29/08/2022 11:56

The next period in the life of the real estate market will pose very serious challenges, the changing market environment, the changed demands caused by the coronavirus, rising energy prices, stagnant or declining economic indicators and the shock caused by intraday exchange rate changes will force the market players to continuously renew themselves, it cannot be the real estate market is already inflexible, it is time to prepare our organization for the change.

In my series of professional articles, I will always talk about current topics, innovation, digitalization, the proptech market, changes in the market, trends, but I also prepare an analysis of the energy market, the digitalization of office space, the development of proptech companies, or the changes affecting the tech investor market, among others about the rise of impact funds.

However, before going into the examination of each segment, I would like to clear up a misunderstanding: innovation ≠ digitization ≠ proptech!

What is innovation?

Innovation is nothing more than professional development, the creation of an innovation, the realization of a new idea, which can be an improvement, a new method in the course of business or in the organization.

Innovation can be categorized in terms of originality (Hisrich and Peters)

- Invention or original invention means the creation of products, services or processes that are new or untested.

- Further development means the application of an existing product, service or process in a different area in a different form.

- Imitation does not only cover copying the product or service, but the entrepreneur adds his own idea and creativity to it in order to improve and develop it and thus gain an advantage in the market competition.

- Synthesis covers the combination and new type of use of existing ideas, products, and ideas. During synthesis, new forms of application of already developed ideas are sought or found.

The other categorization is the Henderson Clark innovation model, which also distinguishes four categories of innovation, but now based on whether the development is related to the components or architecture of the product or both. If both have a low level of innovation, then it is incremental if both are high radical innovations.

What is digitization?

Contrary to misconceptions, the digitization of the real estate market is not determined by the number of proptech companies a company is connected to. There are many components to measuring the level of digitization: how mature a company is, how much and what quality and in-depth data it collects, how much it organizes it, how much transparency is in-house, how much the culture is part of the operation, striving for constant efficiency and change, with the help of digital tools, and whether he is brave enough to experiment with new things.

Constantly changing market demands, the emergence of new consumer generations and the spread of online channels are putting more and more pressure on digitalization in the life of companies. One of the biggest challenges of this is not the transfer of previously analog or offline processes to digital channels, but the creation of the associated organizational change and customer experience.

In many cases, digital strategies do not take into account changes that cause resistance within the company or negatively affect the existing customer experience. One of the huge possibilities of digitization is the more efficient use of company capacities, but this is only possible if all stakeholders in the process are properly identified and involved.

The real estate market is an under-digitized sector, the second least digitized industry in the world according to Morgan Stanley's Digitization Index. In many cases, key information is located in different places, in different formats, unorganized, and unavailable for effective decision-making and evaluation. Real estate investments are greatly influenced by fragmented data, the lack of a developed evaluation methodology, manual analysis and in many cases unstructured decision-making processes.

James Dearsley, one of the founders of the leading global proptech platform, Unissu, recently had an informative and insightful podcast conversation with Menno Lammers, the founder of Proptech for Good. Digital transformation does not only mean technological change, it is a much more complex issue, the driving forces of innovation are also discussed during the conversation

Innovation cannot be calculated on the basis of ROI (return on investment) in the traditional sense, but rather on the basis of Return on Innovation. Most conscious companies do this, since R&D spending is calculated, which may even have an expected return.

There are already services on the market that specifically deal with the digitalization of the real estate sector and its audit, which is why Enlight created its digital audit service, which you could hear at the Proptech Hungary conference in Péter Bártfai's presentation entitled "The 4 Steps of Digitalization". Here, the audit and consulting activities cover 4 different areas: assessment of productivity tools, dashboards and automation, boxed products intended for the target market and software solutions tailored to individual processes.

However, despite the fact that the sector is under-digitalized, according to my survey, almost all companies innovate and keep pace with digitalization, even if they do not do it consciously or do not have a long-term digital strategy for it. He uses various technological devices on a daily basis, even if he does not consciously collect data on the extent of use. It occasionally introduces proptech solutions, even though it does not apply the products systemically and does not request data from these companies. In most cases, there is a lack of a digital strategy, a kind of holistic thinking is still missing, since a digital strategy needs to be created in the same way as we prepare financial or business plans in order to keep up with trends and build world-class companies.

