Risk of obsolescence: digitalising the real estate sector

August 2022  |  FEATURE | SECTOR ANALYSIS

Financier Worldwide Magazine

August 2022 Issue

Perceived as being rather backward-looking and often late to adopt new processes, there are signs the real estate sector is taking steps to adapt to evolving market conditions, a changing regulatory environment and an advancing technological landscape. As part of this process, digitalisation is rapidly entrenching itself within the sector. But some have not yet embraced digital transformation, and those holdouts may run the risk of making themselves obsolete.

While the relationship between digital technology and the real estate space may not be immediately obvious, the emergence of property technology, or PropTech, has led many industry players to reconsider their operations. PropTech encompasses a wide variety of tools to optimise the way people and organisations buy, sell, research, market and manage property.

PropTech has grown significantly in recent years. Today, it is present in over 60 countries worldwide, with the number of innovation-driven PropTech companies estimated at 8000, according to PropTech Global Trends 2020. Eighty percent of companies utilising PropTech have seen a positive impact on their operations and services, with 70 percent gaining benefits in decision making and finances.

Prior to the coronavirus (COVID-19) pandemic, the real estate industry was on the path to digitalising processes and creating digitally enabled services for tenants and users. High-tech security and monitoring systems, high-speed Wi-Fi, as well as smart lighting and heating systems, all became commonplace. But COVID-19 accelerated the digitalisation process, in many cases forcing companies to become better acquainted with remote technologies in particular.

On the investment side, support for PropTech remained strong in 2022. Q1 saw continued activity in capital investment and M&A in the sector, according to Houlihan Lokey. The quarter recorded $4.8bn worth of equity and debt growth investments into the US PropTech market, across 134 deals. During the same period there were 33 M&A transactions, 94 percent of which were driven by strategic consolidators.

In addition, there were 27 financing rounds in excess of $50m and 12 financing rounds of over $100m into market-leading companies. The construction technology segment category continues to grow and mature, seeing a significant increase in financing activity in Q1 2022, with over $1.2bn in capital received.

Applications

PropTech has a multitude of applications. In its various guises, it utilises digital innovation to address the needs of the property industry, streamlining everyday tasks and generating new insights for more efficient and effective operations. It also helps transform users’ experience, and connects people to places while delivering efficient operations, budgetary savings and valuable insights.

The residential real estate market has been at the forefront of the technology trend for years. Consumers in this segment are familiar with online portals, agents’ websites, digital communications, social media and mobile apps. The availability of PropTech resources to both consumers and real estate agents signals the depth of digitalisation the sector has experienced over the last 20 years. But it is important that the industry continues to move with the times, to keep pace with prevailing technological trends. For example, the growth of augmented reality (AR) and virtual reality (VR) technologies allow vulnerable, overseas or time constrained customers to view properties in detail, from anywhere.

In addition, vast quantities of data allow agents to carry out due diligence on customers, and improve their marketing and advertising. Automated marketing offers companies powerful tools which can facilitate better engagement with customers. It can, for example, help them identify leads, segment them into categories, send them emails with interesting listings, automate real estate offers, respond to emails and prepare and run advertisements, especially on social media platforms, allowing people to access up to date information on a current property portfolio. The speed, accuracy and consistency of messaging facilitated by automated marketing will be vital going forward.

On the commercial side of real estate, PropTech offers tools to efficiently run, search, rent and sell office, industrial and retail property assets. Centralised dashboards, for example, can provide insights into energy, gas and water usage, track maintenance requirements, and much more, allowing property owners to manage their assets more easily.

In construction, technology and data allow for more accurate planning of projects, which in turn should reduce delays or critical mistakes that may otherwise cost millions. One major innovation is building information modelling (BIM), a smart 3D model-based approach that gives architects, engineers and builders the knowledge and tools they need to plan, design, construct and manage buildings and assets more efficiently.

For investors in the real estate space, technology can help them track development, investment, leasing, buying and selling opportunities.

Future of PropTech

PropTech, though still nascent, will continue to develop, evolving new applications and being utilised for a variety of tasks within the real estate industry, particularly in areas such as sustainability and cyber security. As companies across the sector respond to regulatory requirements around carbon targets, endeavouring to curb emissions attached to real estate assets and adapt to climate change, PropTech has a role to play. ‘Smart buildings’ with a heightened focus on sustainable technology are just one example.

To thrive in the years to come, it will be imperative for companies across the real estate industry to embrace digitalisation in its many forms.

© Financier Worldwide

BY

Richard Summerfield