COMMENT: After 20 long years, investment in proptech is set to accelerate as the industry matures, says Mike Scott, head of real estate and partner at Cripps Pemberton Greenish.
As Covid-19 continues to transform lives, our reliance on technology is becoming more and more apparent.
From people using tech to work from home to people downloading user-friendly apps to order food, people are developing a new appreciation for just how intrinsic technology is to our daily routines – and the potential and power technology has to make our lives easier.
The property industry is no exception – “proptech” has been on the verge of take-off for many years, having emerged onto the market 20 years ago. In that time, though, it’s fair to say that proptech has made less impact than we might have expected (for reasons I will consider in this article) and current events could result in one of two outcomes: either the relatively vulnerable proptech start-ups could get lost in the noise of the pandemic or they could use the disruption caused by the current environment to prosper.
Long-term savings
When done properly, proptech has the power to help businesses and buildings become more efficient, thereby saving money in the long term. Such initiatives shouldn’t be seen as part of the discretionary spend that should be cut in these challenging times. Now, more than ever, we should be looking to any areas – including proptech – that can help us become more efficient and come out the other side of the crisis in the best position possible.
Back in 2000, a few months before Rightmove was born, LonRes was launched as a platform for sharing off-market information. Twenty years later, the LonRes site has 6,000 estate agency users and is an essential resource for many. Arguably, it was the first proptech platform to be born, and the first of many to see the exciting opportunities that new technology could bring to the property industry.
So what has happened since? Twenty years is a long time in the tech world, so one would expect that, in that time, the proptech industry would have matured into a fully fledged sector taking the property industry into worlds hitherto unexplored.
And yet it doesn’t seem to have happened that way. Unusually for the world of tech, there hasn’t (yet) been an “Amazon shift”, whereby tech takes the industry by the scruff of the neck and fast-tracks it into a new digitally driven era. The property industry has been remarkably resilient to tech’s advances. So while much has changed in the past 20 years, we might have expected more. Perhaps our current situation will be the tipping point.
Changing times
Of course, online retail has forever changed the way the property industry designs, builds and invests in retail spaces, and we have seen a marked change in the way office and residential developments are designed to suit the co-working and co-living phenomenon.
Investment models have shifted to accommodate these changes too, but these are just examples of how the property industry has reacted to the impact of tech on other industries and societal changes generally. They are not examples of the property industry using tech to make step-change enhancements to the way we build and invest in real estate.
So why has the property industry been slow to adopt the benefits that technology has to offer?
Our recent survey, “Creating connections”, taught us that while 92% of all participants agreed that technology can help address big issues facing the property sector, there is still a long way to go before the benefits of tech will be optimised.
Two barriers to successful proptech implementation seem to be mindset (within some property companies at board level) and a disconnect between the property and tech industries in terms of both culture and an understanding of each other’s needs.
An integral role
The mindset challenge is a big one. The less risky approach has been not to invest at all. Traditional methods have continued to produce good results so why change? To truly understand the potential returns on their investment in technology, boardrooms need to bring high-level digital expertise onto their board and to every stage of their decision-making.
Tech must become an integral part of critical thinking. Until now, much of the focus for tech has been on back-office automation and financial efficiencies. It is now time to explore the ways in which tech can help other parts of the business.
The collaboration point is also crucial to success. Tech start-ups are willing to engage with property businesses to fine-tune their products, but that requires a reciprocal investment of time by the property business.
Property companies making time for R&D – often in a collaborative arrangement with the start-up – will help ensure that there is a two-way buyer-supplier learning process. To lower risk and share rewards, companies can establish pilot projects that enable participants to test a product in a way that has little impact on the wider business until such time as it is ready to go live.
Playing catch-up
We are now seeing signs of the property industry waking up and, like the proverbial tortoise, catching up with the tech hare which has been sprinting off into the distance. You know mindsets are starting to change when global businesses such as JLL and companies like British Land start to refer to themselves as tech companies as much as property businesses.
When assessing the progress of proptech, it can be useful to split technology into three areas of impact:
- Tech that helps investors to assess, invest and transact in real estate
- Tech that helps design spaces that are fit for the end user
- Tech that helps to build those spaces more efficiently.
The first two types rely on data engineering, which is developing fast. A good example of this is Dashflow, which provides the user with access to detailed information about the pricing and profitability of property and is invaluable to many investors already. It is perhaps unsurprising that boards have started to invest in this area more than any other when it is easy to see the returns.
Recently, the University of Oxford’s Saïd Business School’s Proptech 2020 report revealed a significant increase in the amount of investment being pumped into proptech but a decline in the number of start-ups.
This is a sign of a maturing market. It may have taken 20 years, but the proptech industry – which not really an industry but more a label for the collaboration between tech and real estate – has successfully negotiated its teenage years, during which there was some confusion as to what it wanted to be.
There are now plenty of signs that it is turning into a mature and well-established market which will see an accelerated flow of investment going forward.
