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What is proptech?

In a bid to demystify the language of tech, we have worked on articulating five 'smart strands' of the proptech revolution – an approach which enables us to spot the hurdles and maximise the opportunities for our clients.

October 2018

For all its intriguing, futuristic promise, "proptech" is still a rather nebulous concept. While developers or investors look to contain ever-expanding technology into bricks and mortar assets, proptech might mean anything from installing facial-recognition security sensors to tracking energy usage. It might involve enabling occupier employees to customise individual heating preferences with a smart phone app, or using sensors to follow individuals' movements.

In our view, there are five main elements of the proptech revolution.

Flexibility and servicing occupier needs

The world is changing. The expectations of tenants are changing, and with them the rules of office space provision.

On a practical level, even the most traditional of tenant firms (say, lawyers) are embracing flexible working and looking for opportunities to rationalise office space in response to increasing numbers of home workers, or to allow for peaks and troughs in employment. The youngest players in the serviced office market are already making the most of this move, designing, developing and letting office space that responds to new patterns of working in the growing gig economy, but there are opportunities for established landlords too.

Key to these is the use of proptech that allows landlords to engage more holistically with their occupiers. Some landlords are already comfortable providing hardware to tenants, but increasing numbers are now offering software as well, re-positioning themselves as fully-integrated service providers. Where an onsite office once housed facilities management, this might now be accessed in a virtual space. Engagement apps promise to boost occupier happiness, allowing employees to order coffee, check mass transit information and report lightbulb breakages at the same time. And as live/work buildings become increasingly common, these mixed use properties demand ever more complex offers, tailored lifestyle solutions or visitor experiences, some of which risk pushing the traditional landlord into regulated markets.  

Getting to grips with the products available and future proofing space is a significant challenge which must be tackled to keep a property marketable.

Smart technology is blurring the boundaries of public realm spaces

Landlords and developers are increasingly responsible for designing and delivering public realm amenity as part of the planning process. But with the gates left wide open, questions remain over how land owners actively use technology in this space.

Clearly there are opportunities to monetise advertising or retail space, but there are also security features that lead the land owner into a quasi-policing/counter terrorism role, especially in city centres. Amenity areas and safe spaces are a selling point for tenants and planning committees, but privacy rules must be adhered to and as technology improves, landlords need to understand the legal and practical risks of processing personal data in order to maximise the rewards.

Property monetisation is evolving

The commoditisation of property investment with the adoption of the FRI lease is no longer the last line in income generation: new monetisation models are constantly emerging, driven or assisted by new technology.

Consider the retail sector, where the complications of capturing online sales is delivering a serious blow (for now at least) to high street store turnover rents. Here, canny landlords are thinking outside the shopfront. They are using proptech to collate and package shopper analytics in the common areas of a retail centre, for example, or even to harness physical footfall energy on the street for electricity creation.

There is no reason to leave the design or modification of these products to start-up disruptors. For established real estate players, keeping on top of or spotting opportunities for innovations such as these, each one interesting and exciting in its own right, may become key to maximising the traditional retail income profile.

Data driven revolutions

All proptech is, by its very nature, data heavy, but as well as being a repository for data inputted by building users, it is also generating new statistics and new (valuable) economic models. Even leaving aside opportunities to sell data gathered on shoppers' meandering excursions, smart sensors that facilitate the efficient or environmentally-sound use of office space can reveal telling information about the desires and habits of the individuals inside.

Importantly, however, the collection and storage of personal data by landlords, whether by accident or design, is heavily regulated, with serious consequences for non-compliance. Privacy concerns regularly take up column inches and in May this year, the General Data Protection Regulation (GDPR) came into effect. The upshot is that those more used to locking doors must now focus on making databases safe or face considerable fines.

Of course, new datasets also support the creation of the kind of crowd funding platforms that are turning traditionally illiquid property into a more fluid investment. And, in turn, smaller investors who were traditionally excluded from the market, are attracted by new opportunities to get involved, fragmenting (and potentially de-professionalising) the pool of investors.  

Transaction management

Alongside the burgeoning proptech market there is a point to be made about the way legal tech looks likely to further revolutionise the property world.

For an industry so heavily reliant on personal negotiation and relationships, the traditional adviser role of lawyer or agent is facing the disruptive (and relatively reductive) influence of blockchain. Streamlining the clumsier transactional elements of the conveyancing process and land registration is certainly no bad thing, and technology offers considerable opportunities to manage portfolios more efficiently. Dating agency style apps can even now connect owners and users with fast-right-swipes, cutting out the middlemen with immediate contract creation and electronic execution.

In this landscape, stakeholders must be careful to avoid pitfalls. Established land law concepts are not always flexible enough to keep pace with the virtual world. A "short-term licence" label might not work, for example, when exclusive use of an area points to the creation of a lease, which might subsequently obtain the statutory protection of security of tenure. Traditional property players wanting to hedge occupier risk may, meanwhile, find themselves taking bigger gambles by accepting cryptocurrency security deposits.

You're certainly liable to read a considerable amount about the exciting proptech products on offer, and the efficiency, even the aesthetic, lure of new technology is strong. Still, as we all start to navigate this brave new real estate, consider the bigger picture and remember that, while something is technically possible, that doesn't always mean it is creating a desirable outcome. Without asking the right questions, it ain't necessarily so.

If you have any questions on this article please contact us.

illuminated building
Clare Harman Clark

Clare Harman Clark

Clare demystifies the meaning of "proptech".

"There is no reason to leave the design of proptech products to start-up disruptors. For established real estate players, keeping on top of or spotting opportunities for innovations may become key to maximising the traditional retail income profile."