Refilling offices: Is proptech the solution?

During 2020, cities around the world resembled ghost towns. Once thriving business districts were deserted, with entire office complexes solely populated by flocks of confused pigeons. Life in lockdown had significant financial impacts for many sectors and office infrastructure was no different. These huge assets – often commanding prime city-center locations – were in many cases made redundant as workforces carried on in spare rooms and via video calls.

This has hit investors. In May 2021, British Land – one of the UK’s largest landlords – reported that covid-19 had wiped off over £1 billion ($1.4 billion; €1.2 billion) from the value of its shops and offices. The FTSE 100 company’s property holdings fell by over 10 percent in value to £9.1 billion in the 12 months to March 2021, with offices in particular losing 3.8 percent. However, as workforces re-emerge and companies prepare for a return to the office, what can be done to enhance the value of physical workplaces and entice employees back?

Property technology is being heralded as one potential solution. Proptech, as it is commonly known, entails the installation of technology within physical workspaces and offices to improve their management. Landlords may have not paid these as much heed before, but the applications of proptech could play a role in a post-covid-19 world.

“Our and our industry’s use of technology to improve the office, and enhance the experience of our tenants, has grown meaningfully in recent years,” says Brad Hyler, managing partner and head of European real estate at Brookfield.

“Advanced building management systems, tenant engagement phone apps and touchless entry are just a few examples of how we are using or exploring proptech as a tool to create the most user-friendly, safe and welcoming work environment we can, and we continually seek out and test new tools that can help us do even more.”

Understanding the tech

Proptech is an expansive term and can cover several applications of technology in property. In the UK, many workplaces had to introduce covid-safe measures after initial lockdown measures were eased. This included things like spacing out workers’ desks to respect social distancing requirements, installing sanitizer stations throughout properties and even staggering working hours by splitting teams into separate bubbles.

Proptech takes this approach further, with new functions designed specifically to protect workers’ health and safety. Pan-European venture capital firm Speedinvest is increasingly featuring proptech investments in its portfolio, and partner Heinrich Gröller says the pandemic has reset office requirements.

“Providing safety is only the necessary base layer for an attractive office space,” says Gröller. “The biggest task is to create usable spaces that provide everything that workers need to concentrate on their main tasks. This includes building offices around the idea of flexible work, along with offering useful amenities like food delivery and digitizing as many administrative tasks as is possible.”

“Advanced building management systems, tenant engagement phone apps and touchless entry are just a few examples of how we are using or exploring proptech”
Brad Hyler
Brookfield

Proptech allows for landlords and office owners to manage their environments better. This can include occupancy management systems, testing centers and even better ventilation and temperature control facilities.

PropTech1 Ventures is an independent venture capital fund operating in Germany, established specifically to invest in the rise of proptech. Managing partner Nikolas Samios says this has presented several opportunities and, given the respiratory nature of covid-19, means landlords are increasingly exploring air control measures.

“In the middle of last year, it became pretty clear very quickly that air purifiers that capture the coronavirus have become the minimum requirement for an office,” recalls Samios. “Of course, there’s a plethora of digital measures that help make the workplace much more secure.

“For example, immediately after the outbreak, one of our portfolio companies – Thing Technologies – started to integrate different features in their office apps, such as infection tracing based on space and desk bookings, automatic workspace layouts for the six-feet [distanced] office, or occupancy sensors that are crucial, especially for large retail spaces.”

This example of office infrastructure control from the point of a smartphone app reflects a core tenet of proptech. These systems can use sensors installed throughout offices to offer landlords greater oversight and, potentially, help mitigate potential outbreaks of covid-19.

WeMaintain is a tech start-up that offers digital site management, a growing demand from many landlords. “Owners and operators now have to compete with the safety and comfort of the home office,” says its UK managing director Tom Harmsworth. “Thanks to data analytics, office spaces can use technology to make buildings more efficient, cost-effective, functional and attractive to the end-user.

“If owners and operators want to encourage businesses back to the office, the ‘internet of things’ gives asset owners a new level of responsiveness and intuition to support customer service solutions, critical during an era of hybrid working.” This digitization also extends to how properties are leased and sold to tenant companies, something that can drive efficiency beyond that of the worker. Gröller says: “Going forward, augmented reality/virtual reality tours will most likely not replace a physical inspection during the rental process, but a successful virtual tour – with or without virtual assistance of the agent – will be a prerequisite to make a first selection of possible spaces.”

Monetizing proptech’s data

Sensor networks in offices have the potential to give site managers greater oversight over occupancy, but according to experts these advantages can stretch further and help businesses adapt to new working patterns.

