The future of real estate
Total Property - Issue 6 2017
Smart buildings, asset class disruptors and Facebook as a mortgage broker … Total Property examines the future of commercial property.
Andrew Baum, who leads the Oxford Real Estate Initiative at Oxford University, has been touted by many as the smartest professor in real estate. Total Property talked to him last year about the challenges facing the commercial property sector and what the future held for those working in it.
One of Professor Baum’s key interests is the effect of technology on the real estate industry. He has just published a 95-page research paper on the topic, PropTech 3.0: the future of real estate, which covers everything from the crowd-funding of real estate purchases and rise of smart buildings to the failures of property-focused tech start-ups and a possible future for Facebook as a mortgage broker.
Professor Baum’s report looks at PropTech - the term used to describe technology-based platforms that aim to facilitate:
1. The operation and management of real estate assets, such as providing information about the performance of a building or urban centre; 2.The use of real estate assets, such as providing information for prospective users and sellers of space or that helps effect rent- or fee-based transactions; and 3. The trading of real estate asset ownership.
Here Total Property summarises the key findings of the report:
The generation gap
The real estate industry is one of the last to adopt technological change and the innovation that technology can bring, Professor Baum writes, but he believes this “should present a massive area of opportunity for entrepreneurs”.
However, he expects there to be more failures than successes.
“Right now, thousands of extremely clever people backed by billions of dollars of often expert investment are working very hard to change the way real estate is traded, used and operated. It would be surprising, if this burst of activity does not lead to some significant change,” Professor Baum writes.
“No doubt many PropTech firms will fail and a lot of money will be lost, but there will be some very successful survivors who will in time have a radical impact on what has been a slow-moving, conservative industry.”
Professor Baum notes that the generational divide will affect the speed and nature of PropTech development. The millennials may have the smart ideas and technological know-how, he says, but they will need the industry expertise and capital of the baby boomer generation to turn their ideas into reality.
His surveys of the industry highlight tensions between the two generations. “From one side, we heard that none of these start-ups know what they are doing and that young entrepreneurs misguidedly regard real estate as a sure thing. From the other, we heard that real estate people are not good at strategy,” he says.
Smarter buildings, smarter decisions
Smart, energy-efficient buildings are fast becoming the norm. In New Zealand, there has been a surge in the number of new commercial developments seeking Green Star ratings. According to Bayleys research, most office occupiers believe that a building’s Green Star rating will be an important factor when making their next move.
Professor Baum says that the market’s huge appetite for smart buildings and the increasing availability of the technology should encourage development in the sector and give focus to real estate developers.
However, he warns that smart building technology will likely accelerate the obsolescence of lower-grade buildings. "Some buildings will be re-imagined, but we will need more urban high rises and some property types will find themselves in the wrong locations, too far from the front office, the communications network and power."
Facebook as a mortgage broker?
The FinTech industry – in particular, online payment systems, crowdfunding equity and debt platforms and online exchanges – provides the foundation for a large part of the PropTech revolution, Professor Baum writes.
He thinks services providing data, such as searchable land registries, will become an integral part of the real estate landscape, but he doubts the transaction aspect of Real Estate FinTech - populated largely by crowdfunding/distribution and secondary market platforms - will make much of an impact.
He believes that the large traditional brokerage model should be ripe for disruption, but predicts that the big brokers will instead buy up the best technology and companies that threaten their dominance.
"We can expect to see traditional broking and advisory businesses cherry-picking the best ideas and moving into the space currently occupied by the more thoughtful start-ups.”
One interesting prospect Professor Baum raises is that Facebook, with its reams of data and access to capital, could become a mortgage lender. “Facebook might use its customer base to offer loans and become a bank with a balance sheet,” he writes.
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