Altus Group Executive Vice President Sung Lee discusses what’s driving prop-tech trends in the region, and, in which areas real estate investments are set to recover faster.
By Sung Lee
Ask a senior executive in property development why their company hasn’t been adopting the latest technology and they are most likely to tell you it’s lack of leadership buy-in slowing down the process.
It’s not that those leaders doubt the technology lives up to its claims. It’s not even that there’s no spreadsheet showing a return on investment. It’s the sort of unexplained and largely silent resistance that we’ve all met from people who have been doing the job the same way for decades. Property is an industry where leaders typically expect to put their money into something they can touch.
This may be changing as the technology blockers have met their match in COVID-19. As video conferencing became the primary form of communication and familiar challenges became more acute – supply of materials, skilled labour, information gathering – the industry has recognized that the answers to these challenges lay in the adoption of technology.
Economic crises transform industries. The COVID-19 pandemic is more inscrutable than most crises – and has created a high degree of uncertainty. How long will it last? How severe will it remain? Will we have to live with it, or will we treat it as a once-in-a-century occurrence and return to old habits? It’s certainly not part of an economic cycle and at this point, there is not a clear path to when markets will recover.
A global survey of just over 400 property development executives by Altus Group investigates the response to this situation. Senior executives in companies with USD 200 million or more under development were asked about the challenges they faced and how their companies were responding. While there was some divergence, the large measure of consistency between North America, Europe and Asia indicates the effects of globalisation on these mature property markets.
The impact and uncertainty of COVID-19 affects transaction volume, investor returns, and valuations. For those who want an up-to-the-minute understanding of the markets in which they operate – or to spot the opportunities elsewhere – data offers transparency and insight. Ask the right questions, based on the right assumptions, and you will get a sound guide to your decision.
This is the current key driver of prop-tech adoption and the reason why adoption is accelerating. As one respondent put it, “quality of opportunity” is “the trillion-dollar question in every mind.”
For those not having to worry about survival, recovery is important, but opportunity is the real differentiator between those that survive and those that thrive. Getting ahead means leveraging technology and data to identify trends and tap into opportunities.
Opportunities no longer land in your lap by bumping into someone you know at a conference at just the right time. Now, the ability to gain a greater understanding of the market with better insights and enhanced visibility through analytics has become more important than ever.
Several technologies are in high demand. It’s not just property valuation professionals who need to understand how values might be shifting in the absence of transactions and those employing valuers will be expected to know just how reliable those values are.
Investment managers need to be able to test their room for manoeuvre or negotiation. How might their portfolios perform in each of the foreseeable scenarios they might be faced with next month? What impact will a decision have in each of those scenarios? What might a concession to tenants or lenders mean repeated across multiple assets?
The industry is now experiencing the benefits of taking all the data in the cloud, verifying it and applying it to any decision at any stage in the property lifecycle. This means better forecasting of future demand, tenant expectations and asset performance while eliminating dependency on high-risk hunches.
If 65% of Asian developers regard occupier expectations as an influential market force, how are those expectations best understood? The future of work is now in flux: new assumptions about how we work, how we collaborate, how we communicate and share information. Ask an occupier for their expectations and they are unlikely to commit. However, if you harness the data from all the movements and interactions of many employees in many companies, then you will have a more reliable guide.
At a superficial level, the prop-tech solutions the industry needs to respond to COVID-19 is the touchless controls that allow us to move around our workplaces hygienically and developers are certainly taking seriously the need to install them. But they are driven by biometric data and are also the source of so much data that will inform the location, design and management of our built environment in the future. The data garnered from this is key to driving decision-making.
The owners of this data hope for a return on their investment – both in achieving reduced overheads and running costs, and in the monetisation of their data. Alongside improved health and safety measures, that is one of the drivers for installing these sensors as they will certainly achieve efficiencies.
Additionally, another driver of prop-tech adoption is major challenges on construction sites. Globally, project cost escalation is identified as the greatest on-site challenge by 73% of developers. That rises to 80% for those based in Asia. Developers need responsive cost management and greater transparency in their supply chains but digitising the processes of third parties in your supply chain is a much greater challenge than digitising your own processes.
Trade and labour shortages were identified as the greatest on-site challenges by 65% of major developers globally, rising to 70% in Asia overall, and specifically 75% Singapore. This divergence might be due to Singapore’s reliance on overseas construction workers. This has made the industry particularly vulnerable to COVID-19 and approvals from multiple agencies are required before stalled construction work can resume.
COVID-19 may accelerate the move away from the previous level of dependence on labour. It’s anticipated that there will be less scepticism about construction site robotics or pre-fabrication going forward as developers struggle to take back control of the construction schedule.
The most valuable technology is all about identifying risk and opportunity for each developer. The majority see acquisitions of properties as an opportunity in a downturn: 74% globally, 77% in Asia overall and 85% in Singapore specifically. Regardless of certain markets being in a downturn, developers are not necessarily seeking out distressed assets for purchase. Only 43% globally view distressed asset acquisitions as an opportunity, falling to 38% in Asia overall and as low as 20% in Singapore specifically.
Developers expect market recovery to follow public sector infrastructure investment, which is seen as a key driver in development planning by 74% globally, 80% of those based in Asia overall and 90% of those in Singapore. While shorter-term pandemic support is a current priority for governments, this suggests future economic recovery plans stemming from new government investment in public infrastructure will continue to be a major factor in development planning – and as a result, a possible indicator of which locations may recover faster.
(Ed. Featured image by Photographer Aleksandar Pasaric.)