The real estate industry appears to have reached a turning point. This time, I am not (just) talking about proptech. Slowly but surely, there has been a big shift away from traditional asset management and towards ’the service of real estate’.
I noticed this shift had really taken hold when, back in June, I attended Mipim Proptech in Paris. There, the recurring buzzword during most panels was ’customer experience’.
I broached the topic in my inaugural piece for Property Week and it boils down to this: the advent of tech has made a much more dynamic form of portfolio management possible, which is prompting a shift in business models, even for more conservative players such as British Land.
Find out more - The key talking points from Mipim Proptech Europe 2018
Firms are pivoting from traditional asset management models – hilariously described during one panel as “buying an asset, collecting rents and hoping you never get a call from your tenants” – to structuring intelligent solutions to serve customers’ needs and maximise both their top- and bottom-line returns.
The glue that holds this all together is tech. As we learn how to analyse and share data better with other stakeholders, we will be able to micromanage our assets in real time. According to the recent Emerging Trends in Real Estate report by PwC and ULI, in this late stage of the cycle, tech will be a crucial way for owners and operators to improve or maintain the performance of assets in a downturn. This is enhanced by the fact that changing occupier requirements and greater information transparency have sped up the timescale for building obsolescence, engendering the need for building and portfolio flexibility.
Property players are starting to invest in tech to service this need for flexibility, although they still have a long way to go, as real estate still has the lowest spending in IT of any business sector.
Notable examples discussed at Mipim Proptech are Gecina’s investment into IoT for its residential portfolio or Prelios’s foray into big-data-driven analytics to power its valuation models. These companies are hiring talent from outside the traditional real estate sphere to get the job done and are leveraging a mix of traditional skills and knowledge of newer tech and business models.
Others are taking a venture capital approach. I recently had the opportunity to chat with Anuj Nangpal, APAC lead at JLL Spark, to discuss why JLL decided to branch out into proptech VC.
Recognising that big companies are not the best environment for innovation, JLL set up Spark as its digital investment entity, with a dual mission: to grow the business and safeguard it from competition. It is looking for investments that will give it the flexibility to service specific segments. For example, with smaller customers, tech could allow it to capture new markets. But Spark is also investing in spaces that could disrupt JLL’s existing business model, such as online marketplaces, turning a potential threat into an asset.
“Property companies cannot afford to be complacent about their business model”
Historically, real estate players only competed with each other. The immense investments required to build up a significant portfolio were effective barriers to entry. Now, as the lines between real estate and tech blur, a threat is emerging. Tech mammoths are showing a keen interest in the physical space – just think of Google’s smart city project in Toronto or Amazon’s purchase of Whole Foods.
Investors, owners and stakeholders cannot afford to be complacent about their business models. They must endeavour to get ahead of the curve – not just to stave off competition from their peers and protect their returns, but to ward off cannibalisation from hitherto inconceivable new entrants. Investing in the service of real estate is the correct way forward, but more stakeholders need to deploy more capital into it.
Angelica Donati is chief executive of Donati Immobiliare Group