Rethinking: The role of the banker
How brokers of the future will have to adapt if technological innovations and greater data accessibility change their profession.
2 DEC 2019
The real estate industry has so far not proved adept at exploiting the data it generates. The lesson for property companies in tech-savvy Asia is: use it or lose it.
The world has a new currency: data. To the surprise of many who happily used social media platforms such as Facebook, the information they handed over was being comprehensively monetised by the site owners. A decade ago, few people wondered what big tech did with the big data they generated; heading into 2020, we all want to know.
The real estate industry generates a huge amount of data: capital values, transaction prices, lease terms, rents, yields, mortgage borrowing, usable area, specs – far more, in fact, than Facebook gets handed by its users. Yet the property sector does not have a handle on how to use all that information to its benefit. Its use of data is decidedly old school in a tech-savvy world.
"We are sitting on a goldmine of data, yet very few in our industry have figured out how to leverage it," says Brandon Sedloff, managing director at real estate investment management software developer Juniper Square.
The statistics support his claim. KPMG's Global PropTech Survey 2019 reports that 56% of companies rate their business five out of 10 or below in terms of digital and technological innovation and maturity. When asked whether they have an enterprise-wide digital and technological vision and strategy, 66% said they haven't.
Companies in Asia, however, are better placed to handle the technological transition. Through a lack of traditional physical infrastructure and a rapid adoption of mobile technology, the region appears willing to shift into a world where real estate services are as essential as the bricks and mortar they serve. A cultural affinity for technology may enable Asian real estate companies to capitalise on this stream of data rather than be overwhelmed by it.
"A more constant response to change decreases the gap between legacy and modern practices when it appears," says John Sarokhan, executive director leading the global technology initiative for PGIM Real Estate.
It's incumbent on landlords to capture this data stream and channel it for their benefit and their clients'. By investing in data collection and data analytics, they can provide a point of differentiation over the competition – one that goes beyond the physical space they provide. "Being able to pinpoint weak spots within a portfolio and analyse tenants' behaviour should enable them to be more competitive against their rivals", one real estate analyst at an investment bank says. "Landlords who are also able to make efficiency savings by automating mundane parts of the property management and reporting process should also benefit."
Investors are also demanding far more detail from landlords and portfolio managers. They want a precise level of reporting, even down to the performance of individual parts of a multi-use property – that's far deeper than the top-level portfolio information they could expect in the past.
It's important that property professionals interpret the data that they and their partners generate for their clients. Instead of being gatekeepers of information, they become stewards and guides. They must also understand their clients' needs on a deeper level, to serve them as much as a "growth consultant" as a purveyor of space.
Apps that track the use of a building can support operators and owners to maximise their use of space. This tracking of occupants, while being aware of their privacy rights, also generates essential information for investors. The first implementation of "smart" technology in real estate is typically sensors for predictive maintenance, energy management and to control the physical environment – and save on costs. Sensors can generate occupancy heat maps that can optimise usage and inform future lease negotiations.
These are the so-called "hard'" benefits, but there are also "soft" benefits that also deliver value, but perhaps aren't as easy to measure. For example, apps can also be used to monitor how people feel about the space they use by tracking satisfaction, social-media sentiment and perception of the spaces we occupy. Companies that can tap into this "experience economy" by providing on-demand services and personalised content to occupiers will have an edge. Indeed, M&G Real Estate notes in its May 2019 report, Asia Pacific Property: Innovation and the disruption of technology, that offering end users of retail and office space tailored experiences can bolster occupier satisfaction and improve the quality of a real estate asset.
This, in turn, plays a part in expanding the longevity of a real estate investment. It adds value to a portfolio through occupier satisfaction and asset quality, while also futureproofing the property and ensuring it delivers a stable, long-term return. For instance, Australian developer Investa's digital occupier portal, Insite, offers concierge services, events, meet-ups, news and special offers, and has been shown to improve occupier satisfaction. Investa has also launched a sustainability toolkit for occupiers of its properties to gain insight on how to operate their workplace sustainably, including environmental performance and occupier productivity.
Another way in which brokers and portfolio managers can provide a valuable service to their clients is to package the data in an attractive and easy-to-use format. It's not enough to give them a vast list of numbers – they must be interpreted and presented for clients to understand. This starts with how data is stored. Ensuring customer contact information, accounts, transactions and performance points are consistent, unified and accessible reduces the burden of complying with customer and investor demands.
To help address this, RICS has developed a set of standards outlining how data should be compiled and recorded, and which complement the growing suite of international standards. The Data Standards are already available for the International Construction Measurement Standard (ICMS) and International Property Measurement Standard (IPMS), with the International Land Measurement Standard and International Valuation Standard (IVS) soon to follow. All were created with the aim of making the storage and dissemination of real estate data consistent across the industry.
Storing data in a standardised manner doesn't just make collaboration and fluid decision-making simpler; it also improves internal communications and cuts down repetitive data input tasks, which should keep staff happy. After all, property companies are "not only competing for capital and deals, they also compete for talent," notes Sedloff. "Many of the most talented professionals are choosing to go to firms with best-in-class technology knowing that they will be able to focus on higher value work."
According to the KPMG survey, 31% of real estate companies say they are most likely to use automation as a technological innovation in the short term; another 27% say they're most likely to use big data and data analysis. Doing so will require a dedicated and skilled IT department, and rigorous screening of third-party providers. Digital operations will have to be of the same security standards we expect from money management, as property companies are fiduciaries are now not only of funds but also information.
In Asia, companies can again set themselves apart with how they store, protect and control access to data. However, the approach in the region, so far, is a little fast-and-loose with client information, which is often shared in email or unsecure communications. "The cost and risks around this should not be underestimated, including the reputational risk and cost of potential data breaches," says Neil Brookes MRICS, head of capital markets for Asia Pacific at Knight Frank. "Sophisticated data modelling and data mining needs sophisticated tests to ensure output is robust."
RICS has been consulting on a professional statement that outlines best practices for handling data and how companies should ward against cybercrime. As part of the statement, which is due to be published in early 2020, there's a mandatory set of obligations with which RICS professionals and RICS-regulated property firms must comply. They include mandatory requirements that companies must store data behind a firewall, and use anti-malware and anti-virus software at all times. There are also more general requirements on companies to define and adhere to a data-retention policy, and put a specific person in charge of controls concerning data.
Technology and big data are only a threat to the real estate industry if applied incorrectly. In the right hands, they're powerful weapons to protect a property portfolio, and deliver gains in the physical and psychological space – for occupiers and owners alike.