Property is a people business built on relationships. It is one of the major reasons the sector thrives, as the strength of these relationships helps to secure deals and increase portfolio values and wealth.
Yet it is the nature of these relationships and perhaps their exclusivity that is undergoing fundamental change.
Most relationships in real estate are binary in nature: seller/buyer, landlord/tenant, agent/client. Of course, there are other parties that assist in maintaining these relationships, such as legal and financial advisers, but the industry has an established methodology of getting deals done and managing assets.
Technology is ripping up this playbook to bring multiple parties into the fold for a pluralistic, 360-degree share of the latent “value” of real estate assets and projects.
For the residential sector, this process is well under way. One of our recent investments, YourWelcome, has made a significant move in this direction by bringing outside services into a traditionally insulated short-let residential unit. Rather than homeowner/tourist, the nature of that experience has evolved, thanks to technology, to encompass retailers, tourist destinations, laundry services, transport companies and many more elements.
For both landlord and short-let tenant, the overall value of the experience is hugely enhanced. Tourists and short-stay clients are no longer isolated; their preferences and tastes can be satisfied. Consequently, landlords have a larger and more accurate data set from which to better utilise their asset, reduce vacancy periods and optimise yield.
As ever, commercial property markets are a little behind the curve. Let’s consider an area in which we have seen relatively little in the way of innovation: the construction industry.
A development project is a complex financial exercise (not to mention a complex engineering and design one) underpinned by serial 1,0 relationships such as development manager/contractor; development manager/quantity surveyor; quantity surveyor/funder. This does not take into account other stakeholders, such as tenants on prelets (or for residential schemes, off-plan purchasers), performance/surety bond issuers and local councils.
The process for signing off tranches of funding relative to completed milestones is cumbersome and unwieldy. Contractor informs development manager of funding request; development manager engages third-party quantity surveyor for sign-off; quantity surveyor, development manager and contractor attempt to find suitable date for site visit; quantity surveyor visits site and signs off; quantity surveyor prepares report for funder; funder releases next tranche of funds.
Rather than a sequence of individual engagements and sign-offs, the industry can be transformed through the use of technology. What if the quantity surveyor (and his client, the funder) could engage with the contractor directly from his office through the use of augmented reality? AR could display what has been built and what the next tranche of funding will be used to deliver. This is not a perfect solution, of course, but somewhere one is coming and we are working hard to find it.
The impact on the construction industry will be seismic. Other parties, such as prospective tenants/buyers, will better engage with and relate to development projects, redressing part of the risk profile from a financial perspective. How much more private capital will it engage as a result, given that the time (and time value of money by extension) to practical completion will be shortened? Private equity funds with shorter investment periods will be able to participate, opening up new development opportunities.
It is this author’s view that the advent of transparent, big data that engages multiple stakeholders simultaneously will be the game-changing moment that ignites the private rented sector. Such a step will assist in alleviating the UK’s chronic housing shortage.
The use of big data to better democratise the property market is one of our major investment themes at Pi Labs. It starts with a change to the nature of property relationships. Rather than focusing on individual bilateral arrangements, the market needs to open up and allow multiple participants (notably those from outside the sector) to engage and create something that is more than the sum of its parts.
There will be short-term adjustments, of course. The much-vaunted off-market deal that relies on exclusivity and the privacy of a Mayfair watering hole will come under threat as a result of digital transparency and a full circle of stakeholders working to engage fully with the industry.
But ultimately, the rewards for everyone concerned – developer, owner, landlord, purchaser, consumer and retailer, to name but a few – will be enormous.
Property will always be a people business at heart. It will just use technology to facilitate a greater number and variety of disciplines to underpin any one particular facet at any given moment. It opens up endless possibilities, and that is tremendously exciting.