AI-driven proptech transforming commercial real estate

AI-driven proptech transforming commercial real estate

8 February 2019

Property technology—“PropTech”—innovation is changing the way real estate is built, managed and used—from reducing construction costs and streamlining documentation processes to allowing tenants to access building amenities via an app, reports The Investor JLL.

PropTech had a banner year in 2018, both in adoption and funding, with the sector attracted US$4.6 billion in venture capital in the third quarter of 2018 alone.

“The snowball will keep rolling in 2019,” says Mihir Shah, the co-CEO of JLL Spark, which has a US$100 million global PropTech venture capital fund..

JLL Spark is just one of a growing number of commercial real estate firms investing directly in PropTech companies and startups.

Many of these firms have invested in integrated software solutions for critical commercial real estate functions with the main motivation to create greater efficiencies.

A recent report from industry advisors Altus Group echoes these sentiments.

Their CRE Innovation Report, based on a global survey of 400 commercial real estate executives at firms with assets under management over $250 million, found that efficiency through automation has become a key priority for decision makers.

“The combination of new market entrants, new technologies and changing demographics have created disruptive models within commercial real estate,” Altus Group chief executive Bob Courteau said.

“This is having a profound impact on portfolio planning and decision-making.”

“At the same time, this presents new opportunities for organisations who rapidly embrace innovation and PropTech to reduce complexity, increase efficiency and drive performance.”

Globally, the most popular PropTech firms for direct equity investment are those specialising in smart building systems and online lending marketplaces, the Altus report states.

In the UK, for example, real estate companies are investing in technologies such as virtual/augmented reality, AI/machine learning, business process automation and online property exchanges, notes BisNow.

There are, however, some disconnects between the technologies that real estate firms actually use compared to what they are investing in.

According to the Altus report, nearly one in 10 executives “don’t really understand blockchain and what it does,” but 37 per cent of executives expect blockchain to start having an impact on the real estate industry within the next two years, and 38 per cent are investing in the technology either directly or indirectly.

On the flip side, almost 50 per cent of those surveyed are already using artificial intelligence or machine learning technology, but not many more executives are investing in it compared to blockchain.

Additionally, while many firms have invested in integrated software solutions for critical CRE functions, 60 per cent of executives said their firms are still utilising spreadsheets as their primary tool for reporting, 51 per cent for valuation and cash flow analysis and 45 per cent for budgeting and forecasting.

These figures indicate that despite significant innovation, the industry continues to lag in certain areas.

How, then, might PropTech shape commercial real estate in the year ahead?

“Previously, we would often see companies do a two-year review cycle on a new product,” says Mihir Shah. “In 2019, you’ll see more companies moving quickly to pilot a product. If the product demonstrates ROI, they will implement it more widely.”

“We’ve seen a lot of AI-driven technology emerge this year and we will see these technologies begin to show their value in 2019,” Shah says.

Artificial Intelligence is already helping property owners and occupiers pick out key trends and insights from the vast amount of transactional and operating data generated by the CRE sector.

VergeSense, for example, uses sensors to record exact occupant counts in office buildings and allows companies to identify usage patterns for conference rooms and other office areas.

This data can then inform optimal office layout and deployment, including how many conference rooms are needed, what areas of the office are over and under capacity and need to be expanded or shrunk accordingly.

Another example is Skyline AI, which leverages proprietary artificial intelligence to source, analyse, acquire and manage institutional-grade property investments.

In 2018, owners of commercial office buildings also showed interest in apps for tenants that provide easy access to the building and a variety of in-building and local services.

They allow, for example, a tenant to book a spot in a yoga class offered by the landlord, or order food from an onsite vendor.

Crowdfunding is also changing the way people invest in commercial real estate, said Ross Litkenhous, global head of business development for Altus Group.

“Everybody gets a percentage of a deal. From crowdfunding you’re going out to the masses and asking people to invest in a deal through some sort of online platform, which is not the way real estate has been traditionally done. It’s taking evolutionary leap,” he said.

In Australia, property giants Colliers International, Savills, and Charter Hall are just some of the companies currently investing in PropTech, reports The Sydney Morning Herald.

For a detailed look at the future of PropTech, see the University of Oxford report PropTech 3.0: the future of real estate.