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Why Read The Full Proptech Reports When You Have This Review?


Techno mega city; urban and futuristic technology concepts, original 3d rendering

Following the news that the BPF and KPMG have co-founded a Technology and Innovation group for the real estate sector, and given that each firm recently published a proptech (or real estate tech) report, let’s take a look at their research and mull over their findings and recommendations. I did all the reading, so you don’t have to!

BPF (British Property Federation)

The BPF report, titled “Lost in Translation”, was produced in partnership with Future Cities Catapult and is the result of 54 BPF member surveys, two project boards, two roundtables and 11 industry expert interviews.

The first interesting takeaway from this paper is that, if we map the property life cycle (land appraisals, investments and financing, construction, sale or leasing, property management, demolition and remediation, fit out and refurbishment) there is a bias towards asset management type services. In fact, over 50% of the UK proptech firms the BPF identified are active in sales and leasing. Though it is not surprising that there is no proptech in the demolitions space, it is surprising that more tech is not being deployed for appraisals, or indeed for financing.

The concept of real estate as a service, that I have already discussed in a previous article, features in the report. It also highlights the need for buildings to cater for flexibility in lease terms, adaptability in terms of the use of the space, and data collection both for measuring outcomes (eg. emissions) and future proofing  master plans and individual building design.

It was encouraging to read that the sector recognizes the need for greater cohesion within the industry. Research participants felt that, as for its cousin fintech, the UK government should be flying the flag more broadly for proptech and helping to drive innovation and productivity through incentives, standardization and communication. Even more importantly, they (and the BPF represents some of the most important property firms in the UK) acknowledge that the siloed approach the property industry has traditionally taken is unsustainable and must give way to greater cohesion.

Given the cultural, structural and technical barriers towards digital innovation that characterize the property sector, the report gives three key recommendations:

1. Improve market information by: developing a proptech library of all current and emerging proptech innovation, classified in line with the property lifecycle, user needs and technological drivers; developing a property innovation index to assess a company’s capacity and preparedness for innovation/tech; creating a proptech maturity index to give the market a clearer understanding of which innovations should be adopted; undertaking regular research on the priority technology needs of BPF members and their occupiers.

2. Create a cohesive approach to championing innovation by: creating a plain-language shared vision of the future property sector like the McKinsey ACES framework for the future of the automobile industry; setting up a property sector regulatory sandbox following the model of the FCA; setting up a property passport with common data standards for core information to reduce friction; promoting the Centre for Digital Built Britain to work with industry, architects and innovators to improve consideration of productivity and wellbeing at the earliest stages of a building’s design.

3. Embed digital knowledge and foster innovative behaviors by: developing a program to place early career software developers, digital designers and innovators in influential roles in property companies; creating a leadership development course within the BPF which includes a comprehensive overview of the technologies driving digital innovation and the business models changing industries; developing a program of open and challenge-based procurements within the BPF to expose companies to the full range of solutions on offer.

All three recommendations are steps in the right direction. I have particular hopes for the second, as it is important for a fragmented industry to build a shared vision of its future, a future that should be characterized by clear and shared rules, complete and easily shareable data, and with data driven digital innovation as one of the building blocks of design and planning, rather than as an afterthought. Implementation of the recommendations that are not to be executed internally to the BPF will be the real challenge!

KPMG

“The Road to Opportunity” is KPMG’s second annual proptech survey report. It kicks off with a Charles Darwin quote, which sets the tone for the entire paper: “It is not the strongest of the species that survives, nor the most intelligent. It is the one most adaptable to change.”

A sign for KPMG. Photographer: Tannen Maury/Bloomberg News

The industry recognizes the potential opportunities and challenges Proptech poses, which are not just about tech but center also on the customer, innovation and collaboration; real progress has however been slow. In fact, though a staggering 97% of respondents think that digital and technological innovation will impact their businesses, more than half of respondents (56%) ranked themselves as 5 or less out of 10 with regards to their digital and innovation maturity. They may be talking the talk, but are yet to walk the walk.

It is unsurprising to read that AI leads the pack in terms of its expected long term impact on the industry, and of the likelihood for respondent firms to utilize it in their business in the long term.  What may come as a surprise is that the long term impact may not be as far into the future as some think!

The biggest focus for the impact of tech driven change remains on improved decision making, building performance and customer engagement, as it was in the 2017 survey. There appears to be a disconnect between proptech firms’ vision and real estate firms’ needs, which makes it vital for the two to align their perspectives on where they see potential for efficiency gains and value-add. In fact, while proptech firms emphasize things such as the speed of completing transactions, and focus on letting activity (probably because most of them operate in the residential B2C space), their clients care more about building performance.

As in the BPF report, the concept of property as a service continues to take center stage. This needs to be quantitative and data-driven.

Only one third of real estate incumbents claim to have an enterprise-wide digital and innovation strategy in place. This is an improvement on last year’s 24%, but there is also a kernel of resistance that refuses to plan for digital change (10%). This being said, over the past 18 months innovation and digital transformation roles have evolved from a ‘20% project’ off the side of a desk to new hires who report directly into, or even sit on, the Board.

Collaborating with a supplier remains the most popular option for how incumbents expect to develop their digital and innovation capability. In particular, working with start-ups can help incumbents keep up with the pace of change by leveraging the start-up’s agility to move quickly to adapt to new trends and market demands.

Real estate firms acknowledge that they need to engage with proptech companies to adapt to the changing global environment. It is worth noting that the incumbents feel the engagement is happening at a faster pace than the startups do!

Finally, the issues of traction and risk aversion  are worth highlighting. One of the key challenges for start-ups is in dealing with the B2B model, as lengthy sales cycles are preventing them from getting validation and initial feedback to iterate the product.  Property companies are used to dealing with huge investments where mistakes can have decades-long consequences for hundreds of millions of pounds. Conversely, PropTech solutions can often be tested without significant risk, and so property companies could trial many potential solutions in different buildings across their portfolio and then choose the ones that have the best results.

All in all, the KPMG report is very much in line with the proptech paper I co-authored last year for the RICS. It also gives recommendations that are consistent with ours: assess your tech needs and goals ensuring board level buy-in, create an internal engine for innovation which engages all stakeholders in your value chain, shape your strategy and company culture around the “new you”. A good example of a company that is working well on this change is JLL, which wants to be a tech firm operating in the real estate space, and through its Spark arm and internal innovation center is starting to achieve this goal.





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