Digitalization has touched every sector of the modern world and the field of proptech is gaining momentum. Applying digital technology to Real Estate represents a huge opportunity to enhance how we invest, build, manage and improve buildings and property. Property technology can significantly boost users’ experience in their commercial and residential surroundings. We can now collect, present and act on data with speed and precision never imagined previously. This allows better decision making in real estate while decreasing its impact on the environment.
Welcome to the world of Proptech.
What is Proptech – Property technology
Proptech is the digitalization of the property market. It captures digital descriptions of property and then aligns property owner and tenant experience. The property owner is interested in the long-term return on investment in the real estate. The tenant is interested in how the property serves business and personal goals. Proptech uses data to allow owners and tenants to see how their interests are both served, may it be:
Definition of proptech
Forbes and Deloitte define proptech as “businesses using technology to disrupt and improve the way we buy, sell, design, construct and manage residential and commercial property.” Proptech encompasses a wide range of technologies and platforms. Properly applied, proptech will improve owner, investor and tenant experience during the entire building lifecycle.
Insights from buildings in real time
Real Estate is ripe for innovation, as much of the sector operates now as it has for many decades. Yet the rise of “smart buildings”, facilities which have already digitized their footprint and use systems which report usage and status data, allow such a disruption.
For example, understanding utility usage previously required waiting for monthly meter readings and could only be described in retrospect, on an average basis, unlinked to property usage or weather conditions. Proptech allows for this information to be collected real-time and reported in a way that makes sense to owners and users. This is the mere tip of the iceberg.
Examples of cutting-edge real estate technology
Consider some of the ways in which digitization of real estate will make planning, managing, trading and using real estate more efficient at every stage of the building lifecycle.
Using Real Estate Technology for virtual tours
Building drawings produced with 3D capabilities open up the means to allow virtual tours. These tours can take place in existing buildings, allowing prospective tenants to view space without having to physically visit. A real estate agent, connected to many such buildings, can show a client numerous opportunities with no travel cost.
Further, a developer can give virtual tours to investors and tenants of buildings not yet constructed. Investors can utilize such tours to assess if they wish to buy into building ownership. They can describe changes they would need to see before investing. Such changes can be done digitally at very low expense. Similarly, potential tenants can describe to an owner what would and would not work before the building goes up, improving the efficiency of the initial construction.
Proptech allow collaboration between users and vendors
In both existing and new buildings, such virtual tours also allow collaboration between users and other vendors, whether it is in machine placement in a manufacturing space or interior design of an office or residential space. Rather than long, in-person meetings with weeks of back and forth, such virtual tours can:
- Speed design of space for use
- Rapid occupancy
- Increase customer satisfaction
Virtual tours offers deeper experiences
Virtual tours are often seen as offering merely qualitative evaluations of a building on a computer screen. “Oh, I like the entrance door.” “The wall there will never work.” “Is that a south-facing window?”
Yet, Proptech can go much deeper than just a screen-based walkaround. Proptech can capture more building data than possible before. It can describe for the potential investor or owner:
- Precise dimensions of rooms and spaces
- Accurate specifications of existing or proposed building equipment
- Historical and projected utility data, costs and efficiency
- Maintenance records, costs and likely replacement dates
- Environmental impact data
- Alternate configurations, with projected costs associated
Proptech will allow a building owner to discuss facts, not guesses, about real estate costs and possible modifications. The astute owner will grasp the advantage such technology offers.
Proptech can reduce the environmental impact of real estate
According to Forbes, nearly 40% of global carbon dioxide emissions come from the real estate sector. Out of these emissions, approximately 70% are produced by building operations, while the remaining 30% come from construction.
Given the large proportion of CO2 emissions caused by real estate, it’s not surprising many policies and standards are emerging to mitigate its environmental impact. One such example is increased investor focus on property owners’ environmental, social and governance (ESG) practices.
ESG incentivizes companies to disclose the environmental impact of its practices, including the impact of its real estate holdings. These principles will continue to be codified to establish standards of environmental responsibility.
Their intention is to give investors a way of measuring environmental risk. Extending this principle, many tenants will themselves utilize ESG disclosures to assess the attractiveness of leasing from a particular owner.
Larry Fink, CEO of BlackRock, the world’s largest institutional investor, has gone so far as indicating that BlackRock now requires the companies they invest in to start reporting on climate emissions and risks.