What is proptech and why is the change timely?

In the above context, proptech is nothing more than a kind of boxed, mostly cloud-based service for the areas mapped by innovation, which can serve as an immediate solution, solve our problem, or part of it.

If we are looking for a precise definition, then PropTech is part of the wider digital transformation of the real estate market, the movement that is reshaping the real estate market and its consumers through the digital data collection, transaction and design of buildings and cities, supported by technology-driven innovation. PropTech (also known as Real Estate Tech, Retech, Estech or RealTech) means property technology, or real estate technology in Hungarian. The term refers to digital solutions for software, tools, platforms, apps, websites used by real estate professionals, from brokers and appraisers to architects and construction managers. This includes Contech (construction technology) and CREtech (commercial real estate technology) and overlaps with some Fintech (financial technology) solutions. PropTech improves the long-term efficiency and facilitates the distribution of real estate, including buying, selling, leasing, valuation, financing, marketing, development, design, construction and investment.

The development of the proptech market is timely because the real estate sector is currently undergoing a new digital transformation. The application of technology and innovation to real estate is lagging behind all other sectors, and due to the circumstances, it is even more pressing to catch up.

It is very worthwhile to look at what the reasons for this lag and delay might be: we have already talked a lot about the inflexibility of the real estate market, of course it has something to do with under-digitalization. It is interesting to see how the success and profitability of the old business methods affected the development, they were not needed, because it still worked successfully. The high regulation of the real estate market also affects the digitization of the market, its support and development has also begun at the government level, as they see the increase in efficiency and transparency in other sectors as well.

All of the above-mentioned reasons have contributed to the resistance of various interested parties in the real estate market, but the generational changes caused by the digital revolution, the coronavirus and its aftermath, as well as the changing conditions in the economy require a much more sophisticated, more controllable and more transparent system that provides decision-makers with data .

The categorization of proptech companies is also dealt with at the international level, there are several approaches, I consider the following categorization to be the most relevant and understandable

                 1.Investment and finance
                 2.Design and construction
                 3.Sales and Marketing
                 4.Operation and operation
                 5.To live and work

A problem always brings an opportunity

Recent events are driving the market in the direction that companies have data and measurements, can see the change and its direction, and be able to compare it with past data. After the coronavirus, it was very important to not only have data from the financial side, but to collect data from as many places as possible, preferably so that the owners could see the use, changes, and utilization of the property in real time. Retail properties have been using sensors that create heat maps or count customers for a long time, but these devices have only recently started to spread in the office market, and most often the tenant side initiates the implementation, even though they carry a lot of valuable information. But it is not enough to collect data, they must also be structured and used, and many business conclusions can be drawn from them, they help a lot in decision making.

The PropTech market offers great opportunities in several ways: it provides owners with transparent and valid information, the efficiency of transactions improves, and management and control can be simplified. Menno Lammers, founder of Proptech for Good, previously wrote a good analysis, 10 trends that will change the market.

With the help of technology, we optimize costs, increase efficiency, or even generate income. In the next period, we have to worry most about the exploding energy prices, which, however, can give the digital market another boost, as it is now extremely important to see the numbers, our consumption, and even its daily changes, which is also helped by the legislative environment, since it will soon be mandatory will provide each meter with an automatic meter reader above a certain consumption. If we collect data every hour, minute, or second, we will be able to predict our consumption, filter out anomalies, and predict periods of intense consumption, which will be exponentially more important in the following period. In this case, we are not talking about a new market, energy software has been on the market for tens of years, what is new is their ratio in costs. Due to the increase in energy prices, their importance has increased.

Most of the proptech solutions on the market are similar in that data can be collected, structured and used to optimize costs, increase efficiency, or increase revenue.


I will continue from here soon….

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