At the start of this month, I was invited to give the opening keynote at Proptech Middle East in Dubai.
In my presentation, I covered the macro evolutions that are taking place in the sector, as well as the five areas of real estate that are set to benefit the most from technological innovation. These all derive from the research carried out by Concrete VC, the proptech VC for which I am a venture partner.
In short, proptech is entering a phase of more data-driven sophistication. As we become more and more engaged with spaces and their users, both through sensors and digital applications, we capture data. This increasingly big data, in turn, can ‘feed’ the algorithms that power the AI and machine learning that allow us to fine-tune the real-estate-as-a-service offering to the segment of one. Off the back of this, owners and operators can confidently build more flexibility into their real estate business models.
As for the longer-term outlook, although blockchain became a bad word last year, the technology is evolving and we can look forward to a not-too-distant future in which it will have a meaningful impact on the real estate market. We can expect ever more precise VR and AR overlays to our reality, while robotics and drones will soon become much more than a marketing exercise and will start adding real value on construction sites and more.
The ‘hot to watch’ areas in real estate are: valuations; retail; warehouses; building information modelling (BIM) and digital twins; and offices.
In the valuations space, tech is changing this $25bn ecosystem into a digital-first landscape. We can look forward to future in which all current and historic property data will be stored natively in data lakes that can easily be shared or transferred to other stakeholders. Automated valuation models will use computer vision (and other sources) for analysis and value calculation, and will forecast ‘long-term’ value on specific time horizons, which will become a standard asset management and regulatory inclusion.
The multi-trillion-dollar retail market continues to move towards ecommerce, with online sales doubling to 35% of all retail by 2030, but physical stores will not be wiped out. This makes it paramount that retailers and operators adapt to changing customer needs. Shoppers want an omni-channel, personalised, frictionless and experiential shopping journey, and by working together and implementing tech and analytics retailers and operators can provide this both in store and remotely.
Tech in warehouses can benefit both owners and operators in three major ways. The first is efficiency gains – these increase sustainability and productivity for occupants. For example, a building management system integrated with motion and occupancy sensors can regulate air-conditioning and lighting in real time, thereby reducing energy costs and allowing for better portfolio-wide benchmarking for owners. The second is product differentiation: an owner can differentiate its product offerings by identifying unmet consumer demands, such as providing occupants with data insights and developing better buildings. Finally, tech allows warehouse operators to explore additional revenue streams by providing analytics as a service.
The use of BIM and digital twins will produce 3% savings across the whole-life costs of a project. It may not seem much, until you remember that returns on real estate are mostly in the single digits. Designing and building in BIM allows for the reduction of costs and delays, as it permits a more precise execution. In the operations phase, a digital-twin model can help reduce costs and revenues can be boosted with occupancy and utilisation analytics, data-driven space planning and more. When selling the asset, the digital twin can help reduce friction and increase returns from the sale.
Buildings and leases are getting smart. The two main ways they are doing so is through flexible leases and smart buildings. Flexible leases are vastly better aligned with evolving business needs, as occupiers can focus on their business instead of real estate operations. Further, flex operators are currently on track to reduce costs to below comparable fixed leases, making the segment ever more attractive. Global revenues for smart commercial building IoT are expected to increase to $84bn by 2022, a 19.4% compound annual growth rate. These buildings provide both operational and human data. Operational data can focus on energy consumption, asset health or environmental impact. Human data, instead, covers occupancy analytics, access control and tenant engagement.
In Q3 2019, global investments into proptech totalled a staggering $24.6bn, dwarfing last year’s already strong $15bn. With this amount of money coming into the system, and more expected next year, it is not surprising that technological innovation is taking off in a meaningful way across the real estate spectrum.
Angelica Donati is chief executive of Donati Immobiliare