How proptech can revive a sector in crisis

Embracing AI, construction technology and virtual tools to allow remote access and exploration of properties is becoming the norm, enabling real estate to be more adaptable to changing market conditions.

The economic shift experienced by the western world with the return of inflation and central bank interest rate hikes has impacted commercial real estate transaction volumes.

Construction activity has also experienced a slowdown, exacerbated by labor shortages. Amid the turmoil, the property sector has begun to proactively embrace and adopt new technologies to navigate change.

The property sector is no longer as innovation-averse as it has traditionally been. According to commercial brokerage JLL’s 2023 Global Real Estate Technology Survey, over 80 percent of real estate occupiers, investors and developers plan to increase their real estate technology budget in the next three years. Turbulent times play a crucial role in this change of mindset.

James Harvey, head of proptech solutions for CBRE Japan, argues that, over the years, technology has been instrumental in uncovering efficiencies, with crises being a catalyst for the discovery and adoption of tech solutions.

He gives an example: “Post-GFC, there has been a great deal of investment in and focus on improving predictive analytics, and this is an area where recent advances in AI can help companies anticipate market trends and adjust strategies accordingly, potentially improving the precision of forecasts and reducing financial risks.”

Efficiencies are also front of mind for Jack Sibley, head of proptech and innovation at UK urban regeneration group Related Argent. “In times of crises, efficiency can become a greater priority for businesses. If adopted correctly, technology can help scale human resource and help businesses operate more efficiently. For example, smart building technologies can generate a significant monetary ROI through reduced energy costs, as well as supporting net-zero goals.”

“If adopted correctly, technology can help scale human resource and help businesses operate more efficiently”

Jack Sibley, Related Argent

Beyond the expansion of climate-related technology – an ongoing trend – industry experts canvased by PERE say the adoption of AI, construction technology and virtual tools to allow remote access and exploration of properties becoming the norm in today’s environment, helping make real estate more sustainable, efficient and adaptable to changing market conditions. Here we explore these three trends to watch.

Embracing AI to act faster

The integration of artificial intelligence into real estate has been one of the top trends lately, industry sources agree. “AI is transforming the way real estate companies operate, from data analytics and task automation to the ability to gather and interpret unstructured data. This is leading to more efficient and informed decision-making, as well as new and innovative products and services,” says Raimondo Amabile, co-CEO and global chief investment officer at asset manager PGIM Real Estate.

Given AI’s ability to scan data and find meaningful patterns quickly, some of its most common current uses are predictive analytics for property valuation estimates and forecasting to anticipate where the market is headed, says JLL’s chief technology officer Yao Morin.

AI can identify trends and opportunities according to investors’ risk tolerance and market conditions. For instance, in Q1 2023, one in five of all JLL’s capital markets and debt advisory pipeline opportunities was enabled by its AI-powered platform Horizon, which can analyze over 1.25 million global properties and institutional transactions of the past 20 years. “Our recent research shows several use cases that are currently – and have the potential to – create a measurable impact on CRE, including [Internet of Things] data mining for automated facility management, price modeling and predictions for investors, and matchmaking for leasing transactions,” Morin says.

Many aspects of AI adoption in real estate are still in their infancy, though, mainly due to the complexities of decision-making in the real estate sector, data challenges – such as lack of standardization – and regulatory hurdles.

“Solution providers’ desire to capitalize on the attention AI is getting today and incorporate it into their offerings is, in most cases, not yet fully matched by their success achieving it, but we are getting there,” says Soheil Pourhashemi, senior vice-president, business technology, at Brookfield Properties.

Despite being early days, the industry has high hopes for the possibilities offered by AI-powered solutions.

“AI will empower commercial real estate professionals to act faster and more effectively, while making better-informed decisions. Leveraging AI will also help CRE experts keep a closer eye on real-time market movements, creating an advantage for clients who would otherwise be working with dated information,” Morin argues.

