Every year, Google makes an overview. What did the year 2018 look like in Google search? Swedish dance producer Avicii is the most sought-after word in the Netherlands in 2018. In a year with ups and downs, the world looked more than ever before for “good” – according to Google Trends. The search term ‘PropTech’ on Google Trends is also growing steadily. The most shared PropTech article in 2018 was written by the New York Times: The Hot Property That’s Next on Tech’s Agenda: Real Estate.
Last year I wrote about 4 trend lines in the real estate sector: Digitalization transforms the playing field, People-centric completes the circle (happiness, health, and building), experimenting entrepreneur and Space as a Service creates growth and disruption. Every year it is an amazing puzzle to write a trend article. It is my observations based on conversations, my gut feeling, read books and other content that have come to my attention in the past year.
“THE BEST WAY TO PREDICT THE FUTURE IS TO CREATE IT! – ABRAHAM LINCOLN
2019 WILL BE THE YEAR OF VERTICAL DEVELOPMENT
For 2019 I expect vertical development will get an extra boost. Vertical development is the ability to deal with disruptive changes. This is required to let go of the past and embrace the future. The awareness to move from one ‘state of being’ to another. In the language of Tech: the difference between putting more apps on your device and changing your operating system (OS). The first is a simple extension, the second is a fundamental change in which the entire (software) infrastructure is turned upside down. In these 10 trends, you will read more about this vertical development from different perspectives.
Trend 1 | Tech companies increase market share in the real estate sector
The global Tech players like Google, Apple, Amazon, and Facebook (GAAF) – redefining work, shopping, mobility, leisure and the every way of how we live. For example, Google is developing the world’s first data-based area (monitored by an independent organization, the Civic Data Trust). This project Sidewalk Toronto (government agency Waterfront Toronto and Sidewalk Labs (part of Alphabet, Google’s parent company)) aims to create a mixed residential and commercial community on the east coast of Toronto. At the end of 2018, Google spent $1 billion to buy an area near its headquarters in Silicon Valley and recently Google also invested in Artificial Intelligence (AI) property management startup AskPorter. Apple is building stores. A new store in the Carnegie Library, a kind of private development city square, in Washington DC will soon be opened. Facebook is also active in the housing market. In 2018 Amazon invested $6.7 million in the housing construction startup Plant Prefab. After the competition, Amazon also announced where HQ2 will be located: in Long Island City (Queens) and in Northern Virginia (Amazon also has an office of 5,000 employees in Nashville, Tennessee).
In addition, there are other large Tech companies that make a contribution in the digital pocket. Microsoft launched Azure Digital Twin (see trend 10) for buildings and invests in the futuristic Belmont (Arizona, USA). Airbnb launched the new initiative Backyard and will develop and build houses (Accessory Dwelling Units) with as small a footprint as possible in 2019. Union Point (developed by LStar Ventures and General Electric) aims for a community with houses, offices, shops, and restaurants”, but it is also a living laboratory. Meanwhile, IBM is making the Port of Rotterdam smart and Siemens is creating Siemensstadt 2.0.
Software also eats up the real estate world according to Alex Rampell (general partner, Andreessen Horowitz): When software eats the real (estate) world. This development forces the international real estate sector to reinvent itself (which goes beyond an afternoon of ‘innovation tourism’).
Trend 2 | Unlimited investment in the PropTech jungle
2018 was a record year ($23 billion) for investments in the European technology ecosystem. Europe now has 61 Unicorns (a startup with a valuation of $1+ billion). According to Eurostat, the European technology (software) industry is growing 5 times faster than the rest of the European economy in terms of gross value added, a level that has accelerated in recent years. London, Berlin, and Paris are the largest Tech communities in Europe and Amsterdam is not surprisingly number 1 for the Netherlands. According to Dealroom.co, $572 million has been invested in Tech companies in the Netherlands.
