Real Estate: the latest trends generated by emerging technology
09. November 2018 | Drooms Global
Emerging technology is transforming the real estate landscape but in what way? What shifts can we expect?
In a PwC survey, findings showed that real estate chief executives are not particularly concerned with adjusting how the business is run in the face of technological change. In fact, just 10% are uneasy about the speed of change – the global average falling at around 38%.
However, understanding and adopting modern technology can assist the sector and those operating in it. In a survey by Property Week, 61% of respondents felt technology investments could have a positive impact on revenue in the next five years. The understanding of technology’s impact on revenue is clearly shifting, as the same survey had the figure at 48% just a year prior.
The industry is waking up to the importance of learning about technology and analysing how it might have a positive effect. So, what are the main emerging technologies out there and what trends are they generating?
Cloud computing: changing our connection to real estate
Cloud computing is hardly a new technology, however its impact on real estate is only now coming to fruition. Its effect is only likely to increase in the future given its role in changing how and when we use it.
As we move towards a gig economy and freelance work becomes more prevalent, the need for traditional office space will reduce. Start-ups and established businesses already have more flexible workforces due to cloud computing’s ability to reduce the need of being in a fixed location. With technologies like Skype, virtual data rooms, and online marketplaces like Upwork, you can communicate and work without being in the same room.
According to CBRE, the estimated value of the global office rental industry is $600 billion annually. Flexible and co-working office spaces, such as WeWork, are expected to grow from a 1% to 20% market share.
Much of this type of change is driven by new digital companies that know how to use technology to disrupt the property market. This will pose a challenge to the traditional real estate sector. Both the reinvention of the physical space and the way it is operated will need to change. A PwC report providing a global outlook on the real estate market stressed that businesses must be able to recognise and understand change. According to the report, digitising the past will not help businesses “evolve and move forward. However, digitising the past may help them realise their market position and how subtle changes to operations can develop new areas to monetise in their sector and safeguard their future.”
Of course, the cloud is changing how real estate is managed not just how we physically connect to it. There has been a huge decrease in how long deal making takes. This is also being reduced by another emerging technology touched upon later.
Virtual and augmented reality: changing our need for real estate
There is another major technology transforming how we use and need real estate. Both are becoming a viable consumer technology, with many different areas exploring their use, from gaming to retail.
Virtual and augmented reality have the power to change how we view and explore real estate. The digital world is already leading in terms of how buyers, including private and public, look for new property. This is mainly done online through online real estate platforms.
VR and AR can further transform how and where the property can be viewed. You could essentially view real estate without leaving your own home and also get an indication of what it would look like if you moved in.
But this kind of technology is also going to change the commercial real estate market. Many retailers are already conducting much of their commercial activity online and this new technology will make it even easier. Quartz's reporting on the topic highlighted the concept of the ‘showroom’ – a smaller more compact space with design created in order to drive consumers online. Retail giants like Nike are in the testing phase.
In essence, VR and AR can change the need for real estate space and how it is then utilised. Warehouse space might be more important than brick-and-mortar stores and so on. It will influence the kind of spaces we want and what we do with them.
Blockchain: transforming how we pay and manage real estate
Blockchain is transforming multiple industries. It is the underlying technology behind cryptocurrencies and is becoming increasingly adopted to facilitate payment.
Forbes reported on the first major Manhattan asset to be tokenized. The luxury condo development was recently financed via the Ethereum blockchain. But the use of blockchain in real estate is likely to go further than simply financing property.
In their report on real estate and blockchain, Deloitte pointed out six major opportunities associated with the technology including:
- Improving the property search process
- Expediting due diligence
- Easing leasing and cash flow management
- Enabling better decision-making
- Improving property title management transparency and cost
- Enabling better processing of financing and payments
The ability to use this technology to create a decentralised database will become more important. Using blockchain as a real estate database would vastly improve data integrity and prevent it from possible hacking. Fraud would be much harder to commit and access to data would actually increase.
Blockchain can have a huge impact on the formula of the sell-buy cycle in terms of how it’s conducted and how long it lasts. The database can improve the due diligence process and make it less laborious. This can have a direct impact on cost-effectiveness as currently around 10% of deal cost gets swallowed up during due diligence.
Blockchain’s disruptiveness is going to move beyond just influencing the financing of real estate.
Mobile technology: removing tradition
PwC’s report listed driverless technology as one of the most disruptive technologies in real estate. This is because it can challenge traditional property lines including where and who needs space.
The report first points to the example of parking spaces in many commercial and private buildings that can be re-thought when people are not in charge of driving the vehicle.
Technologies that are enhancing and changing our mobility can also transform the property market. Although these are long-term they might turn out to be the most disruptive of the technology trends real estate will face.
What is the right response?
It can be easy and somewhat feasible to avoid thinking too much about the impact technology will have on the real estate sector. In the short-term, many of the changes mentioned here might not influence investment profitability.