How can investors prime today’s real estate assets for tomorrow?
Future proofing real estate assets is one of the big questions for investors and developers in an age of rapid technological and societal change.
At this year’s MIPIM PropTech conference - the first of its kind to be held in Europe – it was once again top of the agenda and the topic of a panel I had the privilege of chairing: How do you future proof assets in the face of such rapid technological change?
I’ve been asked this question a lot over the past few years. My answer has been perhaps naively simplistic: make the space within the building as flexible as possible, and make sure you have great internet connection. But is there more to it than that?
I put it to the panel, comprising an investor, an asset manager and a venture capitalist.
First up, we talked about the distinction between the digital technologies that fuel real estate decision making - such as automated valuation - and the digitally enabled business models that are emerging to disrupt the market and drive new forms of value, like co-working.
The technology side was quite simple. If it works, if it adds value (principally by reducing cost), then why wouldn’t we use digital tools to help drive decision making? However, it’s an ongoing challenge to educate the industry about the value of such tools – which is often the single point of failure. While some asset owners and managers are developing their own tools in house, others are looking to the PropTech community to offer solutions.
When it came to emerging disruptive business models, the panel agreed that while many were still largely untested, they nevertheless were here to stay. It was also clear that not all investors felt the same nervousness around these new models - as much as the press would like to have us believe. Indeed, many see them as a great opportunity to drive new value. The challenge, however, is how to value assets with these business models - effectively adopting operating model valuations. This is where we need to see a maturity in the tools and processes, and the testing and adoption of new forms of valuation.
The emergence of these new business models does raise the possibility of new operating models for buildings. We know about ‘space as a service’, but what about ‘buildings as a service’ - the difference being the infrastructure and maintenance of the building as opposed to just the working environment.
We’re increasingly seeing the emergence of a building’s digital twin - effectively the data infrastructure of a building and the live data flowing through it. Who should own this infrastructure? Who owns the data? I challenged the panel as to whether real estate investors are equipped to take this on or should we look to technology companies to provide this.
This last point didn’t go down well with the panel or the audience. This suggests we must look to our own industry to develop the skills and systems needed – something which is currently lacking - because it was clear that the value of data will become ever more commoditised, and the one who owns it, or at least controls it, will win out.
While the discussion continues on what needs to be done to future proof assets, I am able to offer some additional thoughts on how we can progress:
- To the PropTech community: Be very clear on your value proposition, and ensure it effectively meets the need of the client.
- To the real estate community: Invest in the skills and systems to offer fully digitalised real estate assets and experience. It is clear that if you don’t, someone else will.