Recent research (KPMG, Sept. 2018) has shown that awareness of the impact of technology on the real estate sector has increased. The number of PropTech (Property Technology) solutions has also grown considerably in the past 2-3 years and a true PropTech jungle has emerged. In 2018 VC investors invested €335 million in European PropTech start-ups, according to PitchBook. This year, Nested (UK) crowned Europe with an investment of £120 million. Outside Europe, Autodesk’s acquisition of PlanGrid ($875 million) made an impression. WeWork received a total of $3 billion from the Japanese Softbank. Softbank also invested $865 million in construction startup Katerra and the online housing platform Opendoor received $725 million. According to Cruchbase, their website was the most searched for companies like Coinbase, Airbnb, Lime, Bird, Sequoia Capital and was the largest funding round for Ant Financial (Series C – $14 billion).
Although the European market does not yet have PropTech Unicorns, but the European investment market is very dynamic. Internationally, the Netherlands scores highly on PropTech. Research (Unissu 2018) shows that the Netherlands is 2nd in the ranking with the largest number of PropTech startups per inhabitant. Finland is number 1 and Sweden ranks 3rd. According to Pitchbook, Global Founder Partners, Pi Labs and Seedcamp are the largest PropTech investors in Europe. In 2018, VC investors accounted for 52 deals (€335 million). In the Netherlands, PropTech companies raised SKEPP, Lone Rooftop, Healthy Workers and Parkbee money (€1.5 to 5 million respectively) for international expansion. Edge Technologies acquired a 30% stake in Epicenter. Royal Haskoning invested in HAL24K and Office App opens an office in Toronto. While VC investments will certainly grow in 2019, VCs are expected to be more selective and vigilant. Established companies will also present themselves more emphatically as investors. If founders build the future, investors will be the selective changemakers.
Trend 3 | Green is the new grey
Pantone has chosen two shades of green (17-0542 and 18-0416) for the spring/summer 2019. In real estate, the grey cement and grey installations will make room for green and green plants. Nature has positive effects on the well-being of people and plants have numerous advantages for our health and personal harmony. Plants give rest, relaxation and improve air quality (Female tongues are the strongest according to NASA research) and absorb sound. For the new offices of, for example, Google, Amazon and the LEGO Group, nature, light and plants play a very important role. In the Netherlands, Wonderwoods, The Spot, Trudo Toren, Westerpark West, and Vertical are remarkable buildings because of their green facades. These developments fit in well with the statement of TechArchitect Ben van Berkel (UNStudio) at the end of year magazine of the FD: “Let’s create a living environment that doesn’t stimulate all the time and also gives space to reflection”. The number of design solutions in which natural elements play an important role is increasing and Japanese Shinrin-yoku (forest baths) will make its appearance because we will revalue silence (including digital detox), wood and plants in 2019.
Trend 4 | Alternative forms of living
In October 2018, WeWork published the report on the impact of the WeWork co-working concept in London (now 17% of offices are on a flexible basis). They show, among other things, that tenants save 38% in costs, that the business grows by an average of 34% and that the established companies hire an average of 5.8 new people. Co-living is a logical next step. A Danish Twin Study found that only 20 percent of the life span of an average person is determined by genes, while about 80 percent is influenced by lifestyle and living environment (see also Blue Zones). The lines between living, working, and playing are blurring, house prices in cities are rising, the number of people wanting to live in the city is growing and there is an increasing mismatch between supply (the physical housing inventory) and demand (rapidly changing consumer preferences). In addition, 1 in 10 people live in solitude, the aging population is increasing, healthcare costs are rising, and the sharing economy is becoming increasingly common. The above developments offer exciting opportunities for alternative forms of housing such as co-living (supported by technology). In the real estate sector, we already see various (inter)national initiatives such as: The Collective, Common, WeLive, Student Hotel, Medici Living Group (December 2018 $1.14 billion investment round) and the Dutch Zoku. I expect the number of co-living locations and concepts will to grow and the number of digital services (community management, management & maintenance, dry cleaning, etc.) in apartment complexes will increase.
