Knowledge Center: Publication
Real estate in the augmented ageSubscribe to Financial Services 12/14/2017 Sam Burman and Chantal Clavier
Technology is reshaping the business of real estate. Whether it is drones delivering essential materials to skyscraper-construction workers, robot-only building sites working 24 hours a day, connected microsensors measuring how room space is used, or data scientists managing multibillion-dollar property portfolios, the future of international real estate is increasingly becoming not science fiction but a scientific reality.
To explore these topics, Heidrick & Struggles recently hosted a seminar called “Real Estate in the Augmented Age.” Our intent: to gather a roomful of industry practitioners and a panel of experts to discuss how technologies, such as next-generation robotics, the Internet of Things (IoT), artificial intelligence (AI), augmented reality (AR), and virtual reality (VR), will shape the real-estate sector. The following insights are adapted from these conversations (see sidebar, “About the panel”).
UK industry leaders are already positioning themselves to be digital pioneers. For example, one CEO of a property company invited millennial colleagues to apply innovation and technology to current and future business problems using a defined budget. Other property companies in Europe are experimenting with internal incubators and think tanks to better understand how consumer behavior is changing so they can assess the potential influences on their business model.
Whatever the outcome of these initiatives, the Fourth Industrial Revolution is redefining the way people use buildings. Connectivity is king, and digital connectivity is becoming as important as the traditional kind. One effect will be better verification for the leasing and selling of real estate, thus increasing levels of security. Consumer and client expectations for personalized customer experience will continue to rise. Superconvenience is the new norm, as retail services such as one-hour delivery and “click and collect” take hold. And office workers will place greater importance on the look and feel of their workplaces in the battle to retain the best people.1
Through our recent seminar and subsequent discussions with our panel, we identified two principal trends for the future of the real-estate industry.
- Innovation goes supersonic. Data has become the world’s most important resource and a key driver for all new real-estate developments. Cloud computing and the mining of big data are encouraging new ways of working, including the deployment of blockchain technology for inventory purposes.
- The physical reality of construction is being transformed. Real-estate and construction businesses are increasing their use of drones for inspection and delivery, as well as AI-propelled robots for tasks such as bricklaying and concrete spraying. Meanwhile, mass adoption of built-in microsensors for the monitoring of utilities and the measurement of office spaces and hotel rooms allows deeper interpretation of results, requiring a new level of analytical skills.
Our panelists included Laurence Buchanan, digital partner at EY; Alex Kayyal, European head of Salesforce Ventures; Marc Overton, senior vice president and general manager of cloud and connectivity at Sierra Wireless; Carl Uminski, cofounder and chief operating officer of Somo; Nils van der Zijl, director and enterprise executive of Watson IoT Europe at IBM; Marc Warner, cofounder and CEO of ASI Data Science; and Matthew Weiner, CEO of U+I.
Defining the landscape
Each panelist spoke at length about current trends and future opportunities in the real-estate sector’s journey through the augmented age.
Marc Warner explained that AI is the science of getting computers to do things that are considered intelligent when done by a human. AI is about taking enormous sets of data and then creating algorithms that can spot patterns that are hard for any human to discern. This availability of cheaper, cloud-computing alongside machine-learning algorithms is spurring this change.
Carl Uminski explained how VR, which uses a headset; AR, where a smartphone can be used to augment information for the user; and mixed reality (MR), a combination of VR and the real world, are increasingly being used in the industrial world to visualize buildings at the design stage. Currently, Microsoft is the biggest MR player in this market.
Matthew Weiner noted that “buildings need to be more adaptable as working styles and social habits change.” Google’s Alphabet is building the first “smart city” in Toronto, on undeveloped waterfront land. The district will be built from the Internet up, including AI, and usable for autonomous vehicles with infrastructure sensor technology embedded.
“In real estate,” Weiner said, “much of the technology adopted has been in the fields of property management and building automation, largely driven by a desire to control and reduce costs. We shouldn’t just think in terms of buildings, but places and communities.”
Nils van der Zijl said one of the challenges for the real-estate industry is extracting the essential intelligence from millions of documents and pieces of data. He cited construction, real estate, and fund management (CREFM) as areas with huge opportunities and many new players entering the market. AI will ensure large property portfolios are used more efficiently.
Laurence Buchanan said that real-estate companies are automating sales, developing consumer research, and learning from other industries. However, companies must be careful not to apply technology to solve yesterday’s business problems; they must think about the end-to-end impact of the value chain alongside the opportunities that can be created.
