Real estate has been estimated to comprise around 50% of the total value of the world’s assets.
Technology and investment managers
Investments into PropTech has been accelerated from a foundation of $1.1bn in 2010 to a high of $27.2bn in 2018. 53% of the real estate companies are investing in at least one type of PropTech firm. Despite this, management of real estate investments and other administrative tasks in the real estate ecosystem is nowadays still analog. Hand-signed documents are exchanged via post, deals are made face to face, and 60% of firms are still using spreadsheets as reporting tools. It is proven, as described in the table below, that software will perform better instead of using spreadsheets in almost all functions.
Figure 1. Software vs. spreadsheet use efficiency by function (Source: PI LABS x OXFORD, 2020)
Fund managers are excited about the use of new technologies to be able to screen multiple projects in-depth, providing them to focus on their investments and situations. Fund managers are an example of the future, the technological change is namely coming. Companies adopting technology can expand their market understanding and gain insights about the risks of each investment.
Because of COVID-19, the digital transformation will accelerate. Investment management teams are decentralized, but in need of a centralized online platform, providing critical portfolio data. Spreadsheets are not needed anymore, instead, teams need access to real-time data, manage tenant relationships, and make informed decisions. The technology could provide real-time data, creating a centralized portfolio.
According to a study with leading real estate investment management firms, one of the companies already recognized the benefits to use a platform to reduce face-to-face meetings and improve efficiency. “I once had to hold 497 face to face meetings all over the world to raise a new fund. It was so inefficient I decided to keep count. There must be a more sustainable way to achieve this, both environmentally as well as physically and mentally.”
Successful future real estate investment managers should be able to streamline the reporting structure and use a standardized system, in which single assets are managed, and portfolio risk and expected returns are described. A reason why commercial real estate owners are not investing in tech solutions is because they think software fail to integrate all their tools, and fragmented data sources in the tech stack. This challenge can be tackled with the use of a single data standard and truly open APIs, allowing the integration of software systems.
A majority of the real estate investment management industry are still using spreadsheets for their daily activities, leading to a great loss of process efficiencies presented by emerging technologies.
The effects of the PropTech market could be enormous. Real estate companies try to remain productive in face of remote working, doing so by shifting all their analog systems into digital, cloud-based solutions. According to a survey from Property Week: “It is reported that 82% of real estate companies are looking to invest in home working and digital tools in the immediate future, while the second strongest preference (50%) is for technologies that foster stronger digital links in the marketplace”. (Source: Property Week (2020): Power of PropTech 2020)
The necessary first step in the strategy of investment management firms is to convert analog data into single, structured databases. The adoption of new digital technologies and technology platforms generate new and in-depth accessible market data, the key for overall real estate transparency. Market transparency creates a more accurate and reliable performance analysis and benchmarking.
Manufacturing and the investment process
Real estate portfolio strategies and asset planning require a demanding depth of market knowledge and tools for measurement and analysis. Machine learning makes it possible to automate data collection by accessing APIs, a link between software packages, and connecting various databases before conducting analyses. AI and ML could provide patterns from these datasets, creating results that are not possible through traditional statistical modeling. Investors could use these models to identify future growth regions, help to pick the best assets, and invest in second-tier cities.
Users need to understand these learning software packages to use them correctly. Because the real estate industry is not heavily populated with data scientists, start-ups are providing this skillset to the investment management industry. These start-ups can build AI- models to provide insight into many different data sources that gave information about interest rates, stock market performances, and financial indicators for example. Besides, AI models could help with cash flow forecasting.
Portfolio management & asset management
To manage a portfolio effectively, an in-depth understanding of risk factors, and the impact on cash flow projects, is required. (cloud) Platforms could provide these analytics, offering new measurements of portfolio-specific and overall risks. It is valuable to predict these risks at an early stage or make an estimation of the future. Technology will help real estate owners to overcome these challenges and navigate them with insights. It provides them to manage risk in a centralized platform and gives them full insights into the depth of each tenant. The possibility to automate the rent roll process can also be fulfilled by these technologies.
In addition, several asset management solutions emerged to standardize and automate workflow processes. These automated solutions are able to reduce administration workload by 75%, saving valuable time that could be spent on driving business growth.
Real estate investment companies are starting to embrace technology, especially in the current macro-economic conditions of 2020. The COVID-19 pandemic has accelerated trends including new technologies, creating huge transformations to develop growth in asset classes. Technology makes it able to centralize portfolio data and offer real-time insights, help to identify risk and new opportunities. Investment managers could standardize and digitalize their existing data, resulting in more efficient portfolio positions. Data analytic platforms aggregate data and automate the analytic process, saving hours of work, and help businesses understand and manage their assets more efficiently.
Companies are starting with the change to adapt to technologies because their predictive power is too great to ignore. The progress of AI is frequently exponential instead of linear, creating valuable supplements to their current processes. If companies are not experimenting or using big data, or digital platforms, they are running the risk to adapt too late.
Source: PI LABS x OXFORD Future of Real Estate Initiative: Technology and the Future of Real Estate Investments.
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