How technological advances will reshape the real estate sector
Without new data systems to monitor and respond to market forces, property companies will fall behind the curve as new technologies are adopted. Real estate has always been a laggard in technology terms, trailing the financial sector by decades, but now it is being forced to play catch-up.
The first data systems emerged in the banking sector in the 1960s, when machines such as the Quotron began to deliver stock market quotations directly to users via electronic screens. Brokers, traders and investors were able to monitor prices more quickly and easily than they could with the old apparatus of printed ticker-tape machines and telephones. Since then, finance has been one of the sectors at the forefront of using data to drive efficiency.
Such advances gradually made their way into other industries, such as real estate, where the efficiency improvements they could bring were less quickly adopted. From the first electronic listings and transactions to the first data and analysis systems, data technology developments in real estate have lagged about 30 years behind
those in banking.
In finance, mass digitalisation meant that transaction costs decreased considerably while the number of transactions increased wildly. Customers became less reliant on brokers for information and transactional services, the job landscape shifted, and a slew of new products and services emerged, varying in their success.
There has been a reduction of transaction costs as capital has replaced labour in the delivery of services. That is to say, since 1960 less expensive machines have first replaced more expensive machines, which then in turn have replaced people. Now that real estate is finally catching up, what can we expect from the aftermath of the transition in this sector?
We are already seeing the beginning of a reduction in transaction costs with the emergence of fixed-cost and low-cost sales and lettings agents such as Emoov and PurpleBricks. The market appears to be in a process of ‘price discovery’, as different low-cost agents attempt to find prices at which they can be both competitive and profitable. While a ready flow of investment capital may underwrite short-term losses in favour of market share, a steady normalisation of pricing should begin to occur as the right standards of success and service delivery emerge among the new low-cost agents.
Ultimately, anything that can be done by a machine will eventually be automated. As this shift occurs, the human roles will start to change from administrative tasks to consultative sales, structuring and relationship networking.
The changes brought about by new technologies often initiate a consolidation process. Introducing more efficient business practices allows smarter companies to either outplay or buy out their less efficient competitors. Agents and property companies that wish to survive in this new market will have to provide other, value-added services: competing not on pricing per transaction but on value provided.
Transaction costs in other areas of real estate such as conveyancing, surveying, and legal services are also likely to fall as service providers gain access to new technologies and software that allow them to ‘do more with less’. As those technologies advance, developers, agents, and investors will no longer need to outsource specialist work. Data and analysis systems will allow them to bring these tasks in-house at a fraction of the cost.
But what about those companies that fail to innovate? Share prices in leading UK property companies falling have hit the headlines recently. Profit warnings for both Countrywide and Kier Group sent their shares prices plummeting. Countrywide has lost 93% of its value since September 2018, dropping a dramatic 11% in June alone. At its current value, it is worth less than 1% of what it was at its peak in 2013. Likewise, shares in Kier Group have lost more than 85% of their value in the last 12 months; it is subsequently cutting 1,200 of its jobs and selling its assets in cost-cutting moves.
Both these companies have focused on returning to the original business models that helped them rise to success some decades ago. While Kier Group refers to ‘focusing on its foundations’, Countrywide branded its turnaround plan ‘Back to Basics’, whereby it has all but abandoned its online projects to embrace new technology. Profit warnings might well be avoided through the use of accurate and up-to-date data analysis, which enables signs of the market slowing down to be spotted early enough to adjust shareholders’ expectations.
With new data systems, businesses will be able to provide slicker and more efficient solutions that more closely match consumers’ buying habits. More accurate data makes it possible to understand minute details such as how office spaces and utilities are being used and where prices and people are moving. This influx of information in the market will provide greater security for the buying side of a transaction, not to mention significantly improving efficiency.
Facilities managers would feel more comfortable upgrading services if they knew exactly how they were being used. Homeowners would switch to new energy solutions with more confidence if they knew precisely how much it could improve their efficiency. City planners would be able to improve urban transport if they had accurate data on traffic patterns.
Most importantly, property developers and investors alike would have a clearer understanding of the market and market forces. This would allow them to quickly reallocate capital and resources, thereby creating a more efficient and faster property development market. Meanwhile, those companies that fail to innovate may well find themselves left on the shelf alongside Nokia, Blockbuster and Woolworths.
