Focus on proptech
What is ‘Proptech’?
It is undeniable that society is undergoing a digital transformation in a bid to be more innovative, sustainable and cost efficient, and the real estate industry is no exception. The term ‘Proptech’, or ‘property technology’, was hardly used a few years ago, and now it is a trend threatening to change the real estate sector as we know it. The term covers any technological automation of the property sector, including asset operation, management, valuation, funding and transactions both in the commercial and residential sector.
The evolution of Proptech has brought innovative thinkers together to advance the practices of the real estate industry, and in doing so has driven discussions and created a shift in thinking for many. The term Proptech itself, however, is slightly unclear: it can mean anything from 3D virtual tours to an online platform facilitating property transactions; flexible workspaces to a device that tracks energy usage. There are many possibilities as to the practical application of Proptech, so in this note, we will focus on three topics: Smart Real Estate, the Sharing Economy and Real Estate Fintech.
Smart Real Estate
Smart Real Estate governs the operation of real estate assets and could be with reference to a single property unit or entire cities. Essentially, it is using automation to achieve optimal functionality and efficiency in a built environment.
Crucially, the demands of tenants and investors have changed in the last ten years; it is no longer a luxury to have a ‘green building’, it is a marketplace requirement. Energy and service inputs (such as air, water and power) and outputs (such as emissions, sewerage and waste) need to be consciously monitored, managed and controlled due to tenants’ and investors’ basic expectations that buildings should be cost-efficient and energy-efficient. In its most basic form, if a building is cheaper to run, an investor can offer a more competitive rent and service charges to tenants, and in turn the investor will receive better returns. And it is through the use of technology that these processes of monitoring and controlling are possible.
The Internet of Things
Central to the concept of Smart Real Estate is the Internet of Things, a term used to describe the interconnection between the internet and computing devices embedded in everyday objects. As an example, a fridge that can check your stock when you’re not home and order food on demand. From the energy efficiency perspective, heating systems can be switched on remotely from a mobile phone and Google has even developed a system using thermostats, sensors and lighting which all interlink to save energy in the home.
This is only the beginning of using technology to promote the use of space. Smart cities are a collaboration of information and communication technology and the Internet of Things to manage a city’s real estate assets, ranging from residential accommodation to public services and utilities. Whilst in its early stages, the concept is that information, devices and sensors will be used to collect data from citizens, to tackle inefficiency and meet societal needs such as in the Pearl District in Poland.
The Sharing Economy
The Sharing Economy is widespread across society as services are ‘uberised’. Uber promotes sharing in the transport sector; Airbnb dominates temporary and holiday accommodation; and TaskRabbit shares informal labour. Essentially, the Shared Economy describes technology based platforms which facilitate the use of real estate assets. These assets can include offices, shops, housing and other property types.
In the housing sector, austerity and the general unaffordability of homes has challenged the concept of traditional ownership, particularly among millennials; co-living is becoming more commonplace. Companies like Trulia and Zillow promote house sales, whilst at the same time finding the budding homeowner a renter for a second bedroom. For co-living arrangements, apps have been developed to track expenses and facilitate bill sharing, all the time promoting the shared economy.
With tenant demands changing, even the most traditional firms are considering the practice of flexible working and as such, people occasionally working from home must be taken into account when considering the company’s office space requirements.
This is an opportunity for landlords providing serviced offices. For example, Boston Properties innovated flexible offices which encourage knowledge sharing and collaboration. By creating moveable storefront glass workspaces grouped around shared kitchens and conference rooms, each tenant enterprise is self contained and free to create their own culture on a flexible lease. Through feedback collected on the app, the moveable glass walls can be rearranged to create new conference rooms or additional spaces. Whilst many landlords offer hardware to tenants, the growing market is providing landlords with opportunities to diversify and offer software functionality too. Company engagement apps can allow employees to order coffees from their desks, report breakages or find free hot desks.
Real Estate Fintech
By far the most populated of the three areas, Real Estate Fintech facilitates the trading of real estate asset ownership. At the general public level and interlinked with the Shared Economy, transactional apps will encourage people to rent out their homes as sublets, nightly lets or long term rentals by using a ‘trip advisor’ style self-policing system.
At the commercial investor level, there are many possibilities from forecasting future rents using artificial intelligence to using virtual reality tours to view properties remotely. Free commercial property search engines, bringing together reports from global real estate markets, are opening up doors to private investors who are not full time (rather than commercial industry investors) who previously due to expensive subscription fees, would not have had access to comprehensive searching services. The idea behind this is that it will create more liquidity in the property industry, with properties changing hands more frequently and decreasing transaction times and costs.
The future of valuing properties
More sophisticated valuation systems have also been developed with the ‘PurpleBricks’ business model. They do not have a physical office, so working remotely they use local experts to value properties and consult customers by home visits. Whilst this is practicable for the residential market, it is not quite so suitable for the commercial market. Blockchain is increasingly being used by sophisticated companies to value properties. This is done by issuing bitcoins to investment property companies when they input data into the valuation systems having purchased new commercial properties. Knotel have used this model, together with an algorithm where figures are missing to imply rent by machine learning patterns from similar spaces and buildings.
Proptech is the new industry buzzword. Businesses across all sectors are adapting quickly to respond to the needs of a customer in the technological age.