Emerging Trends in Real Estate 2019 ®
Some organizations have started to recognize the disruptive change technology is bringing to their business models—and are developing digital transformation strategies. But others are taking a wait-and-see approach to adoption until they have clarity on how technologies will shape the future. Only 10% of global real estate CEOs are concerned about the speed of technological change, compared to 38% in all industries. Companies unwilling or unable to adapt to the tsunami of technological change—from predictive analytics and artificial intelligence (AI) to cloud-based computing and blockchain technologies—risk falling behind.
While the industry has been somewhat reluctant in the past to adopt technology and hire people eager to embrace the changes that come with it, that sentiment has started to shift. Executives, especially the larger institutional players, are now thinking through their human resources needs as they increasingly acknowledge the importance of technology. With data analytics a growing focus, they’re looking at the types of people they need on their team, including data scientists.
“Are we really going to be able to transform real estate with technology, or will it just be transformed on the edges?”
Tenant expectations are growing more sophisticated as they integrate smart technology into their businesses and lifestyles and demand personalized experiences. Understanding their shifting needs will be critical for the industry in the future. One interviewee described the modern market as a place where the tenant experience merges with technology fulfillment: “Everyone has different needs, and landlords must adapt.” Another asserted that creativity is key: “People are looking for uniqueness and willing to pay for it.” This is driving growing real-estate-as-a-service offerings (e.g. Airbnb and WeWork) as organizations look to take advantage of flexible space needs without long-term obligations.
To gain insight and develop strategies that can deliver on shifting needs, some landlords are turning to data analytics. Increased connectivity brings with it a wealth of data organizations can use to inform their decision making. For example, mall landlords are looking at data analytics to determine new rental models, diversify their retail and merchandise offerings, create new experiences to attract shoppers and evaluate tenants. Other interviewees use sophisticated multi-dimensional data analytics to determine the highest and best uses of certain assets in their portfolios.
On the residential side, home buyers want to control lighting and other household amenities from mobile devices, and builders are factoring in these smart building technologies at the planning stage. “Tech has already changed the shape of our buildings and is at the root of all our real estate changes,” one interviewee said. But another warned that people “are hesitant about smart technologies” because they don’t want to find them unsupported in the future.
One interviewee suggested Canada’s positioned to take advantage of global growth in data centres. Another opportunity lies in carrier hotels, which are power-intensive properties that provide a secure, carrier-neutral intersection of major data highways. “There are only eight of them in North America,” the interviewee said, adding that they’re “looking at moving forward faster in exploiting these opportunities.”
“Our customers’ expectations are having a dramatic effect on how we plan and develop real estate.”
There’s plenty of discussion about how virtual reality (VR), augmented reality (AR), autonomous vehicles, AI, blockchain and other technologies are reshaping business and society. “Builders are trying to become more creative through the use of technology,” one interviewee said.
As these new technologies seep into the real estate sector, they’re bringing opportunities—but also new challenges. For example, data analytics tools are giving portfolio managers access to vast amounts of information but are also creating newfound concerns about the governance and management of customer data. And the increased flow of data and growing use of mobile devices to control facilities are raising awareness about the need for more sophisticated cybersecurity.
“The intersection of real estate and technology is a major trend in real estate.”
Drones: Drones were the top real estate disruptor identified in our survey. Interviewees suggested there was potential in using drones to show job site progress, and others are looking to integrate docking stations into communities to accommodate last-mile delivery needs.
Autonomous vehicles: According to our interviews and survey respondents, autonomous vehicles will cause major changes to everything and are “closer than people may think.” Even before they hit the market in a big way, they’re influencing how developers think about parking lots in new residential and office buildings.
Artificial intelligence: AI offers enormous value in automating mundane, time-consuming, manual tasks. Real estate businesses need to embrace AI and machine learning for repetitive tasks, one interviewee said, declaring that “data entry is obsolete.”
Blockchain: From land title registries to processing rental payments, this new technology has the potential to affect the value chain in real estate. While it’s still early days, real estate blockchain is widely anticipated blockchain will help cut costs and reduce fraud.
Virtual and augmented reality: VR and AR allow for full viewing and immersive experiences in yet-to-be-built projects. VR, in particular, is quickly becoming a powerful tool that lets potential buyers virtually tour properties from a distance, allowing them to experience the space without the need for viewing appointments or model homes. This technology can be a time saver and reduce presale marketing costs, and experts anticipate a steady rise of its use in the industry.
Property technology, or proptech, has already hit the mainstream, and it’s forecast to add US$5.2 billion in new investment globally across 454 equity deals in 2018 after reaching a record US$3.4 billion in 2017 across 367 deals, according to CB Insights. Covering everything from new lending services and real estate apps to investment platforms and digital brokerages, these new market entrants are transforming how people use real estate. The trend will only intensify as tenant and customer behaviours evolve and demographics shift.
While there’s an opportunity for real estate start-ups to disrupt the sector, existing players do have an advantage if they’re willing to innovate and take on managed risk. For example, they can take a venture-capital approach by investing in or partnering with companies building particular products or hire their own people to develop them. One interviewee said they have “a separate pool of money and a dedicated group investing in proptech.”
The industry does see a more immediate impact from real-estate-as-a-service and collaboration spaces, which combine flexible leasing options with features like events, networking opportunities and other business services. While many interviewees noted the growing impact of co-working spaces, others suggested they’re not really that disruptive. “Some people need flexibility,” said one interviewee, noting many real estate start-ups that use such spaces eventually need a bigger, more permanent footprint.
Technology is changing more than just the end product—it’s also altering the leasing and sales process. Buyers are using online tools to do their own research long before they arrive at the showroom. “They’re negotiating the price before we even get to them,” one interviewee said.
“It’s not the technology itself that’s the game changer. It’s the combination of the technology and a new business model.”
Technology presents a double challenge around transforming human capital in the real estate sector. The first involves the development of the right corporate culture so the business is able to embrace new ideas and processes. The second is finding the right talent. Almost half of respondents to our CEO Survey said they’re finding it difficult to attract digital talent to their organizations, and almost three quarters (72%) expressed concern about the availability of these skills in their particular industry.
Real estate companies that move too cautiously on implementing new technologies may find themselves at a disadvantage when it comes to competing for the best new talent with the diversity of skills and expertise needed to take full advantage of the benefits of proptech. “Motivating the workforce and changing people’s behaviours is important when managing a real estate portfolio,” one interviewee said.
Prioritizing a talent strategy that’s diverse in both skills and backgrounds—including those with skills outside of real estate, such as behavioural scientists and data analysts—can be the most profitable and low-risk digital investment real estate businesses can make.
“Motivating the workforce and changing people’s behaviours is important when managing a real estate portfolio.”