Proptech in 2018: Are we there yet?
At the end of last year there was much talk about how 2018 will see mass take-up and implementation of proptech. This was going to be the year the industry leapt into the saddle and galloped off into the future. Proptech to the rescue!
Well, are we there yet? The answer is no. Sorry.
The economist Carlotta Perez has written (in her book Technological Revolutions and Financial Capital) about how investment in technology tends to follow a certain pattern. You see a huge buildup of investment in infrastructure and tools, what she calls the ‘Installation’ phase, and then this is followed by a surge of adoption, what she calls the ‘deployment’ phase. However, between the two there is a lull, usually involving a financial crash and subsequent recovery. She says of this pattern ‘nothing important happens without crashes’.
I think proptech is following this trajectory. We are seeing a lot of investment, and a lot of smart thinking, but truth be told, not that much adoption. Or at least adoption that is enterprise wide, pervasive and integral to underlying business models. Why? Because frankly the real estate market has been so good for so many years that carrying on as before is the modus operandi of almost everyone. And probably rightly so.
So don’t be disheartened by the slow progress. It is relative anyway; compared to 2 years ago proptech is on a rocket ship!
For four reasons I am hugely positive about the future of proptech, or more precisely the use of technology by all stakeholders within the built environment.
First, there is a lot of money sloshing around, looking for a home within this sector. Admittedly a large percentage is being directed at what is really FinTech (buying/financing real estate), and mostly it is outside the EU (China / USA) but nevertheless purse strings are being opened. I worry in the UK that large incumbents have contributed almost nothing to date, but that will be their problem long term. Most likely the UK real estate industry will adopt and implement non UK owned software; the best startups here will prosper anyway. The sad thing is that significant players in the UK will have missed out on a great opportunity. Maybe next year they will wake up. I doubt it, but that will not stop progress.
Secondly, the better industry players have grasped the nettle of tech inadequacy and are actively recruiting people who can bring them up to speed quickly. Those people are often encountering something of a culture shock as they come up against the reality of how real estate operates, but I know they are breaking through and establishing strong foundations on which they can build in the next few years. Sorting out data (really shockingly badly managed almost everywhere) is a priority for many as, to quote W Edwards Deming, without data ‘you are just another person with an opinion’. The major breakthrough is that the industry has acknowledged the issue, and for the first time is bothered about it. A big deal.
Thirdly, I am seeing some serious tech firepower now being aimed at our industry. From computational and generative design, to computer vision, autonomous drones, modular construction, 3D printing, advanced materials, IoT, sensors, automation, data science and machine learning, we are developing beyond the trivial to the meaningful. A lot of this technology is sophisticated, powerful and game changing. In 2018 I saw the first real moves beyond ‘digitising the past’, and rethinking the entire value chain, workflows and value propositions of the industry. For just two examples, look at Skyline AI, from Israel and the work they are doing automating the valuation of every real estate asset in the US, and here in the UK the great work Gyana are doing in helping us understand the characteristics of locations in hitherto unimagined granular detail.
And fourthly, irrespective of our narrow interest in proptech and the real estate industry, technology in the widest sense is transforming the nature of demand from our customers, as well as the definition of who our customer is itself.
Flexibility is the defining characteristic of the future workplace (all workplaces), and much of that will be procured on-demand or via short term leases. Retail is bifurcating into a sector where you are either cheap and convenient or an experience or you are out of business. The vast middle of retail will be taken care of by Mr Bezos and friends. Industrial ‘sheds’ are becoming super high tech, robotic wonderlands where just a handful of people direct thousands of machines. And residential, driven by cost, is seeing the birth of what will be a huge new service sector, Build to Rent.
We are moving from a world where access is more important than ownership and services more desired than products. Witness Netflix, Spotify, Airbnb, Lime, Rent the Runway and Uber. This is of huge import for the real estate industry and proptech; these trends are changing the behaviours of all of society and the dynamics and drivers of location. Everything is being reimagined in Cities; needs must as urbanism grows, but technology is allowing all of us to live our lives in different ways.
Regardless of the desires of the real estate industry (notoriously good at thinking about what they, rather than the customer, wants) there is no area of the world around us that is not being changed by technology. And as it is, the marketplace for hardware, software and services that make the built environment a better place is growing dramatically.
So worry not that 2018 was not the year proptech really took off. The momentum is growing, the pressure increasing, for profound change. The reality is proptech is much smaller than we like to think today, but will be much larger than we can even imagine. Just hold on; we probably need that crash to catalyse real change, but it is coming.