New working patterns represent a change in employee expectations as a result the pandemic. Being able to work remotely during lockdown has led many people to re-evaluate where they work. A survey from the UK’s Advisory, Conciliation and Arbitration Service found 55 percent of employers expect their staff to continue working from home part-time beyond the end of the pandemic.

“Implementing greater levels of tech within a premises increasingly makes it easier for landlords to let the space”
Ian Bragg
BNP Paribas Real Estate

Many people have realized they can have productive and successful careers from the comfort of their own homes, which raises challenges for employers regarding recruitment and talent retention. This, in turn, raises challenges for office infrastructure investors.

With new working patterns and employee expectations to adapt to, some employers are assessing how they make use of their office assets. The insight offered by proptech is an important part of this, according to Harmsworth, who says landlords can use analytics to make ‘churn predictions.’

“By analyzing this data, we can start to see how a building operates normally and identify what changes in how the building is used may mean for a landlord,” he says. “For example, if we can see that traffic to the single tenant on the sixth floor of a building has increased by 20 percent over the last quarter, we can infer that this company is growing and therefore may require more office space in the near future. They may decide to lease more space in the existing building or look elsewhere.”

This data can then be used to alert the landlord to a potential change of tenancy, meaning they can pre-empt discussions and manage occupancy for greater rent yield. Flexibility of both supply and demand could increasingly come to influence how office infrastructure is let and therefore valued, with Harmsworth predicting a hotel-booking approach being adopted in the sector.

“In a word, proptech enables ‘hotelification,’ thereby making buildings adaptive and user-friendly, giving the customer ease of communication and flexibility in how they work,” he adds. “This keeps landlords in control and able to anticipate change.”

Can investors afford to ignore proptech?

Office landlords are faced with a choice – to install proptech or not – but this is part of a larger debate facing the long-term viability of this real estate. Companies are divided with some extending flexible hours, while others are reverting to more traditional arrangements. Offices are expensive but, in assessing the need for proptech, are they essential to companies?

“It’s difficult to attribute a distinct value increase from proptech,” admits Ian Bragg, senior director at BNP Paribas Real Estate. “However, implementing greater levels of tech within a premises increasingly makes it easier for landlords to let the space.

“We are certainly seeing a growing demand from landlords and tenants for proptech to be installed when buildings are being refurbished. The trend isn’t going away.”

Proptech awareness is spreading. With some office infrastructure investors starting to realize the long-term potential of this trend, this tech is featuring more permanently in sites.

Jeff Meek, product marketing manager at Cisco Smart Buildings, says more office infrastructure is being custom built to accommodate proptech and – by extension – new working patterns. “For many organizations, in-person collaboration has been considered the keystone of their culture,” he says. “It will likely forever be a hybrid workplace, where it can be expected that there will be at least one person remote for every meeting. This emphasizes the need for more collaboration devices and more flexible workspaces. By leveraging innovative proptech technologies, architects, developers and operators can add value to planned or existing structures. The result is that any new facility must consider incorporating proptech in the design not as an after-thought.”

The change to offices is not just about occupancy management and fitting in with new working patterns. Covid-19 is a deadly pandemic, bringing health and safety to the forefront for all employers. Fears of infection are significant and have repercussions for employers and the workplaces they invest in and provide.

“The days of the static, traditional office space are over,” says Mark Furness, chief executive of flexible workspace software provider essensys. Landlords must undergo a transformation, from asset owner to experience providers, to accommodate new ways of working.

“Proptech can provide a consistent in-building experience and the tooling that enterprises require to use the office safely. The ultimate goal is to create workspaces that people feel comfortable returning to, foster productivity and innovation, and help employers attract and retain talent with the office experiences their employees want.”

Lockdowns may have hit office valuations in 2020, but many investors will now be assessing the long-term outlook of this sector. Physical offices will still have a place in worker’s hybrid working preferences, but this has now fundamentally changed with greater requirements being put upon landlords, from both a safety and comfort perspective.

“One thing is for sure: after the pandemic, commercial real estate will not be the same,” reflects Samios. “Landlords are now forced to reduce their costs through digitalization, simply because they will rent out fewer square meters or at a lower price, as tenants have many solutions to provide their workforce with what they want.”

Regaining control for landlords may be possible via the use of proptech which, at the very least, could afford them greater data to work with. The notion of commuting and working 9-5 in a physical office may seem old-fashioned in light of the apparent success of working from home, putting the onus on office infrastructure to evolve as well.

Samios adds: “The best locations with landlords that are responsive to the changing conditions will always have a good future. It is only now that the innovative process starts, as office buildings have a lifespan of around 60 years.”