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News & opinion

15 JUN 2018

Disruption is on the horizon for the real estate sector

There has been an explosion of innovation and investment in technology in the past 18 to 24 months and the traditional real estate industry has been responding to the pressure to adapt, explained MetaProp’s Zak Schwarzman in Toronto earlier this month.

The RICS Summit Series Americas 2018 stop in Toronto boasted another of its signature PropTech panels thanks to Schwarzman who hosted thought-leaders from technology companies that work in the built environment. The panel included Alex Rangel from Ravti, Ryan Freed from hOM, Connell McGill from Enertiv and Bob Courteau from Altus. They discussed how technology is disrupting the real estate industry.

According to Schwarzman, we’re in a period of disruption that is accelerating as PropTech companies acquire their peers for product acquisition or market share. Private equity firms are recognizing real economic value in the industry and digital incumbents are noticing the potential in the PropTech sector and want to join in.

In a market undergoing such rapid transformation, it is difficult to predict how the industry will change in the next five to 10 years but the panel was positioned to provide useful insights to the audience of RICS-qualified professionals. From their positions as thought leaders in PropTech, they’re able to look ahead and explain what they hope to accomplish in the next few years.

Technology can be used to automate tasks that are repetitive, so facility managers, or building owners, can focus on the work that will bring the best results.

Predictions for the next five to 10 years 

The traditional real estate industry is prime for disruption, the panel explained, as many of their processes and decision-making can be effectively modernized. The market will continue to shift as companies recognize the efficiency Automated Intelligence (AI) can bring to their income and operating expenses portfolios.

“I think commercial real estate companies today spend their money the same way my parents used to when they used to travel – through a travel agent to get a travel itinerary,” said Rangel. “In less than five years, they’ll use Expedia, Kayak, etc.”

The rest of the panel agreed. Technology can be used to automate tasks that are repetitive, so facility managers, or building owners, can focus on the work that will bring the best results. PropTech companies are able to monitor a building’s HVAC system to flag inefficiencies or aggregate market data to help building owners make strategic decisions on leases.

Freed is with hOM, a company that analyses tenant activity to offer customized solutions based on their interests. He believes tech will tell us what tenants want before they know it. This will enable even more customized solutions, which will likely include integrated work and living spaces if current trends remain steady.

Altus may not be a PropTech start-up but it is a company that is investing heavily in the PropTech space. Courteau is looking to tech to build more transparent markets in the future.

“We’re investing big time in solutions that allow you to aggregate data and open it up in the cloud, understand risk and create liquidity,” he said. “People want the benchmarking, risk index, expense metrics. The key is to do it in a way that will never compromise high value strategic data.”

What does this mean for the built environment?

At the closing plenary, panelists brought up highlights from the day for further discussion. The closing plenary was led by RICS CEO Sean Tompkins with panelists Michael Brooks, who is the CEO of REALpac, Stephen Taylor from HOOPP, Ayda Chamcham from HVS and Altus’ Colin Johnston.

Johnston brought up Rangel’s comment about using a travel agent. He wasn’t convinced AI would bring the solutions promised without the input of industry experts.

“When I got my first golf watch,” he said, “it was simple and now it has all this data. But all that data doesn’t stop me from hitting it in the water. It’s about executing the shot. We’ve got lots of data we can normalize, verify, centralize, but you’ve got to be able to use that data.”

Data brings opportunities to the industry and managing that data is crucial to managing the risk that comes with accumulating it. It takes judgement to know what can be shared and what is proprietary and therefore must be protected.

“Data will be more transparent,” Ayda Chamcham stressed, “but how can we protect ourselves from cyber attacks and hackers and how will that data be used against us?” PropTech solutions must be adopted with these risks in mind to avoid taking on additional vulnerabilities.

Despite data storage vulnerabilities, the PropTech point that stuck in Stephen Taylor’s mind was the vulnerability the disruption itself could bring to commercial investments when fewer workers will take up space in cubicles. What will this mean to the future of office space? As a major investor in commercial properties, this is a topic dear to Taylor.

“What’s the impact of the technology on our tenants,” he asked considering the potential of job elimination in banking, legal professions and accounting if AI becomes widespread. “Where’s the demand for office space going to be if you see the same reduction of human interaction? How will it impact the fundamental drivers of what we’re doing in the industry?”

There is no question that workplaces will look different in the future even if jobs aren’t eliminated by AI. Technology has enabled workers to have more flexibility in how and where they work and this is something workers have embraced, Michael Brooks pointed out. “Millennials work differently than older generations,” he said. “They want to be able to have a bit of personal time during the day but they’ll do a bit of work in the evenings. It’s a different work style.”

The traditional office space is shifting with PropTech solutions like WeWork leading the way. The culture of work is changing as more businesses see the benefit of allowing employees to work from home and work more flexible hours. Productivity is no longer measured in hours and occupied office chairs – jobs that require manual labour will be eliminated through AI with humans acting only as supervisors to automated processes.

The pace of change is accelerating and it is clear that those who don’t look to embrace the new technological solutions and adapt will be left behind.