The property sector has notoriously been an innovation and technology laggard. However, we seeing the sector undergoing an unprecedented opportunity to engage proactively in innovation and technology. We are starting to witness the success of the ‘first-movers’ in the sector, and how this has stirred all sector stakeholders to reflect on their operations and offerings. We are now seeing the inevitable shift as reflected in many other industries over the past decade. The products of a rapidly evolving sector and changing socio-economic dynamics are placing pressure on traditional business activities and challenging how things could, and indeed should, be done.
The ‘first-movers’ in any given economy should inspire stakeholders to challenge themselves towards innovation in their industry, rather than a ‘fast-follower’ mentality which fails to capitalise on emerging ideas, instead relegated to playing catch up” with competitors.
As reflected across other industries, the ‘fast-follower’ approach does not provide a competitive return on investment and as such long-standing and often multinational organisations have seen significant losses against projected opportunities owing to delayed investment, as a result many now cease to exist.
Overcoming Cultural Barriers in the Property Sector
The question arises, why is the property sector a slow adopter? It is the largest asset class and contributor to GDP world-wide and plays a direct hand in how we live and work.
Although property may be the largest asset class in the world, it is also a highly fragmented and localised market – leading to scale and penetration barriers. This issue is further compounded by traditionally long lead times associated with real estate transactions and development (compared with more fluid markets such as equities). Consequentially, decisions tend to be made years in advance and a lot can change in between milestone events.
Many segments within the sector are known to be dealing with high competition and low margins, therefore the above average costs associated with innovation and technology integration are not viewed as financially feasible under the current model.
For the developers and segments that have engaged in innovation over the years, it has been an approach that has benefited them greatly. A reluctance to change and a strong traditional ROI mentality is stifling the innovation and technology adoption seen to dominate other industries.
Let’s contrast our PropTech industry to the thriving FinTech sector. The property sector has always been somewhat removed from developing and embedding technology, whilst many FinTech firms spun out directly from incumbent financial institutions. The challenge for the property industry will be how to acquire and develop technology inhouse and successfully marry modern and traditional practices.
Due to these attitudes, PropTech is considered to be “10 years behind.” This may be true, but the technology transformation within the FinTech sector was also partly fuelled by the circumstances of the financial crisis – so what will our crisis be? Do we need a crisis, or will a crisis eventuate if we do not observe the trend of other traditional sectors that have been so rapidly disrupted by tech enabled competitors, such as e-retailers and data driven businesses?
Looking at what has occurred in other industries, there are significant macro & socio-economic factors at play, such as:
- Environmental and resource constraints,
- Aging populations,
- Population growth,
- Aging infrastructure,
- Economic and political anxiety
- Changing workplace dynamics (eg. transgenerational workforces)
and many more.
“Somethings got to give.” That is, give way to what we traditionally do and to do it smarter.
According to Forbes, venture capital investment for PropTech tripled from 2016 to 2017 to an estimated USD12.6t and is set to continue growing. I must mention, this number is inclusive of some significant individual transactions, however it also excludes the in-sector development currently attracting much deserved attention and capital. This capital is not only reserved for PropTech and property incumbents, but to outsiders whose technologies have potential application within the property sector.
Regrettably, there is a continued reluctance for change in commercial real estate and a divide between the design/construct and the operate/maintain phases of the built-environment. We are now witnessing a slew of start-up firms and the emergence of the PropTech sector supported by smart devices and overarching infrastructure, the key objective of which is connectivity and are aligning digital strategies of the incumbent players with new technology to create smarter outcomes.
The first industry segment which was seen to adopt a disruptive new business model was the B2C market – the consumer driven side bringing forth companies and services such as Airbnb. As millennial and tech savvy consumers demand the same ease and accessibility they receive in other areas of their lives, we are starting to observe a new wave of entrants with disruptive business models and service platforms like HiPages and Purple Bricks.
