Technology stars in the future of real estate investment

By A Paris – When Covid-19 first plunged the world into a series of successive lockdowns in the early part of last year, to many, the prospects for the global property industry appeared bleak. 

With hundreds of millions of workers around the world being encouraged to work from home indefinitely, many felt the long-term impact on both the commercial office space market and city centre retail would be potentially devastating. 

Starved of traditional commuters and devoid of office workers, what would happen to many of the densely-built central urban office districts where so many people have traditionally worked? 

Now, as economies begin to recover and workers return to the office – but in new and more flexible ways – there is a growing realisation: New technology is set to reshape the way the industry operates and ‘proptech’ is taking on a crucial role as the real estate industry emerges from the pandemic. Things may never be quite the same again. 

“The key to maximising existing and current real estate projects is increased flexibility as to the use and services provided by each property,” writes Dimitri Tournas, an associate in the real estate team at Withers, the international law firm. 

Landlords, investors and tenants have all been forced to adjust and are eager to maximise the potential of properties which are more in demand, given the current climate. 

Against this background, new technology is helping more organisations use real estate more flexibly, enabling a hybrid model where staff alternate between working from home and spending time in the office. It is proptech which is proving critical to support this trend. 

Daniel Lepore, AMP Capital Real Estate’s Head of Asset Technology, comments: “There’s no doubt proptech has become a key change for the way we operate our buildings. It is increasingly becoming a differentiator for building owners to deliver superior tenant experiences, efficient operations and deliver data-driven insights to better inform investment decisions and ultimately deliver greater returns.”

The growing recognition that proptech is crucial to the industry’s future is encouraging a flood of investment to the sector to ensure work spaces deliver the necessary benefits to investors, landlords and tenants. 

“As buildings become increasingly digitised, it’s imperative to invest in solid smart building foundations such as cybersecurity and data protection to ensure we can enact on current and future trends,” Lepore continues. 

Proptech is changing the way the industry operates – for everyone 

Real estate investment managers use proptech to improve the physical performance of assets, or the processes involved in managing those assets. For instance, software solutions can help create new efficiencies by digitising manual, cumbersome workflows and reducing the number of systems needed to store data. 

That in turn typically results in savings of time and money while making it easier to scale a business, claims Bernie Bazile, vice president in Callan’s Real Assets Consulting group, writing in a recent newsletter. 

“The corporate real estate industry is rapidly implementing technology that enables new needs at scale: sensors, automation, touchless access control, employee experience apps,” details an article by JLL Technologies. 

Zsolt Kohalmi, Global Head of Real Estate & Co-CEO at Pictet Alternative Advisors, remarks: “Clearly, digitisation and data uses have multi-dimensional repercussions across our sector. They have a huge potential to enhance all facets of the investment manager workflow from sourcing to exit and everything in-between. One of the interesting facets is digitalising building operations, which will eventually lead to better investment performance for investment managers.” 

Lepore outlines the impact of data-driven strategies on the competitive landscape for real estate investment managers: “These technologies are enabling portfolio visibility of building performance making it easier than ever before to capitalise on useful applications such as fault detection diagnostics, performance degradation modelling and even AI based autonomous Heating, Ventilation and Air Conditioning (HVAC) controls.   

Institutional money floods in 

The growth potential and crucial role proptech has to play in the future success of real estate investment is also being acknowledged by institutional investors with a string of new funds being created to funnel cash into the sector. 

In March 2021, Greensoil Proptech Ventures launched the Greensoil PropTech Ventures fund II. The fund’s first USD100 million closing was backed by Canada’s Public Sector Pension Investment Board, one of the country’s largest pension funds. 

“The initial closing of Greensoil PropTech Ventures Fund II comes at a time of significant opportunity and adversity for the real estate industry and the global economy and the need for innovation has never been greater,” said Kristopher Wojtecki, Managing Director, Real Estate Investments, PSP Investments, when announcing the investment. 

Other proptech funds saw similar pledges. In November 2020, Round Hill Ventures (RHV), announced the first EUR200 million close of a dedicated European PropTech Fund. The firm said the fund attracted strong demand from large institutional capital, providing access to the fast-growing proptech sector for sovereign wealth and pension funds. 

Michael Bickford, Founder and Chief Executive Officer of Round Hill Capital, comments: “We are on the cusp of major changes in global real estate as the sector evolves to match modern consumer expectations and streamline its operations...We see a clear market opportunity for technology centred around the modern needs of residents, and I’m excited that our fund will help address this opportunity for investors and society alike.” 

Environmental concerns 

Proptech is also attracting attention from investors for another reason. It is increasingly aligned with the Environmental and Social Governance (ESG) objectives of asset managers. 

New technology and better use of reliable real-time data on the performance of buildings is becoming increasingly important as both investors and tenants demand more sustainable, greener workspaces. 

Sophie Taysom, director at Keyah Consulting, a UK advisory firm, says: “These requirements, once developed, will largely shape investment, loan, and indeed even insurance, decisions. We will also see a further increase in pressures from buyers and tenants, for homes, buildings and public spaces that have a positive social impact.” 

Pictet’s Kohalmi stresses the importance of capturing, measuring and rationalising operational performance using data, which he says barely exists for almost all of the estimated 85pc of the EU building stock which is more than 20 years old. 

“This is especially important given the imminent, yet unquantifiable risk of future carbon tax / energy offsets, which will directly affect real estate operational and investment performance,” Kohalmi adds. 

“I am a firm believer that technology solutions are an important part of our ESG strategy to reduce environmental impacts while also  having a positive impact on our tenants, visitors and the wider community,” remarks Lepore. 

“The ability to be able to track metrics such as energy performance and combine them with AI means we are able to impact the indoor environment which in turn will improve customer comfort, lower energy use and reduce our environmental footprint, and all in real time. Lowering our environmental impact is a big focus for AMP Capital’s Real Estate team.” 

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