A similar effort in Europe has yielded the EU Taxonomy. This effort seeks to bring a coherent, scientific structure to the identification and classification of economic activity and how it impacts the environment. Real Estate occupies a central theme in the EU Taxonomy. By establishing a common language and reference points, it aims to enable companies, investors and governments to steer capital towards projects and entities which are protecting and improving the world in which we live.
How proptech can help companies seeking investments from the ESG-trend
This broad trend means property owners will be under increasing pressure to assure their buildings are steadily lowering emissions. Thus, the incentives for proptech companies to pursue technological advancements within the field will increase simultaneously.
The trend is all about reporting environmental data. Specifically, companies will need to show their baseline data.
- What is the impact of the buildings now?
- How much water is used?
- How much water per occupant of the building?
- How much natural gas?
- How much electricity?
- How much of each per unit area of the building?
Once baseline is established, then building owners will be expected to show improvements in these measures. Again, it is all about the data, its accuracy, its independent verification and its presentation. Proptech will be vital to efficiently gather this data for publication. Older buildings will require retrofitting to allow this data to be collected.
There are multiple ways in which Proptech help reduce the environmental footprint in new buildings and retrofit projects. They emerge in three broad categories:
Smart Building Hardware
There are three main types of hardware in smart buildings:
- Output devices
Sensors measure a relevant parameter. Controllers read these data and send signals to Output Devices. The Output Devices will often take a mechanical action, such as closing a damper or actuating a switch.
These are not new in themselves. But the Internet of Things (IoT) now allows these items to synchronize and report data, the raw material of Proptech. Besides the obvious application to heating and air conditioning, smart building hardware also cares for physical safety and security systems as well as cyber security systems.
Smart Building Software
These software tools serve to configure, manage and monitor data produced by the smart building hardware devices installed. From thermostats to lighting controls to boiler sensors, these tools enable the collection and storage of data. The base software platforms are often provided by the hardware vendors. All utilize IoT, yet they do not automatically talk with one another.
Smart Building Analytics and Reporting Tools
Analytics and Reporting Tools allow a higher-level view of a Smart Building, which makes Proptech truly valuable. It pulls the data from the software and then makes higher level decisions.
For example, a security system motion sensor may record and track the number of building occupants and their location within a building. At the same time, a smart thermostat may be monitoring the temperature within each HVAC zone. Likely, though, the security and HVAC systems do not communicate with each other. Smart Building Software integrates the two and overrides preset thermostat settings in unoccupied zones, saving money.
It is this integration and real-time action which serves to reduce the environmental footprint of properties.
Example of the value of proptech
Within smart buildings, proptechs add value by providing platforms which easily integrate IoT sensors from buildings and connect them to apps with tenant services. An example is ProptechOS.
Analytics and reporting apps can include energy optimization services (such as monitoring and analytics), connectivity to the grid, demand-response apps and LEED certification automation.
More efficient administration
Owners and investors demand a return on their investment, which means efficient operation of all building assets. Proptech reveals a path to that efficiency just as warehouse software improves efficiency of inventory storage.
Gains happen in three main areas of building operation:
- Energy consumption
- Maintenance costs
The most obvious efficiency gains come from reduced energy consumption. The beginning is smart thermostats connected to efficient air handling units. But that’s only the beginning.
Far beyond merely setting time-based temperature adjustments, smart buildings can utilize motion sensors to detect the presence of people in each temperature zone, their level of activity and adjust temperatures accordingly. Smart buildings can adapt to time- and usage-based utility pricing to achieve cost efficiencies.
Traditional preventative maintenance interventions are time-based; for example, changing an air handler filter every three months. Smart buildings allow a better path.
Equipment IoT platforms can be configured to compare actual performance to specified performance parameters. In so doing, the machine can tell the owner when it needs maintenance. In this example, it could measure expected air flow to actual air flow, indicating filter condition. During dusty, summer months, that same filter might need to be changed after two months, whereas during the winter, it might be fine for six months.
Similar applications extend throughout a smart building.
Links to Fintech
Real Estate accounts for substantial costs on most company’s income statements. Linking these financial transactions with real estate decision making can yield real efficiencies. See the discussion below on how advances in financial services technology can integrate with Proptech.
Actors in the world of Proptech
Several large groups of people will benefit from Proptech. Understanding how property technology works for each will improve their experience in and around buildings.
