How technology is transforming and unlocking real estate asset classes

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Wednesday, April 27, 2022 12:06 PM

The line between technology and real estate is blurring, bringing new opportunities and asset classes, especially in residential, office and biotechnology, says Samantha Kempe, co-founder and chief investment officer of IMMO Capital .

The sheer size of the real estate sector – the global figure hit a record $326.5trillion (about £251.1trillion) in 2021, according to Savills – coupled with its very traditional approach were once barriers to digitalisation Of the industry.

However, the pandemic has swept away the last line of resistance, with technological advancements affecting every aspect of the real estate world. Integration has become so advanced that the line between real estate and technology is often blurred, driving the transformation of existing asset classes and creating new ones.

Here we look at where this is happening in three real estate sub-sectors: residential, office and biotechnology.

Residential real estate thrives during the pandemic

The residential sector has unexpectedly flourished during the Covid-19 period.

Supporting its growth and stability, technology has generated new ways to buy, sell, rent, invest and manage the asset class.

At first, drones and virtual reality ensured that property viewings kept the market moving. Drones are now taking images from vantage points that were previously difficult to access and more and more people are viewing properties from a distance. These digital advances are likely to stay.

Many technology companies are developing user-friendly concepts and platforms across the entire residential value chain. The rapid rise of iBuyers (companies that use technology to make an instant offer on your home) represents a sea change in the way people buy and sell homes. Key technologies such as blockchain, “ownership passports” or “automated valuation models (AMV)” are also explored to make transactions more efficient.

In terms of leasing and property management, many agents are adopting cloud-based platforms that manage everything from contracts and referrals to payments.

Innovation is also fueling investment in new alternative asset classes such as second homes, student residences and rental buildings (BTR). This not only attracts residents, through a hassle-free rental process, but also helps retain them through improved maintenance and services.

An emerging residential asset class unlocked by technology, alongside other advances in machine learning and big data, is the vast single-family rental (SFR) market. The residential market is now a $50 trillion market in Europe, 98% of which is in scattered single-family dwellings. With such demand for “generation rent”, there is huge potential for recycling and investment in existing residential homes, if portfolios can be scaled effectively.

Office space evolves to reflect new ways of working

The pandemic has also been the catalyst for major upheaval in offices, with many owners and operators using the lull in occupancy as an opportunity to see how to future-proof their space, especially with the outcome still unclear as to how much the sector could contract in the long term.

Most companies are indicating that hybrid work models are here to stay, leading to an overhaul in the design and operation of office buildings. Along with this, companies are looking to bring their employees back to offices in a meaningful and safe way, with a strong slant on technology.

Technology supports new ways of working. In the first case, videoconferencing services allowed employees to switch to remote work and continue their daily activities. Companies have since overhauled their business practices to take advantage of digital tools to promote collaboration and efficiency.

While flexible office spaces established themselves before the pandemic, their appeal as an asset class is set to accelerate as flexible buildings and spaces are seen as increasingly central to the new hybrid working model. . According to a forecast by Statista’s research department, the volume of flexible workspaces in the UK is expected to nearly double between 2019 and 2023, to 167 million square feet.

With the flexible office system generating higher turnover of people, return-to-work technologies such as apps that track worker health and workspace utilization will play an important role.

Life sciences present huge opportunities

The life sciences sector has gone from strength to strength, bringing global hope through the development of Covid vaccines and other therapeutic breakthroughs. The life sciences sector in real estate has grown exponentially to meet the needs of this fast growing industry. According to JLL, £15bn of capital has been committed to UK life sciences property, of which less than 10% has been deployed to date, presenting huge opportunities for investors and developers.

Development strategies focus on growing existing centers of excellence and creating new centers of excellence for science and technology, with pioneers emerging in the ‘Golden Triangle’ – Oxford-Cambridge Arc and London. An emerging trend is the conversion of existing office and retail assets to laboratory uses and joint venture development partnerships with universities and public sector bodies.
Innovation districts must meet the requirements of the collaborative approach of the biotechnology sector, which thrives on the convergence of the worlds of MedTech start-ups, life sciences companies, universities and institutions.

For some real estate commentators, biotechnology is the most important emerging asset class thanks to very favorable investment prospects. Lab space is unaffected by the hybrid working trend as it supports the type of work that cannot be done at home and requires an environment rich in amenities and services. To support an industry experiencing exponential growth and transformation, the workspace is configured to be highly adaptable to foster better knowledge sharing and improved well-being.

It stands to reason that workplace support technology will need to be even more finely tuned to meet the needs of such a specialized and flexible workforce. Healthcare-related logistics and storage networks are also being overhauled, with technology playing a key role in optimizing performance.

Going forward, as spending on artificial intelligence (AI) and digital health begins to bear fruit, the real estate sector will once again have to respond and create specialized processing centers for more personalized health services.

Soaring Proptech Investment Reflects the Future of Real Estate

With real estate-related technology (“proptech”) playing such a huge role in shaping the future of real estate, it has come as no surprise to see unprecedented investment in the sector.

Data published by PitchBook shows that venture capitalists injected $20.5bn (around £15.8bn) into the global proptech market last year through 974 deals, of which around 7 $.5 billion from funding rounds backed by real estate investors, also a record.

Investors see the importance of technology in driving structural change in the real estate sector. The pandemic has brought about a transformation in the way we design and interact with our physical spaces and with each other. Technology holds the key to the success of this transition.


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By Samantha Kempe, co-founder and chief investment officer of IMMO Capital.

All posts are the opinion of the author. As such, they should not be construed as investment advice, and the opinions expressed do not necessarily reflect the views of the CFA Institute or the author’s employer.


Image credit: ©Getty Images/LPETTET

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