, means that major technology companies are now able to offer their own products as a platform for others to build on. This, in turn, significantly lowers the barriers-to-entry. A new company can now offer customized market solutions with unprecedented sophistication and security with minimal lead times, and relatively low cost.

For many years, despite the overall size of the Real Estate sector, it has not been an attractive or accessible market for many technology companies due to its fragmentation and the high volume of small businesses. However, these same technology companies are now turning their focus to the built environment as routes to market have improved and barriers-to-entry lowered. We have also seen some of the big tech companies directly enter the Real Estate market with examples such as Facebook building housing, Google entering the smart city space through Sidewalk Labs and Amazon moving into the smart home with Amazon Alexa.

With the ever-growing influence of technology in Real Estate, we are at the initial stages of a fundamental change in the sector; new companies and business models are appearing into what has traditionally been difficult to enter the market. As these two worlds come together, the likely winners are those that collaborate and engage rather than ignore or fight the change. There are some broad themes being driven by the increasing digitalization of the Real Estate sector that can be identified:

Product to service
In line with the much talked about the 4th Industrial revolution, real estate is transforming from a product-based industry to a service industry. No longer is the focus so much the building, but what the building does for the productivity of people inside. This is much harder to measure than traditional sizes and values, but technology is increasingly allowing this to happen, for example through the increased ability to collect and analyze data. To quote Antony Slumbers, a leading thinker in this space; “Just as it is now easy to buy almost any Software-as-a-Service, so it will become with Real Estate. Space, as-a-Service, is the future of Real Estate. On-demand and where you buy exactly the features and services, you need, whenever and wherever you are.”

Technology in a whole-life view
Real Estate tends to work in silos, but as we increasingly start considering the whole lifecycle, these silos are blurring. A significant driver of this is not just the consideration of the whole life of a building, but the fact that the technology, and particularly data, needed in the operational life of a building can only be collected if considered in the early stage of building design and construction. As occupiers gain access to more data and better understand how buildings affect their operations, we will see some buildings and companies performing better. This, in turn, will lead to new ways of assessing the value of the property. Building owners will need having a full view of all of the data that informs the factors that drive value. Whilst people silos may still exist in the future, the data and technology must be joined up to allow a full lifecycle view.

Impact on jobs
It is widely accepted that technology will refine the shape of jobs in the future. This has always been the case, but with the increased sophistication of technology, the rate at which these jobs will be automated will increase as more and more tasks are automated. McKinsey has estimated that up to 44% of Real Estate and construction jobs could be automated in the future. A report released by RICS in 2017, went into detail about the tasks of a property surveyor that could be automated.

New entrants
As barriers-to-entry fall and geographical restrictions reduce, new companies are entering every part of the Real Estate sector. Some companies are using technology as a way of increasing the efficiency of what they have always done, others are simply looking to adopt technology to either leapfrog competitors or transform the way the sector works. These new entrants into the market are often fuelled by increasing amounts of venture capital investment into this space which has increased significantly over recent years. With this high volume of tech-driven, new entrants there can at times become too much focus on the technology, rather than the customer or market needs and relationships. This, in turn, provides challenges with getting traction but also presents opportunities in other areas such as partnerships with incumbents.

Changing business strategies
Business strategies and business models are starting changing. Thorough and risk-averse decision-making processes have worked for Real Estate for many years, but as customer expectations, new competitors and new solutions increase, these strategies need to be challenged. Other sectors tend to invest in R&D to accelerate the process and use it as a competitive edge, however, the Real Estate sector invests very little in R&D. An additional challenge to the business models of many Real Estate service companies is they are valued by the services they provide to clients. These services are becoming increasingly automated meaning there is a danger to the perceived value, especially given that many companies “give away for free” insights and advice in the hope of securing transaction or other paid-for services. This has not traditionally been a problem whilst the overall service provided has remained as one steady package, however, now that certain tasks are becoming automated or specialized, business models will have to change.

To compound this problem for traditional Real Estate, a number of the new entrants have substantial amounts of funding enabling them to more easily invest in technology and new skills without being restricted by existing structures and processes. Investment in a loss-making business may be a long-term risk, however, it does provide an advantage over incumbents, at least in the short-term, for many of the new entrants in the market.

It is no longer an option to think about the present business or the future, both must be balanced at the same time. It is about “And, not Or”. Good examples of this can be seen in other sectors such as energy or automotive where companies are proactively aiming to disrupt themselves.

Regulation and standards
Both the Real Estate and technology industries have been subject to regulation for many years, but as these worlds come together there will be a growing challenge for regulators to keep up and bring together the combined skills needed in this space. A key challenge for regulation is the pace of change we have already seen examples of regulation trying to keep up with technology firms and struggling. The regulation of an increasingly tech-enabled Real Estate sector is made additionally complex as regulators need to achieve the balance of regulating the market, but without unnecessarily increasing barriers-to-entry or restricting innovation. The adoption of standards across the industry, especially around data will become increasingly important to the functioning of the whole sector. It is also worth noting that whilst technology creates challenges for the future regulation of Real Estate, it additionally provides new tools and methods for regulators to use to manage the changing market.

Technology is revising the structure of Real Estate. It is not just a tool to be used to do what we have always done, but it is transforming the way we do our jobs and use buildings which in turn will change the fundamental structure of the industry.

Related Articles

Leave a Reply

Your email address will not be published.

Back to top button