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edition 10 (234)
October 2018
Investment & finance

On the brink of the proptech revolution

Investment in real estate technology has been lagging – but not anymore

Alex Hayes

On the brink of the proptech revolution
Mihir Shah, the co-CEO of JLL Spark

Real Estate consultancies are predicting that technology is set to change our world beyond all recognition – and they all want to be at the forefront of this transformation

Imagine if you will that you want to lease an apartment in Warsaw, so you meet the real estate agent in one of the residences he has on offer and he shows you around, demonstrating all the mod cons and showing you the stupendous views from the windows. “Been there, done that,” I hear you say. But now imagine that you are in Singapore, the agent is in Paris and the apartment (in Warsaw) hasn’t even been built yet. And this isn’t some weird sci-fi scenario – this is happening right now. BNP Paribas Real Estate calls such a service, which they announced at MIPIM 2018, ‘holoportation’. The client just puts on his VR (virtual reality) headset to talk to an agent, who can then show them whatever building or real estate asset is in his portfolio.

Indeed, according to Csongor Csukás the executive director of international property management at BNP Paribas RE, we are facing a veritable tsunami of technological change. “Over the next ten years, 80 pct of property management jobs will be automated,” he claims, and then adds that it could be even sooner. When asked which technologies are most likely to change the future, he points to AI (artificial intelligence) and big data, followed by VR and IoT (internet of things). The amount of data that is being collected is growing exponentially. “The data in itself is worth nothing unless it is generated in an exploitative way, but there’s so much of it that normal statistical methods of analysing it are no good and we need machine learning to extract real meaning from it.” So what is the worker of the future going to do? It certainly won’t be accounting, as such backroom jobs are the first in line to be automated. Csongor Csukás states that those jobs that require interpersonal contact will be what remain and such face-to-face services will become more valuable as a result. “People will become the interface and they will give advice,” he says, and claims that such services that remain will have to become nothing short of impeccable. Krzysztof Mogielski, a digital transformation associate director at CBRE, clearly agrees: “It’s hard to make any forecasts for even the next three to five years. Nevertheless, there is one thing I’m sure of. There will be much more technology than there is right now in our sector. All the dull tasks and simple services will be taken over by machines. This means that only the high quality person-to-person relationships will survive,” he says.

Never make predictions, especially about the future

Indeed, despite the obvious trend of technology automating the workplace, there can be no telling exactly which innovations are going to win out, and yet all the big real estate consultancies have been compelled to invest in property technology (otherwise known as ‘proptech’). Cushman & Wakefield and Colliers International have both taken very similar approaches. Both real estate consultancies have formed partnerships with venture capitalists. Cushman & Wakefield announced that it had teamed up with Metaprop NYC at the end of July 2017. Adam Stanley, the global CIO and chief digital officer of Cushman & Wakefield, wrote that, “MetaProp, founded in 2015 by Zach Aarons, Clelia Peters and Aaron Block, invests from USD 25,000 to USD 250,000 in pre-seed and seed-stage proptech companies. It also incubates up to ten start-ups each year – offering research, advice and other services – and this year expanded its incubation programme to Europe.” According to the consultancy, the advantages it can give to start-up companies include: “a single point of entry to Cushman & Wakefield global ‘ecosystem’, an insight into Cushman & Wakefield operational and client business needs, fast-tracked technology and business diligence, matching with appropriate Cushman & Wakefield client and business champions, as well as pilots, partnerships, investments, and acquisition opportunities”. In June 2018 Metaprop closed its second proptech fund worth USD 40 mln and this time Cushman & Wakefield was not alone among the consultancies that were investing (although the company claims that it is still the largest). This time JLL, through its proptech arm Spark, and CBRE have also joined the party.

The venture capital company that Colliers International has chosen to partner with is called Techstars. “The Colliers Proptech Accelerator Powered by Techstars will be a first-of-its-kind programme with a global focus. I can think of no better way to begin this journey than partnering with the leading global real estate services company. With over 15,000 skilled professionals operating in 69 countries, we’ll have a diverse set of 80–100 mentors with broad representation across commercial real estate, leading proptech companies, angels [those who invest in start-ups on highly favourable terms], venture capitalists, strategic investors and others to cover all aspects of our cohorts’ mentorship needs,” says Ben Liao, the managing director of the Colliers Proptech Accelerator Powered by Techstars. He also suggests that the real estate sector is lagging behind in the technological revolution. “Few sectors of the global economy can be characterised as: the last great bastion of the global economy that has not seen tech-enabled disruption,” he claims, but he also states that: “Investment in proptech start-ups surged to USD 9.8 bln in 2017, up from just USD 546 mln in 2013. 2018 will be another record breaking year with top-tier venture capitalists already making bets and paying close attention.” This is an opinion apparently shared by Cushman & Wakefield. “Real estate has lagged behind other industries in adopting technology, but that is now changing at digital speed in every area of our industry. Cushman & Wakefield is in a position to lead the charge,” claims global CIO Adam Stanley.

