How technology is transforming and unlocking real estate asset classes

Wednesday 16 March 2022

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Author: Samantha Kempe

The line between technology and real estate is blurring, bringing new opportunities and asset classes, particularly in the residential, office, and Biotech spaces, says Samantha Kempe, Co-Founder and Chief Investment Officer of IMMO Capital.

The sheer size of the real estate sector – the global figure reached a record $326.5 trillion in 2021, according to Savills – coupled with its very traditional approach were once barriers to the digitisation of industry. 

However, the pandemic has blown away the last line of resistance, with technological advancements touching every aspect of the real estate world. The integration has become so advanced that the line between real estate and technology is often blurred, spurring the transformation of existing asset classes and creating new ones. This article takes a look at where this is happening within three key property sub-sectors: residential, offices and Biotech.

Residential 

Nowhere is this more evident than the residential sector, which has unexpectedly thrived through the pandemic. Supporting its growth and stability, technology has generated new ways to buy, sell, rent, invest and manage the asset class. 

In the first instance, and of vital importance during the pandemic, drones and virtual reality ensured that property viewings could continue and keep the market moving. Drones are now taking footage from viewpoints that were previously hard to access and more people are viewing properties remotely. These digital advancements are now likely here to stay.  

Many tech companies are developing user-friendly concepts and platforms across the entire residential value chain, providing transparency, efficiency and financial clarity for customers. The rapid rise of iBuyers, companies that use technology to make an instant offer on your home, represent a dramatic shift in the way people are buying and selling homes, offering, in many cases, a simpler, more convenient alternative to a traditional home sale. Key technologies such as ‘blockchain’, ‘property passports’ or ‘automated valuation models (AMVs)’ are also being explored to make transactions more efficient. 

Another area where technology is having an impact and playing a pivotal role in transforming the residential market is through lettings and property management. A good example would be how many agents are adopting cloud-based platforms that manage everything from contracts and references through to payments. This streamlines the rental process through one simple interface, cutting back paperwork and delivering a better service for residents. 

Innovation is also fuelling investment in new alternative asset classes such as later living, student accommodation and build to rent (BTR) that use tech-enabled, customer-centric approaches. This not only attracts residents, thanks to a hassle-free lettings process, but also helps to retain them through enhanced maintenance and services.

An emerging residential asset class which is being unlocked by technology, alongside other advancements in machine-learning and big data, is the vast single-family rental (SFR) market. Residential is now a $50 trillion market in Europe and 98% of this sits in dispersed single-family housing. With such strong demand from ‘generation rent’, there’s huge potential to up-cycle and invest in existing residential homes, if portfolios can be scaled efficiently. 

Offices 

The pandemic has also been the catalyst for a major shake-up in the offices market with many owners and operators using the lull in occupancy as an opportunity to look at how to future-proof their space, particularly with the outcome still uncertain as to how much the sector might potentially contract in the long term. At the beginning of 2022, the latest reports show that the levels of office space have fallen dramatically, with building occupancy levels remaining low as a result of the Plan B restrictions. 

Most companies are indicating that hybrid flexible working patterns are here to stay which is leading to a major overhaul of the design and operation of office buildings. Alongside this, companies are looking at how to bring their people back into the office in meaningful and safe ways, with a heavy slant on technology. There is a rethink about the true function of an office, with a focus on how they foster emotional connections, collaboration and personal experiences. 

As we see changes in workplace design, technology has been in the background supporting new ways of working and processes. In the first instance, video conferencing services such as Zoom and Teams have enabled workforces to transition to remote working and continue day-to-day operations. Corporates have since overhauled their business practices to leverage digital tools and technology to promote collaboration, communication, and efficiency. 

Whilst flexible office space was becoming well established ahead of the pandemic, its appeal as an asset class is forecast to accelerate as flex buildings and spaces are viewed as increasingly central to the new hybrid working model. According to a forecast by Statista Research Department, the volume of flexible office workspace in the UK is expected to nearly double between 2019 and 2023, to reach 167 million square feet. With the flex office system generating a higher turnover of people, return to work technology such as apps that track workers’ health and workspace usage will play an important role. 

Biotech and life sciences 

The life sciences sector has gone from strength to strength during the pandemic, providing global hope through the development of the Covid vaccines and other treatment breakthroughs. The life sciences sector within real estate has grown exponentially, to accommodate the property needs of this fast growing and evolving industry.  According to JLL, £15 billion of capital has been allocated to UK life sciences real estate, out of which less than 10% has been deployed to date, presenting a huge opportunity for investors and developers within the sector. 

Development strategies are focused on building out existing and creating new centres of excellence for science and technology, with front runners emerging in the ‘Golden Triangle’ - Oxford-Cambridge Arc and London. An emerging trend is the conversion of existing office and retail assets to lab-enabled uses, and joint venture development partnerships with universities and public sector bodies. 

Innovation districts need to fulfil the requirements of the Biotech sector’s collaborative approach which is fed by the convergence of the worlds of MedTech start-ups, life science corporations, academia and institutions. To give an indication of the scale of growth within the MedTech sector, research from BioCity found that the number of start-ups increased by 84% between 2014 and 2018 compared to 2010-2014. 

For some real estate commentators, Biotech is the most important emerging asset class thanks to highly favourable investment prospects. Lab space is unaffected by the hybrid working trend as it supports the type of work that cannot be conducted at home and requires an amenity and service-rich environment. To support an industry experiencing exponential growth and transformation, workspace is being configured to be highly adaptable to support better knowledge sharing, wellbeing and creativity. 

It stands to reason that supportive workplace technology will need to be even more finely tuned to meet the needs of such a specialist and flexible workforce. Healthcare related logistics and storage networks are also being overhauled with technology playing a key role in optimising performance. In the future, as increasing spending in AI and digital healthcare begins to bear fruit, the real estate sector will need to respond yet again and create specialist treatment centres for a more personalised health service. 

Conclusion 

With property-related technology or PropTech playing such an integral role in shaping the future of real estate, it has not been surprising to see unparalleled investment into the sector. 

New data published by PitchBook shows venture investors pumped $20.5 billion into the global PropTech market last year across 974 deals, roughly $7.5 billion of which came through funding rounds backed by real estate investors, also a record high. 

Investors see the importance of technology in driving the structural change in the real estate industry. The pandemic has led to the transformation in how we design and interact with our physical spaces and with each other. Technology holds the key in making this transition a success. 

Samantha Kempe, Co-Founder and Chief Investment Officer of IMMO Capital.

Samantha Kempe

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