Trend 5 | Data ethics on the strategic agenda
Last year a lot has been said and written about data (the new oil) and the role of the big Tech companies. The introduction of the AVG and the Cambridge Analytica data scandal have further sharpened the discussion about the use of data. Although digital has many shining sides, such as new technologies that can transform customer experiences, stimulate product innovations and improve business performance. Digital ethics will remain a topic in 2019. After the entry into force of the AVG, the ePrivacy Regulation (EPV, for example, which regulates the confidentiality of communications and goes wider than just personal data) will come into force. Frequently asked questions in 2019 are: “Do we need technology with all privacy and data issues?”, “Why do we collect this data and what data do we really need?” and “Are we compliant? In addition, there will also be room for a new role, the Privacy & Product Counsel. This person is a sparring partner for the technical engineer and looks at what is ethically and legally desirable. Responsible AI will play an increasingly important role and will eventually become part of the business model. The moment that an algorithm is being sued, is yet to come.
Trend 6 | Social impact and investing in (over)tomorrow
The real estate industry is still booming. But despite this situation, we know that there are several strategic issues that will drastically influence the future of the real estate industry. Does the sector anticipate social issues, trends (or do they make trends), regulations and innovations sufficiently in these busy times? After all, contribution to a future-proof city and society already requires fundamental choices, today.
Blackrock, the largest hedge fund in the world, only wants to invest in purpose-driven organizations in the future. These are clear signals. For decades, most real estate companies have focused their strategies on maximizing shareholder value. Real estate leaders are increasingly reconsidering this role of business. Different trends form the basis for this shift. Most of all, the pressure is being increased by stakeholders to play a more prominent role in tackling social issues such as economic inclusion and climate change. Achieving the UN goals for sustainable development (SDGs) is not possible without the contribution of the real estate sector. Secondly, investors are increasingly focusing on companies’ social and sustainability practices (impact investing), as evidence has been provided that performance in these areas affects long-term social returns. And thirdly, standards are being developed for which environmental, social and governance (ESG) issues (ESG criteria) are also financially relevant to the real estate sector. As these trends accelerate, real estate companies need to strategically reorient and take into account the overall social impact they create in the short and long term.
Research (Boston Consulting Group, 2017) has shown that companies operating in the field of ESG are better *3% to 19% higher) are rewarded by investors and for certain ESG topics, the margins of top performers are up to 12.4 percentage points higher. In Wintergasten Nicole Maarsen (Syntrus Achmea REF) answered the question What are your plans for 2019? “We will implement our “Investing with Meaning” positioning concretely by including our many initiatives aimed at both ESG and the SDGs in the portfolio plans of our clients and funds. […]”. On a national level, the Board of Government Advisers has launched Panorama Nederland (PN). PN illustrates how the major social issues of today, the coming decades, can be the key to welcome structural improvements in our country. I expect that in 2019 the activities and communication around social issues, real estate and how technology can contribute to this will become even more explicit.
Trend 7 | RE:
Leaders are paying more and more attention to vertical development in order to respond to rapidly changing environments and the questions of tomorrow. Vertical development requires imagination, radicalism and a long-term vision. The current company is squeaking and cracking, maintaining the current company does not offer a sustainable future. They want (and have to) reinvent the company. RE: stands for RE:inventing, RE:think, RE:define, RE:imagine, RE:design. Thinking of the future, breaking down resistance and exploring unknown territory is challenging and requires new leadership. The first step; seeing the future is necessary for all transformational efforts, and the most challenging.
According to a global PwC survey among CEOs from all business sectors, only 10% of real estate managers found the speed of technological development challenging their business, compared to 38% in all business sectors. Innovation and organization are two of the biggest challenges facing real estate companies today. This is because the market and organizational systems are extremely complex and unpredictable. The key attributes of effective PropTech leadership are about enabling these challenges by providing vision and goals, creating conditions to experiment, enabling people to think differently, and enabling people to collaborate across borders. Established (inter)national real estate companies – such as Schiphol Real Estate, ISS, JLL, Bouwinvest, Unibail-Rodamco-Westfield – structurally invest in PropTech leadership. The big question for 2019 is: how do companies scale up PropTech leadership? In other words, how do you ‘re-train’ your employees to prepare them for the future?
