There’s no doubt PropTech has been growing by leaps and bounds, but so far the promised revolution of the property industry hasn’t been manifested. Smart buildings are still few and far between. The vast majority of buildings in our daily lives are operating in traditional ways using outdated but proven equipment. What’s stopping PropTech from taking hold of the world’s largest asset class?
Many in the world of tech live by the infamous words of Facebook founder Mark Zuckerburg: “move fast and break things.” That ethos is how some of the world’s largest corporations rose to power in just a few short years. Some of the biggest companies in the world didn’t exist 30 years ago. Real estate couldn’t be more different. The oldest asset class in the world, the property industry is a slow, cautious sector. Unlike an app, buildings take years to design and build. Protecting buildings and the occupants inside is paramount. Moving fast and breaking things is out of the question. Real estate’s conservative business mindset means even the best PropTech products are having a hard time finding footing in an industry averse to change. A recent Ernst & Young survey found 43 percent of PropTech providers are struggling to get widespread adoption of their tools across a client’s business, with 35 percent seeing a lack of scaling as a result of their application being adopted. A shocking 39 percent of survey respondents yet to adopt even a single technology tool.
One of the biggest challenges is the attitude of business leaders. Value in real estate is most often determined by location, size, and finishes. Reducing costs and enhancing efficiency may be a major part of the construction industry, but they’ve never been serious concerns in asset management. PropTech is changing that. With the right technology, savings from efficiency, integration, and automation can start to pile up. Tapping into the data being generated by buildings is providing actionable insights too big to ignore. For companies with a real estate strategy already in place, innovation in the PropTech space is putting them even further ahead. For most executives and boards, the need for more PropTech is clear. Implementation is now the biggest challenge.
It starts with having the right people in place. E&Y found 53 percent of real estate owners think they don’t have the in-house talent to adopt technology successfully. Without technology-minded talent and leadership, it’s hard to see the forest through the trees. Traditional real estate leadership is remiss to scrap systems and processes they’ve relied on for decades. Leveraging technology is about focusing on potential rather than cost. The sizable upfront cost associated with widespread PropTech adoption across a portfolio is a hard pill to swallow when assets are basically functioning properly. There’s always some other project competing against PropTech for part of the budget. Even when the benefits pencil out, such capital expenditures come with more risk than traditional real estate leadership is willing to tolerate. It takes personnel focused on technology to help leadership understand the return on investment. Even the best pitches need an ally to advocate internally when the meeting ends.
Saying yes is the easy part. Nearly 60 percent of real estate companies said new systems don’t integrate easily, according to the survey. That means dedicating time and resources to getting things set up, further clouding the costs and return on investment. The rapid pace of development and deployment is leading to piecemeal technology strategies instead of full end-to-end solutions that leadership can understand. As the PropTech industry matures, consolidations, acquisitions, and a wider array of products to service every aspect of portfolios will help to solve those problems. Instead of offering products, PropTech providers will offer a full range of solutions to meet the needs of clients, similar to how IT and Telecom providers work with business clients.
“As investors begin to see the benefit of companies adopting technology, we believe they will help drive the industry forward more rapidly in the same way that investor pressure has encouraged companies to do more and report more on ESG related issues,” Mark Grinis, EY Global Real Estate, Hospitality & Construction Leader said.
The PropTech industry experiencing growing pains is a good thing. It’s important to take the perspective of progress. The real estate industry was stagnating for decades, perhaps centuries. In a few short years, technology has worked its way into practically every conversation. Retrofitting existing building stock with PropTech won’t be a viable solution for every owner. Building technology into the bedrock of the property industry is literally a ground-up exercise. Take stock of the progress that’s been made. There’s plenty of obstacles in the industry slowing down PropTech, but there’s no stopping it.