How technology is transforming and unlocking real-estate asset classes
The line between technology and real estate is blurring, bringing new opportunities and asset classes, particularly in residential, office and biotech, 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 (about £251.1 trillion) in 2021, according to Savills – coupled with its very traditional approach were once barriers to the digitisation of the 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.
Here we take a look at where this is happening within three property sub-sectors: residential, offices and biotech.
Residential property prospers through the pandemic
The residential sector has unexpectedly thrived during the Covid-19 period.
Supporting its growth and stability, technology has generated new ways to buy, sell, rent, invest and manage the asset class.
In the first instance, drones and virtual reality ensured that property viewings 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 likely here to stay.
Many tech companies are developing user-friendly concepts and platforms across the residential value chain. The rapid rise of iBuyers (companies that use technology to make an instant offer on your home) represents a dramatic shift in the way people are buying and selling homes. Key technologies such as blockchain, ‘property passports’ or ‘automated valuation models (AMVs)’ are also being explored to make transactions more efficient.
In terms of lettings and property management, many agents are adopting cloud-based platforms that manage everything from contracts and references to payments.
Innovation is also fuelling investment in new alternative asset classes such as later living, student accommodation and build to rent (BTR). 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 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 per cent 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.
Office-space evolves to reflect new working patterns
The pandemic has also been the catalyst for a major shake-up in offices, 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 contract in the long term.
Most companies are indicating that hybrid working patterns are here to stay, which is leading to an overhaul of the design and operation of office buildings. Alongside this, companies are looking at how to bring their people back into offices in meaningful and safe ways, with a heavy slant on technology.
Technology is supporting new ways of working. In the first instance, video conferencing services 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 to promote collaboration and efficiency.
While flexible office space was becoming established ahead of the pandemic, its appeal as an asset class is forecast to accelerate as flexible 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.
Life sciences presenting huge opportunities
The life sciences sector has gone from strength to strength, 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 needs of this fast-growing industry. According to JLL, £15 billion of capital has been allocated to UK life sciences real estate, out of which less than 10 per cent has been deployed to date, presenting huge opportunities for investors and developers.
Development strategies are focused on growing 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.
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 and wellbeing.
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 spending in artificial intelligence (AI) and digital healthcare begins to bear fruit, the real-estate sector will need to respond yet again and create specialist treatment centres for more personalised health services.
Proptech investment surge reflects real-estate’s future
With property-related technology (‘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.
Data published by PitchBook shows venture investors pumped $20.5 billion (about £15.8bn) 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.
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By Samantha Kempe, Co-Founder and Chief Investment Officer of IMMO Capital.
All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
Image credit: ©Getty Images/LPETTET