“CEO against HR manager: What if we invest in our people and then leave them? HR manager against the CEO: What if we don’t do it and they stay?
Interesting changes can be seen in the changing roles that are created within traditional real estate companies (reflecting this change in mentality) such as Wellness Lead, Growth Manager or Customer Experience Manager’. The most eye-catching business transformation in the Netherlands is from OVG to Edge Technologies. A leading Developer transforming into a Tech company. Various other transformations are also visible in the real estate sector – from a construction company for Home Creator and from Facility Service Provider to Workplace Strategist. These transformations will become even more visible in 2019.
Trend 8 | Romanticism continues to flourish between owner and user
Place is not just about buildings or the spaces between them. Place is about the experiences people crave and the connections people make to create the community. Real estate is no longer about stones, but about people. Conversation topics such as “Your Building is Talking, Are You Listening” and “Are we building walls or are we building a life” are increasingly being reviewed. Co-working was the domain of freelancers and startups. Nowadays it is about a larger transformation, namely that of people, culture, technology, and service of work. 90% of the total cost of a building is people. Romanticism flares up between the real estate owner and the user (tenant, occupier, ..). The days of buying real estate, holding on to it for 20 years and doing nothing are long gone. Real estate companies should anticipate as far as possible positive user experience in the game. Maintaining the relationship is like a fireplace. If you get too close, you can burn yourself. If you are too far away, you don’t get any heat and eventually they pay the rent. In short, in 2019 real estate will focus even more on positive user experience and love will be in the air.
Trend 9 | Focus on well-being by War-for-Talent
Besides a shortage of technicians, the real estate sector also needs people with other talents and competencies to meet the changing customer demand. Fishing in the ponds is already in full swing and everything is being done to win the talent. In 2019, the vacancy texts and recruitment videos will appear even more frequently in your timeline. In addition, more attention will be paid to well-being in order to keep people connected and captivated. Besides horizontal development (adding knowledge, skills and behavioral alternatives = lifelong learning), more attention is paid to welfare activities and positive health (body functions, meaning, quality of life, participation in daily life) that contribute to the new level of thinking, to vertical development.
Trend 10 | Adaptation of new technologies increases
Technology ultimately makes it all cheaper, but investments (in research, building MVPs, experiments, pilots) precede this. It’s not about technology, but about people and what they do with it. After all, innovation is about experimenting and learning. We need more sandboxes to experiment and learn. The question now is whether the real estate sector will continue to implement and scale up (!) technologies. In 2019, I expect this space to grow further, the wheat chaff to be further separated and the search for scale-up to be given more space.
Artificial Intelligence | Data Rich and information poor
AI scientist Andrew Ng quoting: “Artificial Intelligence is the new electricity”. Artificial Intelligence (AI) is becoming increasingly fundamental and transformative. Adopting an ‘AI first’ attitude is becoming increasingly necessary. The built environment creates an exponential amount of data. Unfortunately, that valuable data is underutilized or even forgotten. Current practice often involves digitizing (from analog to digital) existing processes. As a result, companies now die in the data, but then they do not know how to analyze it and/or automate the processes. In other words: data rich and information poor. James Dearsley (UK) regularly says about PropTech: “PropTech is like teenage sex; everyone talks about it, everyone thinks everyone else is doing it & so claims to do it”. The same goes for data and AI in the real estate sector. The Machine Learning market (part of AI) is expected to grow from $1.41 to $8.81 billion by 2022. The biggest challenge in the field of AI is the lack of standardization and opacity of data. As a result, progress in this area will be determined by (cross-sectoral) collaboration. Artificial Intelligence is, in my opinion, the most discussed new technology of 2018 in the real estate sector, and in particular the Machine Learning section.
“The trend to watch is an increase in tools that make it easy for non-experts to participate in AI and analytics. -Cassie Kozyrkov, Chief Decision Scientist, Google.
