Proptech will be essential for commercial real estate after COVID-19
Richard Morris is director of technologywithin
The far-reaching effects of COVID-19 have had unprecedented impact on our daily lives, with enforced remote working one of the most significant changes we are living through. However short-term these measures may be, the effects of this pandemic are likely to have longer lasting effects on the way we work, accelerating shifts in our working norms that were already happening before this crisis began.
Advances in technology, from virtual conferencing to super-fast WiFi, now never more widely needed, have the potential to radically alter work as we know it. While some segments of the industry are spearheading the use of technology, the commercial real estate (CRE) industry has yet to realise the potential of “proptech”. In the post-COVID-19 world, it will have to catch up.
Property is no longer just bricks and mortar
Already before COVID-19, technology had been disrupting every major industry, and the world of property is certainly no exception, with innovative new digital capabilities helping the sector to become smarter and more connected, with buildings easier to live and work in.
State-of-the-art security and monitoring systems, for example, make it easier to track movement and usage, while Internet of Things (IOT) technology allows us to collect and analyse information about how we use space and make changes that benefit user experience. Smart lighting and heating systems allow more improved comfort, and super-fast WiFi – “the fourth utility” – means tenants can experience the connectivity that modern business demands.
This last point is especially important for CRE. While some have mistakenly posited that COVID-19 might spell the end of the office, businesses still need a physical presence and the ability to carry out face-to-face meetings with clients and prospects, while workers are already reporting eager anticipation for a return to normality in some respects. However, the lockdown, and the success we have seen with millions of people shifting to working from home in a short space of time, will usher in a sea change. Businesses have seen the value of allowing flexible working, with some staff in the office and others spread around the country on any given day. To cater for a more location-flexible workforce, fast, reliable and effective connectivity will be a higher priority for business tenants than it ever was before.
For CRE landlords, embracing proptech involves significant investment, but increasing numbers are realising its potential in terms of ROI. Tech-heavy spaces are attractive to businesses, meaning greater demand and greater opportunity to apply rent increases. Higher occupancy rates also mean fewer empty spaces and costly lapses in profit – something that will be all the more vital for landlords in the wake of office closures during COVID-19. In fact, three quarters (76%) of landlords with effective proptech say they have been able to apply rent increases, and 72% have managed to reduce voids in occupancy rates, according to research by property consultants Cluttons.
CRE still has a long way to go
However, this proptech revolution is still mostly being led by smaller challengers in the real estate sector, which are showing that landlords can achieve greater value by embracing and investing in tech. It is primarily these businesses that realise that greater connectivity makes it possible for tenants to improve levels of comfort, convenience and mental wellbeing among staff, and become more successful. Indeed, the same research from Cluttons shows that eight in ten (81%) of CRE tenants believe a well-connected office equates to better business performance. Better performing tenants are naturally better for landlords too.
But the CRE industry overall is well-known for being resistant to change, and wider adoption of the latest tech is still nowhere near where it should be. According to figures from KPMG, real estate companies cited a lack of clarity about ROI benefits (40%) and a lack of designated person to lead digitisation strategies (34%) and digital being a low priority (40%) as key reasons for not embracing technology fully. There is an opportunity there for the larger players to improve returns for investors and achieve a tech-driven premium, but right now they are playing catch up.
There must be changes on this front if commercial real estate is to drive efficiencies and remain relevant in the post COVID-19 world. By embracing technology, both landlords and tenants are increasingly able to add that cutting edge to their businesses, and this trend will only continue as technology continues to develop. The onus is on all parties involved in the workplace office sector to ensure they are not playing catch up, but are instead at the forefront of looking for ways to add further innovations in the future.