How property technology benefits the tenants
Proptech leverages technology to disseminate information and increase tenant control over their environments. Whether it is in the office, home or retail, digital tenant apps provide a flexible tenant experience. With the use of digitalization, tenants may have greater access to information such as occupancy levels at the office and control over temperature and lights.
Individuals and companies renting space in smart buildings will find a substantial improvement in their experience. At the basic level, visibility to and control of temperature and lighting will increase comfort levels. Modern security systems will improve safety and confidence in either commercial or residential buildings.
Tenants searching for space will find the site selection process simplified. The ability to set search criteria, view environmental impact data and conduct virtual tours will appeal to many influencers.
Operationally, the connection between proptech and fintech (see below) can automate and simplify rent payments, contract management and deposit management.
Individual renters have come to expect access to vital services on their phones for much of their lives. Many will extend this expectation to their apartment and office rentals.
Those accountable for the upkeep, profitability and long-term performance of real estate assets can find great advances from smart buildings. Merely having digital drawings in 3D of the asset is a major first step. Linking that with dynamic data from environmental platforms describing utility usage will let the astute manager compare baseline data to current performance.
Maintenance is a massive cost for property owners. Using proptech to spend wisely, repairing only what needs to be repaired, is an obvious benefit. Linking the maintenance effort to communication tools and reporting for tenants improves communication and lowers turnover.
High level proptech tools, such as ProptechOS, enable the efficient pooling and reporting of data to enable timely decision making for property managers.
Real Estate Agents
Real Estate Agents need to link owners and sellers, lessors and lessees, to be successful. Proptech gives them the tools to increase the pools of both and speed the signing of agreements.
Tagging building locations, sizes and purposes is a starter. Agents can digitally sort many available properties which have been digitized. Reports from individual properties can then describe lease costs, conditions, performance data from the property and allow virtual tours. Environmental impact data allows the Agent to have frank discussions and make apples-to-apples comparisons.
When owners link up fintech tools to their proptech platforms, real estate agents can help navigate financing, contract execution, deposit collection and start dates. For many buyers and renters, this availability raises the attractiveness of a property.
Property Developers succeed when their real estate investments produce a good return. Proptech can increase the likelihood of such a return.
On one hand, smart buildings will soon grow to be the expectation, not the exception, for buyers and lessees. Therefore, to compete, proptech will be a minimum requirement.
Looking ahead, though, having a fully integrated smart building will continue to set the forward-looking property developer apart. The developer can make far better decisions on pricing and negotiations with firm data in hand than by simply a “gut feel” of how things should be.
Developers with a portfolio of older buildings have one set of decisions. Finding, mounting and connecting the sensors, controllers and output devices will be a skill to develop. Once installed, connecting these systems to the integrating platforms will be similar to new buildings.
Developers erecting new structures have a different set of decisions. More opportunities on equipment selection will be there when setting up a smart building anew. The owner will need to allow for future developments when choosing.
In both cases, the developer will need to weigh the costs of installation against future returns. Making these decisions with a systems view is essential. This is why high-level systems, such as ProptechOS, can help with these decisions.
Further, property developers will be responsible for compliance with environmental impact assessments. Proptech is a vital tool to collect and report these data to responsible governmental bodies.
Collecting, storing and reporting large datasets creates massive opportunities for software developers. In particular, Proptech will require integration of platforms via APIs and other tools to allow communication and reporting. Vendors who can efficiently do custom configuration will find success.
The challenge for software firms is to be cost-effective in their installation and in doing system maintenance. The expectation for cost control which property owners apply to their buildings will extend to their software vendors as well.
How Fintech and Proptech interact
Fintech, the digitization of banking, investment and finance, has been with us for over a decade. Fintech has reduced transaction costs for buying a home or a commercial property. Proptech is reducing the cost for leasing or operating a property. Both are built on data; analyzing vast quantities of it, making clear decisions based on proven algorithms.
Fintech can tap into Proptech data to understand risk and thus pricing for loans. Proptech can tap into Fintech to link real estate tours to financing options. Fintech can learn how to price retrofits on old buildings to comply with ESG regulations and increase property value.
Summary: Proptech and smart Real Estate Technology
Proptechs offer a host of building services within commercial real estate. Search services, property and facility management are obvious benefits. Connecting these tools with investment funding, marketing, leasing, mortgage and lending services, creates a powerful package to help the environment and connect leading companies.