“The data in itself is worth nothing unless it is generated in an exploitative way,” says Csongor Csukás, the executive director of international property management at BNP Paribas RE

Picking the winners

On June 5th this year JLL announced that it was setting up the USD 100 mln JLL Spark venture capital fund, to concentrate on investing in companies investing in real estate. When it was put to him that this amount did not sound very large on a global scale, Mihir Shah, the co-CEO of JLL Spark, declared that: “We are focused on early stage investments with the average cheque size ranging from a few hundred thousand to a few million. We feel this size of fund will give us the ability to invest in many high quality start-ups at an early stage.” However, he flatly denied that JLL was seeking exclusive access to new technologies: “When we invest in a company, we will do everything we can to help them with the trials, distribution and feedback needed for their product. This will allow our services and JLL’s clients to see these products faster than the rest of the market. We will not be demanding exclusive access from the start-ups as part of this effort.” Nonetheless, investing in start-ups remains a hit and miss affair: “Clearly a few breakout companies typically return a disproportionate amount of the gains for any venture portfolio and I anticipate we will see something similar in this case. That said, because distribution is very difficult in this space, we can help create some of those successes by helping our portfolio companies via our dedicated growth team, which will help them carry out trials and deployments for their products,” he says. Recently Spark has invested in companies such as Skyline AI, which provides investors with automated real estate analysis.

And what of CBRE? “We are trying to foster the development of those technologies on many levels. On a global one, we are investing in proptech companies … merging advanced tools, knowledge and break-through thinking with CBRE experience. On a regional level we are working on changing our internal work culture to better facilitate innovation and digitalisation. We have a dedicated regional team for this purpose. We are testing new solutions and ideas with our global technology partners, as well as encouraging local teams to promote local partners and their interesting solutions. On a local level, in many countries we invest in proptech events, challenges and incubators that are designed to connect start-ups with potential clients, with our guidance and assistance,” explains Krzysztof Mogielski, the digital transformation associate director at CBRE

Real estate companies clearly all see the advantages in placing bets in innovative risky start-ups, but they’re not the only ones. Recently a plethora of words ending with ‘tech’ have entered the business lexicon as every industry anticipates another computer revolution. For example, in Poland Carrefour has also set up a tech incubator. “C4 Retail Lab is the first technological incubator in Poland launched by the retail chain. It was established in 2017, with the aim of supporting the development of Polish start-ups and to boost the implementation of significant innovations in Polish retail. We have created a unique incubation process that will enable us to come up with solutions addressed to the real needs of big retailers and their customers – the shoppers. We do not have a single mentoring programme, which is the same for everyone – as most incubators have. Each firm is different, hence we have a dedicated specialist working with start-ups who adjusts the process to their needs,” reveals Katarzyna Orlińska, the chief digital officer of Carrefour Poland.

“Only the high quality person-to person relationships will survive,” predicts Krzysztof Mogielski, a digital transformation associate director at CBRE

Brave new world

But what kind of technologies are about to transform the world? Cushman & Wakefield in its ‘Occupier Edge 2018’ report states that these include drones, blockchain (the distributed ledger system that underpins Bitcoin), geolocation, virtual reality and IoT. JLL broadly agrees with this assessment: “The areas of change include smart buildings, workplace experience applications, online leasing marketplaces and blockchain-based solutions to make the investing and transacting process easier,” claims Mihir Shah.

Maybe some of the claims of the real estate consultancies might seem a little overhyped. There have been many technologies before that have failed to live up to their original expectations. But it’s worth mentioning that a computer chess program called Leela is right now causing a bit of an internet sensation. You might say there’s nothing new about that, after all Deep Blue beat former world chess champion Gary Kasparov back in 1996. But the thing is that the programmers gave Leela no more than the basic rules of the game. Everything else it taught itself. ν

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