Marc Overton spoke about the imperative of filtering and prioritizing data given the proliferation of costs related to data storage. Currently, discerning “good” data from “bad” data is evolving as a science. Extracting all this information from sensors and analyzing it at a control center is a complex, yet helpful, process for predicting human behavior. For example, companies such as Philips are examining ways to save energy, such as switching off lighting when it is not required.
He also talked about how the sharing economy must be embraced by the real-estate industry; millennials—now aged up to 36—have come to expect this type of renting structure thanks to the likes of Airbnb. And retaining the best talent from this increasingly important cohort requires creating better working conditions and promoting genuine flexibility.
Nils van der Zijl argued that real-estate leaders must find ways to begin monetizing this abundance of available data and that significant benefits will accrue to those companies able to make even the most modest changes when it comes to using emerging data-analysis technologies. “Think of what even an additional 1% [of the potential] would mean to our business,” he observed. Nonetheless, he maintained, any gains will require companies to break down internal silos and work in more agile and collaborative ways. In his own business, van der Zijl stressed that he and his team are advising clients on how IoT and AI can be used to create buildings where people want to be rather than where they have to be.
On the flight for talent
So where are the skill sets of the future? And which ones will be obsolete?
Alex Kayyal pointed to automation of mortgage risk assessment as a growing capability. This means that buyers and renters no longer need to submit forms and show up at real-estate branches. A new brokerage model is taking hold quickly. Tasks that are repetitive or process-driven can by undertaken by AI, while human creativity, invention, and anything design-driven will be further down the line for automation.
Marc Warner believes more math, physics, and computer science graduates must join data science functions in the property and construction industry. Companies are hiring physicists and PhDs to focus on analyzing, implementing, and monetizing huge data sets.
Laurence Buchanan, referring to a shortage of practical skills in many business- and technology-related industries, noted the scarcity of CEOs and chief digital officers who have lived through the end-to-end reinvention of a company and its value chain.
Marc Overton said it is important to find people with a service background who speak the language of the real-estate business. He stressed they should be business leaders rather than advisers, as leadership is about transforming from within as opposed to advising from outside.
Rinse, repeat, learn
When it came to spotting opportunities, the panelists highlighted a range of areas, including blockchain, drones, IoT, and VR—all of which come with implicit challenges. However, there are real-estate tools available now. Nils van der Zijl said using blockchain in supply chain and procurement processes has taken the risk out of complex projects by having a ledger that automatically keeps control of all individual process steps.
He noted that VR overlaid with exact architectural and construction data gives both prospective clients and on-site construction teams a clearer vision of the future, while allowing modifications at an earlier stage, thus saving money by surmounting unexpected obstacles or avoiding the redrafting of contracts.
The discerning consumer is leading the enterprise market and expects flexibility and connectivity. According to van der Zijl, real-estate developers are behind the curve in anticipating the demand for 5G wireless, Hive, and Nest. Amazon’s Echo and Google Home are being given away cheaply because their collection of big data through customer use allows for monetization.
Marc Overton believes large infrastructure ducting for cabling is likely to become redundant with the widespread use of 5G wireless and low-powered, wide-area networks (LPWAN), which allow sensors to light up. “Microsensors that monitor various levels of heat, light, and battery power provide a wealth of data that will give real estate better information about the buildings they build and operate,” he noted. “What is different now is that these advanced microsensors will be connected to the grid through the Internet of Things.”
Carl Uminski feels time scales of real-estate and digital delivery must be more aligned. “On the delivery of software, I’m talking about 8 to 10 weeks. You need rapid decisions to allow your product owners to become involved. How do you make sure you instill a culture of change? This is a big deal when you are looking for talent. If you’re on a 12- to 18-month project, forget it, you’re out-of-date.’’
Alex Kayyal said the sharing economy will have an impact on how we use buildings and share our homes. He said real-estate companies should apply the mind-set of a start-up when looking for changes, using the formula of rinse, repeat, and learn.
A combination of heightened customer expectations and sweeping technological change are poised to transform the way the real-estate industry operates—as well as the talent it will require. Forward-looking industry players are coming to grips with the challenges and are already testing potential areas of opportunity. The prize is as elusive as it is desirable: an enduring competitive edge over rivals. As the saying goes, “Watch this space.”
About the authors
Sam Burman (email@example.com) is a principal in Heidrick & Struggles’ London office and a member of the Digital and Global Technology & Services practices.
Chantal Clavier (firstname.lastname@example.org) leads the Real Estate Sector for Europe and Africa; she is based in the London office.