Real estate innovation is hampered by “lots of cooks” solving “micro solutions” without tackling the industry’s biggest challenges, according to the CEO of Allianz Real Estate, West Europe. Do you agree?
“It’s clear the real estate industry as we know it is in need of digitalisation, in need for more innovation, different business models, more tech,” Alexander Gebauer said at a debate at the ULI Europe Conference in Brussels last week.
However, he decried proptech as “highly inefficient”, citing JLL research that identified nearly 8,000 startups in the sector last year.
“The people working in the proptech industry… you often don’t understand real estate or the complexity of real estate, as a business of scale,” he said.
“There are lots of cooks cooking, trying out new recipes, which ultimately – probably most of them fail. The solutions we see and identify… are often very small, micro solutions and attack the smaller problems, not the real problems that many, many companies in the real estate business have.”
The Oxford-style debate, chaired by Mishcon de Reya partner Susan Freeman, pitted Gebauer’s criticisms against the pro-proptech views of Khadija Nadi, CEO of DeltaQ and Gregory Dewerpe, MD of A/O PropTech.
Case for proptech
“We need to establish the fact that there is not a scenario where we can ignore innovation and technology in this industry,” Dewerpe said in his rebuttal.
The only way to meet customer demands, to tackle climate change and to add value to buildings in a low rental growth environment, he said, is through tech.
“In a world where cap rates are so low, every euro you can save through technology innovation is going to create 30, 40, 50 euros of enterprise value,” Dewerpe said, adding that in some cases, A/O Proptech’s real estate partners have created €300m of shareholder value by integrating one product.
Acknowledging that there are a lot of startups working on a lot of products, Dewerpe said businesses need to be able to spot which ones are essential. These are products that solve operational, financial and climate-related problems.
“Most probably you don’t have time to deal with a nice-to-have right now in this current environment,” he said.
Nadi added that there is a stark difference between real estate’s “fixed mindset” – which only sees problems and complications in innovation – and proptech’s “growth mindset”, which seeks out solutions.
She argued that while there is truth to there being a language barrier between proptech and real estate, that is now changing as more real estate experts enter the innovation sector.
“We need co-operation… we are not anymore in the world of ‘I’m the buyer and you’re the supplier’ because this is not how transformation works. It’s about collaboration,” she said.
Is innovation really fixing the big issues?
While Gebauer did not dispute that real estate has to “step up the game” in innovation and work with proptech more closely, he questioned how much value some startup products actually add.
“When was the last time a tenant called me and asked if we can have a tenant app? Never. It’s a hype topic. Probably useful, nice, but this is not essential,” he said.
Compounding that problem is what he called the “vast universe of solutions” where it’s difficult to separate the products that will prevail and last from the ones that are “just nice ideas”. Moreover, as you implement more products, assets become increasingly complex to manage from a data perspective.
Nadi countered that tenant experience apps could well be important if you’re a tenant – or an employer who wants to entice people back to the office.
“You look at employees today, most young people do not want to work in a company where the office is not sustainable, where there’s no clear experience if you come to the office. I mean, why would I not stay just home working?” she said.
Meanwhile, the maturation of the proptech industry and emergence of “platform solutions” are starting to address Gebauer’s other worries, Dewerpe argued.
“There are enough mature solutions out there that are rolled out across millions of square feet or square metres that have been proven, that are resilient, that you can adapt without having to think about execution risk,” he said.
He added that landlords “don’t actually have to get lost” in proptech’s vast universe because there are platforms that allow asset managers to plug in specific products and control them all from one piece of software.
So, where do real estate and proptech go from here? Ending the debate, Nadi said: “Let’s embrace this growth culture, and let’s accept that it will be continuous learning – and not about who’s the smartest in the room, but just about collaborating and making it happen.”