Almost every aspect of our personal lives has been transformed by technology, from the way we transact and communicate to how we hail a ride, answer the doorbell or turn on the lights. But the commercial real estate industry, well-known for its resistance to change, innovation and new technology, lags far behind. That’s about to change.
Venture capitalists invested $12.6 billion in real estate technology, or “proptech,” in 2017, triple the amount invested in 2015, according to Re: Tech. An emerging class of well-funded proptech companies is creating applications that are beginning to transform building management and occupant experience. In the coming years, the real estate industry will understand that proptech is essential for all stakeholders — including tenants, management and landlords.
How Technology Transforms Real Estate
Management guru Peter Drucker famously said, “What gets measured, gets managed.” Traditionally, real estate utilization and satisfaction have not been closely measured, and as a result, they were poorly managed with chronic inefficiency. What is connected gets measured, and what gets measured gets managed.
Consider that some of the most successful businesses in the shared economy, such as Uber, Waze, and Airbnb, are only possible because they are enabled by technology. But real estate’s version of the shared economy — co-working — has been successful only in analog to date.
Technology enablement and connectivity clearly reduce transactional friction and increase the desirability and viability of resource sharing. It also helps increase transparency and can provide real-time measures of vacancy and occupancy with 100% accuracy. For example, take VTS, an app for leasing and asset management; or Lone Rooftop, which has created a platform that calculates where and how many people are in a building at any given time.
Enhancing Tenant Experience
As proptech apps evolve, it’s inevitable that they will move up the “pyramid of needs” to focus on the ability to enhance the office experience, impacting tenants’ comfort and landlord-tenant communication. This hinges on one of the most exciting innovations in the proptech world: the adoption of location-aware capabilities in the commercial real estate setting.
Most of the apps that deliver magical conveniences in our personal lives — such as Yelp, Lyft, and Seamless — have location awareness as a fundamental element of their functionality. The same will happen in office buildings, with functionality to connect people to the spaces they occupy and provide landlords and tenants with valuable user insights.
Ultimately, occupants’ experiences will be transformed from generic and static to responsive and personalized. When you walk into your office, the lighting and temperature will be automatically set to your liking, your Spotify playlist will launch when you sit down at your desk and you’ll know exactly what conference room is available for your afternoon team meeting. The smart building will eventually become the empathetic building.
This will be especially important for a new generation of workers. As the last of the millennials enter the workplace and older members of the generation begin moving into decision-making seats, the next cohort of workers, Gen Z, will begin to make their mark with a new set of expectations and demands. While millennials watched technology change the world, Gen Z has no memory of a world that isn’t digitally connected. They will expect their workplaces to be as connected as their personal lives, and accommodating their expectations will be an important hiring and retention tool.
Proptech Provides A Strategic Advantage
If you doubt the inevitability of this future, take a look at your phone and think about all the apps you have now that you could not have imagined needing five years ago. What was once “nice to have” is now essential? Despite considerable resistance from legacy developers, the widespread and accelerated adoption of proptech is now inevitable.
First of all, new construction that integrates digital elements will command premium prices and have a competitive advantage, forcing legacy properties to evolve to become tech-enabled more quickly. If owners of existing buildings want to compete with the newer properties, they’ll need to invest in replacing their analog systems with digital ones.
Secondly, digitally connected environments will allow landlords to understand real-time occupancy, vacancy rates, energy consumption and the degree to which amenities are utilized. Once connected, CFOs and CEOs will have access to accurate, real-time occupancy data that will be impossible to ignore. Access to this data will put pressure on real estate departments to adopt agile workplace strategies where companies will own enough real estate to serve its core requirement, and leverage shared and flexible resources to bridge from core to peak occupancy.
In the commercial real estate industry, innovation is a struggle in the best of times. However, buildings that are not just smart, but empathetic to their users’ needs, will present a whole new level of threat to legacy players. Old technology can be difficult and expensive to unwire, and the benefits of making the shift may not seem immediately cost-effective. But as proptech continues to evolve the entire user experience for landlords and tenants, consumer demand will accelerate the transition from analog to digital, and properties that don’t meet that demand will be at a considerable disadvantage. In the end, proptech will both improve user experience and accelerate the adoption of shared real estate assets and services.