Transforming construction to address inefficiencies

Rising construction costs and a shortage of skilled labor are contributing to an increased adoption of construction technology – often referred to as ‘ConTech’ – that is rapidly reshaping the sector. In fact, construction technology is the most significant disrupter for real estate in 2023, according to industry experts surveyed for this year’s Emerging Trends in Real Estate US and Canada report, jointly published by PwC and the Urban Land Institute.

“Over the past 12 months, there has been a consistent trend of increasing adoption of ConTech solutions, driven by the acceleration of technology adoption in response to market dynamics such as labor shortages and sustainability demands,” PGIM’s Amabile says.

“Automation has become indispensable in the construction industry, with the emergence of robotic solutions addressing repetitive, labor-intensive and hazardous tasks, ultimately fostering a safer and more controlled work environment for laborers.”

Amid rising construction costs, the growing adoption of prefabrication and modular construction methods is also noteworthy, says Jonathan Klein, founder of New York-based Proptech Consulting.

“These techniques offer faster, more efficient and sustainable building methods, leading to reduced waste, cost savings and enhanced quality control.”

One of the private equity real estate managers using modular construction is Greystar. The South Carolina-based company recently opened a flagship manufacturing facility for its modular construction business, Modern Living Solutions (MLS), which focuses on attainable and sustainable housing.

“We believe MLS will help increase housing supply in America, turning projects into products in a factory setting, focusing highly on quality control, the reduction of waste, quality of materials used and speed to market,” says Scott Berka, senior managing director of brand and customer experience for Greystar. “By combining the development, construction, and modular manufacturing in a vertically integrated business, we’re able to deliver design-conscious and cost-effective apartments.”

Related Argent’s Sibley highlights the use of other construction technologies to increase efficiency and safety on construction sites. “As a developer, we partner closely with our contractors in areas such as health and safety, where we have piloted a wide range of innovation technologies from drones to IoT sensors to help improve outcomes on our sites,” he says. Although standardization is often a cornerstone of scaling technology, the innovative solutions emerging within the ConTech arena are revolutionizing traditional construction practices by introducing efficiency, precision and sustainability.

Remote access to optimize processes

As CBRE’s Harvey notes, a covid-boosted trend that has matured over the past 12 months is the adoption of remote property management solutions and property marketing technologies, such as digital twins and virtual tours. “Landlords and property managers are increasingly using technology to remotely monitor and maintain properties, enhance tenant safety, and boost operational efficiency,” he says.

Digital twins are often more data-centric than virtual tours and may include information beyond visual representations. They can integrate real-time data from IoT sensors to manage spaces and systems remotely and proactively, while optimizing energy consumption and reducing operational costs.

This technology can be especially useful when managing large-scale mixed-use complexes. Previously separate asset classes are increasingly blending and it is common to see buildings with three or four asset classes in the same structure, such as office and retail but also co-working and residential. Digital twins, for instance, help engineers operate facilities at peak efficiency in major mixed-use properties, Brookfield’s Pourhashemi notes.

“ AI will empower commercial real estate professionals to act faster and more effectively, while making better-informed decisions ”

Yao Morin, JLL

Virtual tours, on the other hand, focus primarily on providing a visual representation of a property. This technology plays an increasingly important role in the homebuying process – especially for customers buying off-plan homes, Sibley says. “We utilize virtual tours and view unit-level virtual tours as a critical evolution in technology as we move to centralized services and customer self-service.”

PGIM’s Amabile stresses that virtual tours have not and will not remove demand for in-person tours, but they certainly help refine them. “Another benefit of virtual tours is that you have the ability to view data about the user, which allows companies to build a profile of who is viewing the links, their industry and interest.

Building this data is a powerful tool for companies to better position their assets for leasing, buying or selling, and this data is powerful en masse.”

Among the challenges of this technology, the creation of high-quality virtual tours can be costly and time-consuming and, while the quality of virtual tools can vary, poor execution risks deterring potential buyers, Amabile explains.

“Despite these challenges, virtual tours continue to rise in popularity as demand for this type of technology increases, as they offer a convenient and efficient way to explore properties. As technology continues to improve and costs come down, we can expect to see virtual tours become even more widely adopted in the real estate industry.”