In 2019, awareness will increase further, and more AI skills will be invested. Although data is a very valuable asset, it is not yet on the company balance sheet in 2019.
Voice | Assistants make some noise!
Voice technology has exploded and since 24 October last Google Assistant has been talking Dutch, opening up the Dutch market. Voice is expected to have a major impact on our lives. Today, 600 million people worldwide use voice assistants at least once a week. Smart speakers are radically changing our internet behavior, just like the smartphone did before. Speech software now recognizes 95% of human speech. This is the same level of quality as a conversation between two people. Controlling a smart TV, digital thermostat, online home security system and smart lighting is faster than setting everything manually. Voice will ensure that we start thinking again about the design of rooms, such as workplaces. In Microsoft’s renovated office at Schiphol Airport, they use Cortana and the Netherlands is the fastest growing country for Google Assistant in the house.
Digital Twin | the new VIM
By creating a Digital Twin engineers can better monitor, analyze and test ‘what if’ scenarios for the performance of objects such as cars, buildings, and even jet engines. Research firm Gartner predicts that “half of the large industrial companies will use Digital Twins by 2021, increasing the effectiveness of these organizations by 10%. This prediction offers enormous opportunities for the life cycle of real estate. Investment management firm Goldman Sachs also uses Digital Twin technology. They have included the technology in their series The Outsiders as a trend that is “on the edge of today’s investment universe”. The Building Information Model (BIM) will eventually make way for the Real Estate Information Model (VIM). If these Digital Twins are interconnected, an Internet of Twins will be created, a smart city but then bottom-up or as Coen van Oosterom (Edge Technologies) said: City-as-a-Service. Questions we will be asking each other more often in 2019: “How do we value a physical building in combination with a virtual copy (a Digital Twin)?”, “Who owns the data of the Digital Twin” and “How will we collaborate in both the physical and virtual model during the life cycle?”
– Hypes and other developments…
2018 was also the year of the Blockchain hype and the decrease in value of the Bitcoin. The blockchain euphoria has given way to sobering. This is not bad news. The ecosystem can now focus on delivering real applications and solving real problems. It won’t be up to FIBREE (Foundation of International Blockchain and Real Estate Expertise) to promote blockchain in real estate and to look for use cases. For example, the re-securing of blockchain through the rise of quantum computing.
At the moment we are experimenting with 5G (possibly 5 times faster than the current 4G networks). Europe has agreed that in 2020 at least one large city will be equipped with a 5G network and for the Netherlands, it will be Amsterdam. In many companies Extended Reality (XR) already enables employees to work together in new ways, fundamentally changing the way post-industrial companies work. This year, drones will be taking to the air in the spring to provide packages around Helsinki. Amazon, UPS, and DHL are also planning drone-delivery activities. In 2018, Japanese construction company Komatsu bought 1000 drones to scan construction sites, identify material and map (potential) construction areas. Another innovation in dronetech, for example, is land use mapping. The combination of geo and (drone)tech will develop further in 2019, partly because of the shortage of technicians.
The number of practical applications will grow further in 2019. Connecting different technologies offers enormous opportunities for process, product and business model innovations. Investment (in new projects and skills) is necessary, which will speed up further adaptation.
CONCLUSION | TRANSFORMATION IS BETTER
The 10 trends of the diptych are not isolated. I named them because they are part of a larger development, vertical development. 2019 promises to be an exciting year. Unavoidable disruption is probably the right strategy for 2019. Real estate is not immune to business cycles, economic recessions or disruptive black swan events – such as a trade war, currency crisis or cyber terrorism.
My tips for you in 2019:
Invest twice as much in talent, culture, and processes than in tools;
Have the roof repaired, while the sun is still shining;
Investing in vertical development;
Finish things and scale up, life is not permanent beta;
Make choices for the future, keep focus and say no.
Change is good. Transformation is better. PropTech will somehow play an even bigger role in your professional and personal life in 2019. Get ready to grow to the next level! I wish you a successful and innovative 2019…
Menno Lammers © | PropTechNL