Most predictions for the real estate investment industry in 2019 point to the rapid growth in property technology, or ‘proptech’.
As in almost every other global industry, from financial services to taxi driving, technology is having a huge impact on real estate.
Nery Alaev, an Austrian and German real estate investment expert based in Vienna, explains: “Traditionally, over the years the real estate sector has never invested a great deal in technology. But we’re now beginning to see a genuine growth in this area.
“And it is no surprise – real estate is a hugely competitive market, and ‘proptech’ can give businesses and investors the edge over the competition.”
It seems the venture capitalists agree too. Reports suggest that they recently invested a remarkable $12 billion in proptech start-ups around the world in one year alone.
Many of them will have seen the impact that proptech is already having on the residential real estate sector. And they’re now betting that the commercial sector will follow suit.
“Start ups like Opendoor have streamlined buying and selling residential properties,” says Nery. “In their case they run an investment model described by the experts at the CBI as ‘tech-enabled house flipping’.
“Basically, the company purchases a home directly from a homeowner, invests in improvements and then sells it on as quickly as they can.
“This kind of real estate investment, driven by a more streamlined, tech-enabled purchasing process, is now transforming the commercial side too.”
The rise of smart commercial contracts
Smart contracts are just one way this is happening in the commercial sector, as Nery explains.
“Buying commercial real estate is often a lengthy and complex process,” says Nery. “Contracts and legal agreements take a long time to be processed, and it is often only the intermediaries who benefit from the associated added costs.
“Smart contracts are different. They’re based on super secure blockchain technology and are essentially a piece of software that automatically implements the terms of an agreement between different parties. It’s safe, secure and creates a permanent shared record of the transaction.”
The experts at Deloitte agree: “Blockchain technology can potentially transform core commercial real estate operations such as property transactions like purchase, sale, financing, leasing, and management transactions.”
Proptech drives data-driven insights
Nery also sees proptech driving a huge transformation for commercial real estate investors in the area of data.
“There are a couple of areas where proptech is having an impact already,” he tells us. “The first is in terms of applications that help investors to monitor and manage the performance of their property portfolio.
“The tech revolution driving proptech innovations is built on collecting, managing and analysing huge amounts of data. Commercial real estate investors are now using that data to do everything.
“It could be modelling occupancy rates or getting help with setting rents. Or it could be predicting footfall or comparing the performance of different units.”
Proptech also has more direct applications too, in terms of helping commercial real estate investors to directly monitor and manage their buildings.
“Proptech software, allied with the right hardware, helps a landlord to manage and control everything in a building, from water usage to office temperatures,” says Nery.
Proptech creates new ways of generating returns
But proptech is also helping commercial real estate investors to find new ways of running their business and their portfolio of properties profitably.
Proptech software’s ability to analyse huge amounts of data has led to innovative business models like that run by the co-working firm Industrious.
“They’ve used data-driven insights from proptech applications to inform both their business model (flexible, monthly rental payments) and even the design of the spaces they offer to clients,” says Nery.
“It means that tech-enabled co-working spaces like this are transforming how commercial investors are able to get a regular return from their commercial units.”
Ultimately, proptech has proven its worth in the residential sector, and savvy commercial real estate investors are now on board.
The chance to leverage proptech to your advantage as an investor is there – and Nery’s advice is to take it now.