Amplifying Operational Real Estate with Proptech

Real estate investors are increasingly turning to operational real estate (ORE) to capture higher margins, particularly as margins shrink on traditional real estate investments. But ORE offers higher returns in part because it is more complex than traditional real estate investing.

Proptech can help investors manage that complexity, enabling them to not only capture operational efficiencies but also access untapped markets and develop differentiated services that customers need and increasingly demand.

Below we highlight four areas in which proptech has the potential to take ORE investments from good to great.

1. Data

Data collection and use is a trend that has benefited businesses across all sectors over the past decade. For the real estate industry, data can be a game changer.

Central to proptech innovation is digital data; throughout a building’s life cycle, a variety of data is generated and can be collected, shared, and analysed using proptech to create value for real estate investors. Examples include technology to detect and measure occupancy and traffic within premises; tracking and reporting on portfolio performance to predict behavioural changes; and analysing competitive supply and demand for assets. Owners can also use this data to refine their management priorities and allocate their maintenance spending accordingly.

Data can also help operators in key industries to anticipate and smooth out elongated supply timelines, achieving cost savings and reducing environmental impact. For example, smart warehouses typically involve a management system that consolidates warehouse data onto one platform to give supply chain members a full view of the supply chain, automated picking tools, and automated inventory control platforms.

Mastering data is increasingly becoming a differentiator as ORE platforms look to maximize advertising and other tenant messaging. As the meta world merges with the real world, there will be more opportunities for investors and tenants alike to use data to maximize returns.

2. New asset classes

New asset classes often emerge out of demand shifts created by structural changes and secular trends in the market. Applying a technological foundation can have a similar effect of unlocking asset classes that were previously inaccessible or inefficient for institutional investors.

Until recently, single-family rental (SFR) has been almost exclusively capitalised by “mom and pop” retail ownership because of its challenging sector inefficiencies — the inherently fragmented nature of assets presents difficulties to scale, assemble, and operate a portfolio profitably.

With intervention from proptech, every aspect of investment and management of SFR is being streamlined and scaled for efficiency: collecting and analysing market data; asset sourcing and pipeline management; refurbishment and project management; leasing and pricing; and tenant management. As a result, the SFR sector is rapidly transforming in favour of institutional ownership.

3. Energy efficiency and sustainability

Rocketing energy prices, along with an increased awareness of climate change, have encouraged operators, occupiers, and investors in ORE to seek efficiencies and greener property construction, development, and management strategies to reduce energy costs and enhance sustainability credentials.

Buildings consume up to 30% of global energy production, and the majority of that energy goes into heating, cooling, and appliances. Through an array of smart building technologies, proptech is increasingly being applied to reduce inefficiencies and optimise energy consumption, reducing both CO₂ emissions and wasted costs. In some applications, this can be done without substantial refurbishment to the asset, which itself creates a significant carbon footprint.

Proptech is also being leveraged to find uses for waste materials, thereby increasing efficiencies and reducing carbon emissions. Advanced technologies in district or communal heating networks can now harness heat generated by energy-intensive operating assets (such as data centres) and redistribute it to neighbouring buildings.

4. Automation, Internet of Things, and customisation

ORE is by definition more operationally intensive than conventional commercial real estate. To preserve the higher returns that ORE can provide, investors are turning to proptech to increase the operational efficiency of their workforce and to facilitate scalability.

For example, digital concierge programmes allow operators in the living and beds sector to dispense with the costs of on-site concierge personnel; digital concierges have been around for a few years in some form but have developed to provide all the services provided by a traditional concierge, from collecting parcels in residential accommodation to booking day trips and restaurants in hotels. These digital concierges allow investors to significantly decrease operational costs and increase efficiencies.

Proptech has also been extensively employed in residential tenant vetting. More recently, in line with the growth in co-living within the rental market, it has begun to play the role of matchmaker among tenants and to enable rentals by the bedroom or bed instead of by the conventional unit.

Future disruptive potential

The range of proptech solutions available within ORE is increasing exponentially, and certain sectors are likely to look very different in ten, five, or even two years. We expect new technologies such as generative AI (for example, ChatGPT) to open up new possibilities and create significant disruption for the real estate industry.

That said, ORE investors and operators cannot afford to wait for new technologies to emerge. In this challenging operating environment, it is imperative for ORE investors and operators to adopt proptech now to drive efficiencies and long-term investment returns.