How has technology affected real estate?
Digitization in the real estate industry: Corona effects not only negative
Even before the crisis, the Austrian real estate market was in a state of upheaval. Leading experts already assumed at the beginning of the year that the record values from 2019 would not be reached this year. With the progression of the Covid-19 pandemic, however, the development was once again significantly worse than expected.
Declines in demand were recorded not only in Austria, but also in large parts of Central, Eastern and Southeastern Europe. Both private and institutional investors acted with wait and see and postponed investment decisions into the future due to the uncertain economic situation. The various asset classes were affected to different degrees by the development. This is what the Austrian National Bank shows in its analysis of the real estate market.
- Residential real estate:According to initial estimates by the OeNB, the housing market has weathered the corona crisis well. Great demand and a shortage of available living space are expected to continue. It is likely, however, that price growth for properties for sale and rental will slow down in the short term because the prospects for returns have been reduced, rents have been deferred and investments have been postponed.
- Office real estate:The corona pandemic had a particularly severe impact on the office property market. The recession resulted in a significant decline in the number of employees and, as a result, a noticeable decrease in demand for office space. Start-ups, co-working providers and large law firms were particularly affected. As a result, fewer new leases were signed and lease terms were shortened. A decline in demand for office space can also be expected in the medium term.
- Retail and commercial:The recession is leaving its mark on the retail, catering and hotel industries. The extensive contact bans, exit and travel restrictions mean that congresses, trade fairs and business trips are no longer applicable. Experts are forecasting a sharp rise in the number of bankruptcies and significant declines in the number of employees in the coming months.
The corona crisis is not only affecting demand. The political measures taken in the course of fighting the pandemic also have a significant impact on the work of brokers, contractors and project developers. Because where people are not allowed to meet, roads, house construction or other infrastructure measures are of course made more difficult.
There are far-reaching restrictions, for example, when viewing objects. These were not at all possible for months and could only take place under strict conditions even after the extended contact restrictions were suspended. Construction companies were also affected. In this way, construction work could continue, but there were sometimes considerable delivery bottlenecks when building materials had to be imported from abroad. Many construction companies also employ foreign employees who have not been able to start their work due to the tightened entry requirements.
The importance of digital technologies is increasing
In the course of the massive restrictions and the overall economic burden, the actors in the real estate industry had to change their processes, in some cases considerably. In the course of this, investments in the area of digitization increased, so that the crisis is also increasingly coming to the fore as a technology driver. The following developments deserve special mention.
- Virtual tours:Anyone interested in buying a property will no longer have to look at ten, 20 or even more properties on site in the future. Instead, he uses online tours from his PC to give him a first impression. This is possible, for example, with the real estate broker Betterhomes, founded by the Swiss Cyrill Lanz. The objects of the shortlist can then be viewed on site as usual. Devices such as virtual reality glasses will also play an increasingly important role in the tours. There is also the option of being accompanied by the broker online or by phone.
- Blockchain technology:Not only when it comes to cryptocurrency: Blockchain is also playing an increasingly important role in the real estate sector. For example, the technology enables direct purchase transactions without third parties and facilitates proportional investments. Changes in ownership are entered into digital land registers with the help of smart contracts, which reduces physical contacts to a minimum. In addition, transparency and security increase. Property management can also be implemented via blockchain. For example, tenants could make decisions in self-administration, jointly pay into an account and countersign contracts regardless of time and location. All results are documented in the blockchain, where they can be viewed at any time.
- Building Information Modeling:With this software solution, buildings can be planned, constructed and managed in a network. This is done using a digital model that is mapped with all relevant information over the entire life cycle. For example, it can be determined at an early stage whether a project can be completed according to the time, cost and material planning. The technology also enables everyone involved to act in a more coordinated manner without unnecessary meetings with infection risks.
Implementation of digitization strategies remains a major challenge
The technical aspects are only one area of digitization. Much more important is: Entrepreneurs have to start thinking in a transformative way. Where can it be automated and digitized and where not? Classic industry analyzes come into play here, which can be broken down into the following points:
- What needs do customers, partners or employees have?
What do people want? Smart toothbrushes or toothbrushes with built-in AI could be admired at the international radio exhibition IFA in Berlin in 2016 and afterwards - they rarely sold. The real hit was applications for the smart kitchen - because customers saw a need here.
- What solutions are needed?
What is actually needed? Nobody wanted Microsoft tablet PCs in 2002 - only Apple managed to arouse interest in 2010. Apple correctly assessed the mobile boom - Microsoft was simply too early. Mobile devices were needed in 2010, but not in 2002.
- Better open standards or individual solutions?
Too many companies get lost on the subject in a multitude of inadequately coordinated individual solutions. In-house solutions for wireless connections are AirPlay from Apple, Screen Mirroring from Samsung and Wireless Display (WiDi) from Intel. In contrast, Miracast from the Wi-Fi Alliance has been available since 2012 as an open peer-to-peer wireless screencast standard that manufacturers such as Fujitsu, LG, Sony, Xiaomi, Panasonic and many others are now using.
In addition, there are numerous other challenges when implementing digital strategies.
If you look at digitization drivers such as the EU's Green Deal with its goal of climate neutrality by 2050, a typical implementation problem becomes apparent. There is often a lack of industry-wide uniform models with compatible data that can serve as a basis for the digitization of work processes. In this context, software solutions such as SAP, which is used in industry, will gain in importance.
Another problem with the implementation of digitization strategies is the shortage of skilled workers. There are only a few people who have the necessary knowledge to effectively implement new work processes and technologies and apply them in a problem-oriented manner.
In this context, precise knowledge of the GDPR also plays a decisive role, which still poses challenges for many companies.
With all digitization, the human component always plays a decisive role, because physical contact with the broker continues to be an important support for many, which cannot be replaced by a purely digital solution.
The aftermath of Corona will be felt for a long time
In view of the current situation and the developments associated with it, the question arises for market participants as to which long-term changes in the real estate industry are still to come.
Here, a few circumstances speak for a cautious optimism. In contrast to the 2007/2008 financial crisis, the central problem today is not the over-indebtedness of governments, banks and private households. There were also no structural changes on the demand side. This means that the fundamentally healthy real estate market can be expected to normalize again in the long term.
On the other hand, there is also great uncertainty about how the crisis will develop. The consequences of the pandemic cannot yet be foreseen and there are great concerns whether liquidity shortages will lead to chain reactions and a new economic crisis. In the long term, it remains important for real estate companies to pay close attention to current developments, to adapt flexibly to the new conditions and to consistently pursue and optimize their digitization strategy. (Christian Allner, December 3, 2020)
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