In part 1 of our deep dive into proptech we defined what proptech is. And we looked at how blockchain and smart buildings offer unique opportunities to B2B and B2C companies involved in the property sector.
In this post we are going to take a closer look at the commercial property sector, ESG considerations and the challenges posed by the pandemic. And we will talk a bit about trust and relationships. Not words often associated with the property trade…
Commercial property, offices and the effect of the pandemic
COVID-19 has brought uncertainty and hardship. It’s effect on our lives will be felt for a long time. Even if the proposed vaccine works well.
But the pandemic has also solidified and accelerated many ongoing trends. Two of which have directly affected the commercial property sector; the digitization of work and the transformation of physical retail.
The digitization of work
The lockdowns brought about by the outbreak of COVID-19 have wreaked havoc in the office sector. As organizations that could adjust to remote working practices did so; Many senior stakeholders in these organizations have begun to question the need for centralized office locations.
According to KPMG, 86% of industry executives expect downward pressure on rents as a result of COVID-19. When asked “do you think COVID-19 will encourage investments in flexible office concepts and improve potential for new (innovative) business models?” 88% of executives answered “Yes”.
The first response may be frightening to organizations dealing with the office sector, including related B2B service vendors. But the second response should bring hope. Organizations are open to innovation. They still have needs to be met. But how can the office sector meet those needs? And what part does technology play?
Shared office spaces are nothing new. But Shared Service Centers (SSCs) are evolving. They are shifting from merely providing space and equipment to generating business value. SSCs are now taking on customer service support, analytics and even marketing support for the organizations that use their space.
Shared work spaces that can leverage cloud-based service solutions are well positioned to deal with the disruption caused by COVID-19. For example, a shared office space organization could offer their clients dashboards with information relevant to their business. They could include customer satisfaction stats, support calls taken and much more. These sorts of dashboards could be easily integrated into the client’s business processes. Providing them with different insights they may not have discovered by themselves.
Many companies that use shared office spaces may be start-ups on limited budgets. SSCs can help them by developing powerful AI solutions to help their business grow. They could even help with robotics process automation (RPA), should that be required.
Actions you can take
- Shared work spaces and SSCs need to provide added value to tenants
- SSCs can even help their tenants to grow by offering support services
The transformation of physical retail
COVID-19 has hit physical retail very hard. Companies, especially in Thailand, who may not have had a full-fledged eCommerce offering have had to adapt very quickly. But with this adaptation we can see that opportunities are still there for retailers. Provided they can use data, innovate quickly and enhance every facet of the customer experience.
Companies that own and operate retail spaces also face challenges. According to KPMG, 66% of industry stakeholders believe that it will take more than five years for retail real estate valuations to return to pre-COVID levels. The flip side of this is that capital will still seek out property due to it’s generally high rate of returns; margins are down and risk is up.
So how can property companies help retailers? Retailers need data, more innovation and customer experience optimization. Generally three things that property companies are not well-known for.
The answer lies in facilitation.
Similar to SSCs, property owners could provide more support and data to physical retailers. They can facilitate point of sale materials and measure their effectiveness in the location. Feeding this back to retailers. Property companies could also be more helpful when it comes to rental payments, especially during this challenging time. This ensures that locations remain full and occupied.
Property companies need to work with tech companies to help their tenants build omnichannel, online to offline (O2O) shopping experiences. O2O helps to inspire customers to leave the digital space and enter a physical one. Which will help to keep retail units occupied.
MAQE has worked with eCommerce companies of all sizes to help them build better digital experiences that fulfill customer needs. Talk to us via [email protected] for advice on how you can help your retail tenants build O2O experiences.
Actions you can take
- Property companies should provide innovative solutions to retailers to help them make the best of limited footfall in physical retail locations
- The tools for better data are there; property companies need to work with experienced technical partners to help their retail tenants
Build More Trust
Rent defaults due to the pandemic and now lease renegotiations may have led to a breakdown in trust between landlords and tenants. In the short to medium term, while we’re in the middle of this global crisis, it’s hard to see this changing. But news of a 90% effective vaccine on the horizon could change everything. However, after such a massive disruption we can’t just expect to go straight back to normal.
The economic fallout of COVID will be felt for many years. So it’s important that tenants and landlords collaborate and become partners. And this requires trust. For property companies and landlords, offering more technical support services to physical stores could help retailers increase sales. And when sales are increasing then rent will come in. Rental prices should also be up for debate. Pre-COVID rent levels were not sustainable during the crisis and they will not be afterwards either. To get through this situation, everyone needs to work together.
Actions you can take
- The vaccine is a light at the end of the tunnel, but the tunnel will be long
- Property companies and retail businesses need to collaborate
- The property sector needs to be ready to work closely with retailers in this challenging environment
Environmental, Social and Governance (ESG) considerations are continuing to play a huge role in the property sector. Although this may have slowed slightly due to the pandemic, it will be a factor for investors in property going forward.
The key driver in this space is sustainability. Larry Fink, CEO of BlackRock the world’s largest investor, stated that “with the impact of sustainability on investment returns increasing, we believe that sustainable investing is the strongest foundation for client portfolios going forward.”
Indeed, Fink also mentions in this letter that BlackRock will also require companies it invests in to report on climate emissions and climate risks.
Proptech is a key tool for the property sector in the fight against climate change. In part 1 we talked about smarter buildings and processes, especially in Thailand. Property companies that do not address these concerns risk losing key investment.
But property and real estate is a difficult industry for startups to break into. So how is proptech innovation possible?
The venture studio model provides an answer to this.
What is a Venture Studio?
A venture studio helps create startups. It’s an organization that provides the initial team, strategic direction and capital. The startup can then produce a product that is ready to go to market. Usually this would then involve an effort to raise capital from outside investors, but property companies could use this model to encourage innovation both within their organization or by working with an external technical partner.
How real estate companies can use Venture Studios in ASEAN
Real estate companies of varying sizes have the resources to incubate their own new software companies. In ASEAN the number of proptech startups is booming. But there is limited credit access and financing in emerging markets. An integrated venture studio model could help to resolve this issue. Thailand in particular is trending behind the curve compared to its large young, urbanized demographic.
The proptech “map” in Thailand has largely been driven by marketplaces such as Hipflat, FazWaz and Baania. At the time of writing there is no Thai equivalent of a company like Locale that offers a full suite of property management services. A Thai equivalent of a company like Qualis Flow, which helps manage waste to drive commercial and carbon savings would also be useful in areas such as Bangkok, with its many large scale construction projects.
For Thailand, the Singapore model is something to emulate. Singapore’s supportive “startup ecosystem” has facilitated tremendous gains in proptech. If Thai real estate companies could adopt a venture studio model, then it should be possible to rapidly level up Thailand’s proptech start up scene.
Actions you can take
- Thai real estate investment companies need to rapidly increase innovation
- A venture studio model is a possible avenue for property businesses to innovate quickly
- Data aids sustainability efforts; particularly in construction projects
How MAQE can help
MAQE has years of experience in creating innovative technical solutions. We put ESG considerations at the heart of what we do. If your property company is looking for a technical partner that can enable transformation and innovation, talk to us at [email protected].