Real estate is changing. Not only are investors and technology companies such as Zillow expecting the market to favor buyers in 2020, new innovations are going to drive forward a changing landscape in 2019.
In the U.S., analysts are predicting that the value of consumer homes will rise for one more year, up to 5.9%, until the market finally turns towards buyers, reducing values nationally. In the Midwest, house prices are expected to reduce a whole year ahead of the rest of the country, according to an analysis from Zillow.
Whereas in the UK, Brexit is continuing to create uncertainty, reducing house prices and slowing the market down ahead of the U.S. In both countries, economic slowdown is possible, with slightly less uncertainty in Europe, Latin America and Asia. As a result, commercial property managers and owners of rental portfolios need to be more innovative than ever to drive forward growth. Technology is going to play an increasingly important role in how property managers maintain and increase growth, improving efficiencies and yields.
From improved risk analysis to hybrid cloud and open source environments, here is what we are expecting from real estate innovation in the next few years.
Property is not a high-risk asset class. It is stable, solid, lasts for decades, even centuries. And yet, in times of volatility, empty commercial or residential property, or property you want to sell, carries a higher risk factor. An empty property is always going to cost money, dragging a portfolio down, even causing serious financial problems.
Technology can play a role in solving this problem. Unlike property investment decisions of ten or twenty years ago, savvy investors can gain a much greater insight into macro and micro-economic trends that will impact portfolios. You can react quicker, mitigate risk, take action before other investors realize action needs to be taken, and adjust your portfolio management according to new economic realities.
In the UK, 20% of families and individuals rent from private landlords, partly in response to rising house prices making homeownership unaffordable. Rental yields in the Private Rented Sector (PRS) in the UK, Europe and Canada are still strong. Whereas in the U.S., multifamily occupancy property yields - tracked via the Freddie Mac Apartment Investment Market Index - fell 3.4% in 2018. Rents are not rising as fast as property prices, reducing the return-on-investment (ROI).
Consequently, U.S. multifamily business models and technology solutions are making a leap into the British, European and Canadian markets as a way of expanding. Build-to-rent is a growth market, with property owners and managers looking for ways to increase efficiencies and yields.
In 2018, the European Union implemented the long-awaited General Data Protection Regulation (GDPR), created to improve consumer data protection safeguards. California also implemented similar laws, replacing legacy legislation that can no longer keep up with the needs of modern data subjects (consumers). Other U.S. states are expected to follow these examples.
When it comes to tech trends in real estate, software companies in particular need to make sure they're taking extra care to protect any consumer data they process or store for clients. However, when it comes to other innovations the sector has been looking at, such as blockchain, there is a much higher risk factor that this isn't compliant with new laws, or that regulatory bodies wouldn't understand it sufficiently to agree that it sticks to the letter and spirit of the law.
As much as property owners and managers are keen to improve efficiencies through innovation, we need to be careful that new solutions are compliant with current legislation. Property comes with a known body of regulation. We can’t expect the law to catch up with technology; we have to make sure the solutions we use adhere to the current regulatory landscape.
Real estate companies are embracing cloud technology. Unlike legacy IT systems, cloud-services have been embraced as mainstream, reducing costs and making it easier for property owners and managers to look after property assets and tenants. Services such as single sign-on (SSO), multi-factor authentication (MFA), access control key cards, distribute dispatch elevator controls, and cloud-based CCTV, are far more effective at reducing security concerns and reducing costs.
At the same time, property managers are keen to embrace open technology platforms. Single stack solutions are making way for integrated and open, with third-party bodies emerging to create interoperability at an industry level (e.g. OSCRE and RETA). IBM buying Red Hat and the Salesforce.com purchase of Mulesoft are further examples of consolidation and the creation of more open solutions that are expected to continue into 2019.
Global funding for property technology (PropTech) solutions and startups increased 36% in 2018. New funds for this market are getting involved, with a confident mix of VC, PE and family real estate money pouring in. More established companies, such as The We Company, Airbnb, Compass and OpenDoor have set a trailblazing benchmark, with a new wave of PropTech startups innovating faster and finding solutions for problems across verticals and new markets.
We can also expect some consolidation. From the hundreds of startups in this space, not all of them are going to get A and B-round funding. Some will fold. Others will be absorbed into larger companies. Smaller investors are also getting in on the game, through Fractional property investment platforms, such as BRICKX, DomaCom, and CoVESTA. Similar to peer-to-peer (P2P) lending, this is a way for a large group of investors to own a percentage of a property - or a portfolio - then receive a percentage of the yield when rented or sale price when sold. These platforms rely on third-parties to manage the properties, making them perfect partners for SaaS-based technology solutions and service providers.
As we can see, we can expect more innovation and progress in the near future. Despite some economic uncertainty, growth is expected to continue for commercial real estate (CRE) and buy or build-to-let (BLT). Property owners and managers who want to continue making a profit need to find new ways to innovate and increase profitability.
About author: Dariya Lopukhina is a tech enthusiast and blogger. Currently she works at Anadea, a software development company that helps businesses of every size improve by converting their workflows into effective IT systems and specializes in developing real estate software solutions for digitizing the property industry.