Sangeeta Venkatesan, Investment Director of EG’s $100m technology incubator EGX, spoke with Institutional Real Estate Inc. on the future of proptech and how it’s reshaping not only Australia’s property markets but the global landscape of institutional real estate.Authored by Benjamin Cole, the original version of this article was published in the April 2022 issue of Institutional Real Estate Asia Pacific.
Real estate investors, managers and brokers traditionally have based their decisions on a “vast array of retrospective data, coupled with intuition,” says Sangeeta Venkatesan, EGX investment director at Sydney-based EG Funds Management. “This process is arduous, often rendering analysis and opportunities obsolete by the time results are delivered.”
Property information technology — or proptech — is a welcome response to this conundrum. These days, proptech is reshaping the institutional real estate industry in Asia Pacific and around the globe — from pre-development, through construction to management, and then to possible disposition.
Why the surging interest? Proptech allows institutional investors to better select developments and acquisitions, and understand local and global markets. It also allows investors to closely monitor building construction and management, and to improve tenant relations and services. Proptech helps buildings go green more efficiently or to market for lessees. And, finally, it helps institutional property investors sell, finance and buy assets.
ESG and proptech
Most proptech experts prominently mention environmental, social and governance (ESG) issues as one area in which advanced IT is making real headway in the institutional real estate industry. More specifically, proptech helps in reducing energy consumption and, thus, reducing carbon emissions.
While the technology for modelling building energy consumption and other functions has become more advanced, interacting with these systems has become more user-friendly and routine. The global platform Willow, for example, sells a service known as digital twin technology. “Their digital twin is a virtual replica of how a real asset operates and works in real time, including monitoring fault detection, predictive maintenance, and capex planning and reporting, providing value for building managers and, ultimately, investors,” explains Venkatesan (EG Funds Management is a co-founder of Willow).
With the pandemic, long-standing concerns have been heightened regarding interior air quality in commercial assets. As with energy consumption, new sensors integrated into building-management software detect and correct early change in interior air quality, usually in conjunction with the installation of later-generation air-filtration systems. There is also the benefit of high levels of oxygen aiding health and productivity.
Office occupiers can breathe more easily if they know air quality is continuously monitored and corrected.
Proptech and institutional deal sourcing, sort of
Although proptech is reshaping certain online business-to-consumer real estate markets, such as those for homebuyers and syndication investors, in some regards the world of institutional-scale property transactions remains somewhat beyond its ken.
That said, advanced technology has sped up and increased the amount of information big dealmakers have at their fingertips regarding local, national and global property markets, which enhances the ability to estimate relative values.
EG Funds Management is among the many investment managers getting a proptech assist in evaluating properties.
For more than a decade, the firm has consulted a proprietary risk-management system, named PRISMS®, to help gauge acquisitions by focusing more on data and less on top-line results, says Venkatesan.
“The software draws on a wide range of asset, multi-sector and economic data sets to help us identify, evaluate and price risk in a particular real estate investment,” explains Venkatesan.
The PRISMS® software is not fazed by an asset’s headline return or marketing materials, but rather, coldly analyses a property’s risk-to-return ratio, based upon numerous pedestrian inputs that can be overlooked in the hubbub of dealmaking. The PRISMS® software enables the firm’s negotiators and purchasers to better understand property assets across locations or sectors, and choose assets based upon risk-adjusted returns, says Venkatesan.
Although the art of finding and negotiating an institutional-grade property transaction may still rest on mere mortals, more often than not the dealmakers are coming armed with much better and more deeply understood data than a generation ago. Woe to the negotiator who shows up unprepared.
Building managers and owners today have access to a widening wealth of tech wizardry to better attract tenants. A unique website and presence on social media platforms are a bare minimum for larger structures. And given office buildings are now all but expected to double as social-business hubs for tenants, having the “right vibe” online is imperative.
Propelled by the pandemic, more business managers are adding the virtual walk-through to their kit of marketing tools, such as one offered by Sydney-based Inspace that allows building managers and prospective tenants to “see” available quarters and layouts.
Many office buildings now have their own online and smartphone-friendly apps that not only automate tenant billing, payment and other administrative tasks, but also allow lessees to indicate services needed, reserve conference room space, or even order lunch in, among other features.
Tower of Proptech Babble?
The world of institutional real estate is so vast and idiosyncratic that efforts to develop standards — as seen with ESG metrics — run into inevitable barriers regarding universality.
The proptech industry is attempting to address a kaleidoscope of evolving institutional property markets with thousands of participants, but it has thousands of purveyors, each hawking products that may not be compatible with each other.
The fragmented proptech landscape means “standardised technologies appropriate across building types and applications are difficult to develop,” reports JLL. There is a dearth of “industry standards across a range of core issues from data collection and processing to software design.”
It will take cooperation among the tech purveyors, investors, real estate industry groups and government to resolve the current proptech hodgepodge, suggests JLL.
Some progress is being made in international BIM standards, and energy consumption and measurement issues more readily lend themselves to benchmarks than other, softer concepts. But at present, the rapidly growing proptech sector is diversifying, rather than unifying, say experts.
According to Venkatesan, successful investors, asset managers and brokers must follow the lead of the financial services sector by investing in big data and AI technology to remain competitive.
“The unique challenge for real estate data science initiatives is to firstly obtain data, which historically has been opaque and not systematically collected,” adds Venkatesan. “The built environment presents huge sets of data obtained from numerous sources that remain largely untapped.”
This means real estate industry players have a large role to play in tapping into — and skilfully interpreting — that data.
The bottom line
Proptech is altering the institutional real estate dealmaking, management and marketing landscape in Asia Pacific and around the world, more so with each passing year.
At present, the sector is bedevilled by integration challenges, with many vendors in the space with offerings that may not be interoperable. Universality is not yet the norm.
In general, however, the market sorts such problems out, usually leaning towards user-friendly devices and software, which in turn set de facto industry standards.
In the future, one can rest assured that more institutional-grade structures will be operated by building engines, more tenants will pay rent through their smartphones, and more property dealmakers will use tech wizardry while in negotiations.
The age of proptech has begun, and the ultimate ramifications may be both less predictable and more far-reaching than anticipated.