Posted On : The Jakarta Post, 11 July 2019
Harizul Akbar Nazwar, B.Eng., M.Ec.Dev., MAPPI (Cert.)
Talking about transformation, means talking about change. Today’s modern world is heavily influenced by change. This is proven by the occurrence of radical changes from various sectors, ranging from politics, economics, to cultures all over the world. Changes that occur nowadays are very much influenced and shaped by technology.
There are three reasons why the current transformation is not only a continuation of the Industrial Revolution 3.0, but rather represents the presence of the Industrial Revolution 4.0 which indicates radical changes: velocity, scope and systems impact. When compared to the previous industrial revolution, the 4.0 had no historical precedent, developed at an exponential pace and with high volatility.
An Ernest & Young survey shows 74% of participants from various industry respond, disruptive competition is the most significant challenge that must be face by the industry today, far above the concern of global economy uncertainty which is only 16%. The survey results clearly show that today’s industry is very attentive to the intense competition influenced by the role of digital technology.
Reunderstanding Space and Technology
The World Economic Forum predicts there are at least seven types of technologies that have the greatest impact on industrial sustainability: Artificial Intelligence, Autonomous Vehicle, Big Data Analytics and Cloud, Custom Manufacturing, Internet of Things (IoT), Robots and Drones, and Social Media. Of the several types above, the world of Information Technology has formed a new field called Property Technology, better known as PropTech.
PropTech is one part of a digital transformation that focuses on the real estate industry. PropTech contains the essence of change consisting of technology and consumer behavior towards the real estate industry. Some derivatives from PropTech are Smart Real Estate and Share Economy.
In simple terms, Smart Real Estate can be interpreted as real estate that supports technology platforms in its operational activities. Smart Real Estate focuses on three things: energy saving, management, and maintenance with the IoT approach. At present, developers and building management should not only rely on conservative business approaches, but must be able to innovate through the Smart Real Estate approach so they can provide more added value to consumers. For example, building management can take the initiative to carry out renovations, either minor or major to be able to adopt with the current technologies such as cloud computing, big data analysis, and various kinds of smart tools such as automated light, virtual parking assistance, virtual reality, and others.
Meanwhile, if we discuss about Shared Economy, the two big platforms that have disrupted the real estate markets are Airbnb and WeWork. Airbnb brightly disrupts the property market, specifically for the accommodation and hospitality segment. Airbnb emerged in 2008, the company focuses on providing a marketplace for property accommodation to guests of travelers in need. Airbnb has no fixed assets to operate its business, so it does not require large sums of capital expenditure for asset investment. But in fact, there are currently more than 6 million properties listed on Airbnb that are spread in more than 190 countries around the world. HVS (2015), a firm engaged in hospitality consulting services, predicts that conventional hotels will experience a decline in revenue of at least US$ 450 million per year, where the potential revenue is shifted to Airbnb.
Another example is Co-Working Space, a new breakthrough that emerged due to a large customer market that is in need of dynamic, flexible, and collaborative workspaces. Until 2017, there are at least 15.500 co-working spaces worldwide. This number changed dramatically in 7 years, where there were only 600 co-working spaces across the world in 2010. This is an interesting phenomenon in the real estate industry, particularly for office sector because of the ambivalent situation where the conventional industry of office space has been declining in recent years, the demand for co-working space has increased by 10-15 percent per year (Cushman & Wakefield, 2018). It is WeWork, a startup company that provides co-working space, which was established in 2010, later in 2019 recorded valuation of US$ 47 billion with a total of 930.000 square meters spread across 86 cities in 32 countries of office space leases around the world.
Viewing PropTech as an Opportunity
It must be acknowledged that real estate is meant to be classified as a long-term investment, so organically, real estate adaptation tends to be slow. On the other hand, technology is changing increasingly rapid and significant. Therefore, it is a necessity if real estate stakeholders begin to consider technology investment integrally in real estate business practices to maintain sustainability in the current era of disruption.
PropTech can be an effective answer in order to maintain the sustainability of real estate in the near future. Technology should not be seen as a threat to the sustainability of real estate business, but rather an opportunity for new and old business models to innovate and adapt to any digital challenges and needs.
Not only as an answer for real estate to be able to meet the current consumer needs, more than that, Investing in PropTech can provide what I called as Return of Digital Investment. By using technology, efficiency, productivity and market coverage will increase. A report from International Data Corporation (IDC) states that 30% of G2000 Companies are willing to allocate capital expenditure ranging from 10% to 14% for technological investments. The World Economic Forum (2018) noted that $1 invested in new technologies has yielded $2.2 – or a 120% increase in EBITDA per employee for the average company. Although it is realized that real estate is not a labor-intensive business as exemplified above, the indication of return on digital investment in most industries has proven that digital investment is not only able to improve the adaptability of an industry, but can also provide significant returns in the future.