Real estate is one of the most exciting places to see the tech revolution at work. Long seen as the Cinderella asset class due to its relative illiquidity, opacity and asymmetries of information, the very characteristics that made real estate difficult to navigate are also making it the perfect proving ground for technologies that break down information barriers and eliminate friction.
We’re seeing PropTech have an impact at every step of the life cycle of a building, from development to operation to eventual change of use. For example, in the office sector, our sister development firm Trammell Crow Company is creating buildings with greater ride-sharing opportunities and drop-off areas. This increases capacity by repurposing garages that are currently needed for future office space as the proportion of people commuting by car falls.
Increasingly, these office buildings are marketed to tenants using virtual reality tours of space that is still being built, with visualizations of how space can be used most efficiently. Both investors and managers of the office are able to use PropTech to see 3-D stacking plans of the tenants with all their relevant information per floor.
Once that office is occupied, PropTech and smart controls can help eliminate wasted space and latency in usage, reducing energy costs and helping to create micro-climates per user to increase well-being of the people who work in the building. Customers will be able to book meeting space, register visitors or even access concierge services through a specially designed app. Finally, anonymizing and collating this property use data across all the offices of a particular owner, tenant or property manager, can create enormous opportunities for the analysis of building usage and better specify space for tenants. A great example of this is in the retail sector, where information about typical “cross-shop” patterns in shopping centers can help landlords create tenant mixes and co-locations that better appeal to shoppers and maximize turnover for retail tenants.
While all these opportunities for greater efficiency and transparency are positive, they also create challenges. A landlord is no longer the seller of a commodity – an empty floorplate let out on a long lease – but is often the provider of an amenitised service in a smart building where the tenant is potentially far less secure. The requirement to have buildings that meet these new specifications has challenged conventional underwriting assumptions around capex, depreciation rates and void periods. Moreover, the investment and energy needed to bring IT systems up-to-date, so that big data sets are clean, well-organized and compatible with each other, is sizeable.
The PropTech opportunity is thus a transformational one for real estate investment managers, because it challenges the very nature of how we price and operate real estate, but also how we look at what we can offer and the kind of skill set we need to invest in to deliver our clients’ performance targets. Five years ago, how many of us employed data scientists? How large were our IT budgets? What are those stats today and what will they be in five years, ten or fifteen years’ time? The managers who will survive and thrive are those that embrace the disruptions that PropTech brings and invests to exploit the greater efficiencies that they promise. In other words, the best deals we do this year shouldn’t just be the assets we buy, but the tech firms we invest in.
