Proptech will die. “It will be simply the way of doing things”

Proptech has rapidly become an integral part of the real estate business. So rapidly in fact that in a few years from now the term won’t exist anymore. It will simply be the way of doing things. That is one of the main conclusions that Adrian Levy and Matt Taylor, partners at international law firm Clifford Chance, draw from research they have been doing into the proptech market.

Their report, Talking Tech: Real Assets, published in November 2018, looks at the impact of proptech on various parts of the value chain: venture capital, investment, office, logistics, retail, residential and legal. For the report, various experts from these different fields were interviewed. “What surprised us”, says Levy, “is that every single asset class today is immersed in proptech one way or another. Everyone is looking at it, all the large companies, at boardroom level.”

Despite the huge interest in proptech, Levy and Taylor do not believe it will change the market overnight. “There won’t be a big bang moment when people are suddenly all using blockchain in their buying and selling. But what you see is that people are using data more actively, both externally and internally, to back up their investment decisions. You also see buildings gradually become smarter. Sensors are being put in. A lot is happening, but quietly.”

Holy grail

A good example of a real estate company highly active in proptech is the big retail developer Hammerson, says Taylor. “They are looking at new technologies, both on the owner side and on the customer side. They are working with start-ups to enhance their service to consumers. For example, they have an app where you can take a picture of an item you would like to buy and it will take you to that item in one of the stores in their shopping centres.”

Although the proptech movement is developing gradually, the two partners believe that in the end it will transform the real estate business. “The holy grail”, says Levy, “is a platform that does everything from building management to transactional activity. A single entry point for all the functions and searches you need in real estate. Once you bring all the resources you need onto a single platform you will have an incredibly powerful tool.”

Taylor notes that Microsoft and other companies are experimenting with digital twins of physical space. “Many aspects are quite advanced, for example tracking how long the life is of every light bulb in the building. Once you build in the legal contracts and put that onto a transactional platform you start to get more power out of it. That is how you will make real estate much more liquid.”

Who will own this holy grail? The incumbent real estate companies – or new entrants? Levy: “I think the ones who see it as an open platform, who will allow people to plug in, will win. If a big incumbent gets it right, they are in a better position to create these platforms than newcomers. They have the resources, the technology, the knowledge of the business. But if they get it wrong, they could suddenly find the market moving to this kind of platform, and be left behind.”

Taylor concurs. “The thing about platforms and other new technologies is that the more people use them, the more useful they become. The process accelerates until it reaches a tipping point, after which it suddenly becomes the normal way of doing things.”

“That’s why the word proptech will die”, Levy observes. “When you look at what is going on in the business today, almost everything falls within proptech.”

Highlights from the report Talking Tech: Real Assets, by Clifford Chance

The report Talking Tech: Real Assets, published by Clifford Chance on 7 November 2018 contains in-depth interviews with six top experts on proptech trends in various parts of the real estate value chain: venture capital, investment, office, logistics, retail and residential. In addition, Adrian Levy and Matt Taylor shine their light on how proptech affects the legal side of the real estate business. The report is freely available on the Clifford Chance website here.  (https://talkingtech.cliffordchance.com/en/industries/proptech/talking-tech--real-assets-thought-leadership.html).

"Proptech has rapidly shifted from something on the horizon to an integrated part of the property sector. It creates new opportunities and income streams and is inextricably linked with the move from a landlord/tenant relationship to a focus on customer experience. The increased adoption of proptech will throw up new legal dilemmas and businesses need to be prepared for the changes to come."
Matt Taylor, Partner and Head of UK PropTech, Clifford Chance

“Proptech is all about transparency, about sharing info. This means larger firms will be in a much better position, simply because they receive so much more data. Big is beautiful.”
Adrian Levy, Partner, Co-head Global Real Estate Sector, Clifford Chance

“Deals are increasingly cross-border – it is very rare that we work on a transaction that doesn’t have at least some international element. That means the ability of a firm to share market knowledge across the globe is critical. The challenge is to find a way of taking the data that a firm has, analysing it on a systematic basis and then pushing out key insights at the right time.”
Matt Taylor

“The holy grail is a platform that does everything from building management to transactional activity. Can you imagine one package that gives you real time reporting on all aspects of a building; past financial performance, future anticipated performance, changes to legal documents and asset level information? If this is standardised and you layer onto that the tokenisation of real estate, it would allow a building to be sold at any time. That’s incredibly powerful and could change market liquidity and the way we look at real estate as an asset class.”
Adrian Levy

“I can’t see a totally digitalised market, because suddenly having access to a million different data points doesn’t necessarily help. You still have to posit a hypothesis, do an independent analysis, and study the processes. More data is great, but there’s so much more work that needs to go into it. In real estate, value, price and worth are all very different things and tech isn’t going to change that.”
Peter Hayes, Global Head of Investment Research, PGIM Real Estate

“The idea that there’s some data driven pricing model for real estate and that an algorithm will take over is not realistic. But the collection of big data does offer opportunities on the operational side – on a very granular level we can see where and how space is being used, optimise resources and allocate capital efficiently. In terms of targeted marketing, you can understand a whole lot more about retail consumers, and use it to tailor the offering – although after capturing the data you do have to confidently evaluate it. This in turn improves investor confidence.”
John Sarokhan, Global Investment Risk Director, PGIM Real Estate

“I don’t think we’re even scratching the surface of how proptech is driving the office sector. For all the attention that proptech is getting today and the investment into it, you’re not going to see the fruits of that labour for some time. But over the next few years there will be significant advancement. We know the areas of concern but there’s a huge amount of noise to distill through.”
Charlie Green, co-founder The Office Group

“In the logistics sector, we think the key change will be that smart connected warehouses with digital twins will be the norm. They will be sustainably built, well located, well connected to the outside world, and there is a fair chance they will generate, store and manage power. This potential new network of power may solve what people are calling the energy trilemma: availability, cost and sustainability. From an owner’s point of view, there will be much greater insight into what’s going on in the building without actually having to be there.”
James Power, Director of Digital & Technology, SEGRO

“The retail sector will likely be much more unified, with no more barriers between the offline and online worlds. This trend towards the convergence in retail is already ongoing and we expect it to develop further. At the same time, shopping should become much more individualised, thanks to a smart use of data but also to the rise of new technologies allowing personalisation. Last but not least, we should also see the rise of the experiential dimension, with people rediscovering the joy of spending time and experiencing things together.”
Julie Villet, Director URWLab and CSR, Unibail-Rodamco-Westfield

“The property market is broken. The problem is that most developers want to build condos or flats that are sold to speculative investors who bank on the capital appreciation as a pension plan but are less interested in the rental side. What this has done in our cities is create dysfunctional living residences with multiple landlords, no real cohesive management nor a focus on customer service for the residents that live there. There’s a lot of room for people in this sector to reduce this trend and create something that’s not based on short term profit but something that’s good for society and offers very attractive returns for institutional investors.”
Anil Khera, founder of Node