Most technology in use today produces quantifiable information attached to an ROI objective. It is easy to equate energy saving technology such as IoT to dollar terms via the reduction in energy costs. As we start to see the progressive industry players discuss the importance of user experience, we continue towards a convergence of the physical, digital and user-centric world of the built-form.
Digital Readiness: An ecosystem enabler
The tenant experience is the new topic being discussed widely in the sector – the interaction, wellness and experience of the user’s environments is now actively factored into BAU. We can all agree that this is where we are heading, but the bulk of our effort will be in the creation of pathways to get us there.
Can it come from an all-encompassing app? How will this integrate into safety, sustainability and performance optimisation alongside the Experience-As-A-Service (EaaS) sector? The industry beginning to appreciate the “whole of life” approach required to tackle these prevalent, dynamic and rapidly evolving interconnected factors.
“The pathway forward lies in outcome driven solutions, data and realignment of the value-proposition.With largely fragmented markets, anxious decision markers and long-term decision making – we need to start re-defining the value proposition associated with innovation, as opposed to the traditional cost-based approach.”
Consequently, a realignment of the eco-system and value chain will need to occur, as we share in data and technology to achieve common and aligned outcomes.
When you consider other ecosystem members, you realise the multiplicative benefits that can be derived from investing in basic technology, that perhaps were not initially considered.
We need to reverse this logic and work backwards from our requirements to see the alignment between stakeholders and business goals, developing on existing structures and technology to solve multiple problems and create synergy through the ecosystem.
True value will not come from data alone, but from the insights gleaned from interrogating, analysing and developing on the data.
It is not just about the technology; it is about the application and the outcomes to be achieved. It is the nexus between the technology stack, application layer and interconnectivity of technologies.
We are seeing the implementation of technology driven businesses and solutions, such as wayfinding, 3D modelling, Augmented Reality, IoT, advanced analytics and also the emergence of new technology such as Blockchain starting to permeate certain sectors and those progressive firms.
“With scalability & ROI always in the back of our sectors minds, what will really drive those that succeed and those that do not will come down to data and more importantly how they use it.”
It is said that “data is the new oil” but in my opinion the true value lies in the smarter outcomes and insights that will emanate from layering data with technology and possessing a sound understanding of its potential.
Developing and implementing a successful digital strategy is the first step in this process. Become digital ready so that as technology evolves, your business can evolve through it. Creating accurate, transparent, real-time data will enable better decision making using advanced technologies such as Artificial Intelligence, optimising control over the value-chain for ecosystem participants. Our overarching aim should be the ability to manage the physical world in a digital manner with intelligent outcomes.
From these practices, an era of new data-driven business models will emerge. Although some existing ways of doing business will inevitably be automated out or become redundant, new revenue streams will be created and we will see a shift towards higher cognitive, technologically based and soft skills driven vocations.
The final key consideration is for the security of our cyber information, both from a technological standpoint and a social-security point of view. Cyber security is naturally a priority in the digital world that we live in, but are we willing to bear the cost of cyber security? This is a pivotal issue that must be addressed, ensuring all ecosystem members adhere to responsibilities. We can often suffer from the weakest link conundrum.
How will we alleviate corporate & social anxiety around data and how it is used (along with new technology, such as AI)? Strict protocols, guidance and an international code of ethics need to be established to remedy the current anxiety towards this technology and its application.
How are we able to regulate technology that is evolving faster than ourselves and effectively enforce?
We need to find a workable solution that fits this new way of enabling the benefits of this new technology whilst protecting our rights and security. The first step starts with this discussion and the brave few that are pioneering a new best practice.
In-roads are currently being made by a select group of companies, progressively redefining their own value-chain to deeply understand the client’s core requirements. There has been a gap that exists between what is expected and what is delivered, and so the next few years will play an instrumental role in the property sectors future. Technological disruption and evolution are here, our success will lay in how we embrace it for the betterment of our future.