The latest in a series of roundtable debates organised by London and South East real estate investor and developer Martin's Properties and hosted by CoStar News, discussed what is next for real estate and technology and in the face of the increased adoption of artificial intelligence.
Chair: Paul Norman, Managing Editor, UK, CoStar News
Attendees: Richard Bourne, chief executive , Martin’s Properties; James Culley, partner, head of data science, Knight Frank; Jonathan de Mello, founder, JDM Retail; Lu Suo, strategic partnerships lead, Fifth Dimension AI; Adrian Love, founder, Love Ventures; Bronnie Edwards, head of landlord partnerships, Kato; Leon Ballard, co-founder, Kato; Nicholas Kirby, partner in the real estate department, Mishcon de Reya
Martin’s Properties, with its stomping ground traditionally in the heart of London's Chelsea, began the debate by explaining how it has been diversifying its portfolio and is looking at ways of streamlining processes and improving customer experience and performance through technology.
It is using proptech to scrape data and analyse target locations and occupiers, as well as the turnover and rental potential for assets. It has also recently completed the acquisition of a development site for a soon-to-launch self-storage business. The "Drive Up" self-storage offering will use smart phone-controlled access and app technology.
The debate began by focusing on predictions that by 2025, approximately 40% of corporate IT expenditure is anticipated to be directed towards artificial intelligence-related projects. That investment will be felt acutely in the real estate sector, which in many ways has been slow to adapt to AI.
Paul Norman: How will AI investment drive real estate industry requirements?
Leon Ballard, Kato: “Looking at things from the transactional side, the real estate industry has been wallowing in the dark ages, with manual disconnected data processes. As it’s the data that drives and moves the markets, the emergence of faster data overlay is leading to efficiencies in the industry. AI, fuelled by this data, is bridging the gap between physical assets and human processes."
Nick Kirby, Mishcon de Reya, says there has been a rapid recent take up of AI in the real estate sector, especially in relation to contracts and legal aspects: “There is a complete step change in terms of the quality that we are getting. We will soon be able to get these models to do a series of activities and predict what we do next. AI agents are likely to help create a proper assistant for lawyers at all levels, that makes human plus a machine far more powerful than either alone.”
Lu Suo, Fifth Dimension AI, says AI will greatly benefit employees: “Nobody should be stuck doing work that is mindless, repetitive and boring, so the key question is how can we leverage tech for good and break professionals free from the mundane, so they can spend more time on higher value work or, God forbid, spend more time with family and enjoy their lives?”
A slow take up of AI in real estate is in stark contrast to retailers, who have been early adopters and have been using technologies to map consumer spending, trends and target new audiences successfully for years, whilst also using consumer data to help identify the best bricks and mortar locations.
The rapid recent adoption of AI across the real estate sector is anticipated to drive a surge in demand for specific property categories.
Bronnie Edwards, Kato: “There will be a sizable increase in demand for data centres, especially as proximity to cost-effective energy sources becomes increasingly critical. We also expect a heightened need for specialised office spaces tailored to accommodate collaborative research and laboratory requirements. Additionally, we expect to see a rising demand for research facilities, pivotal to the development of AI-related hardware and software.”
Richard Bourne, Martin’s Properties: “I see that AI and proptech has two primary opportunities. First is streamlining processes and making them more efficient and second is market disruption. We are seeing multiple tech products coming to market for point solutions, but the challenge is end-to-end solutions. There hasn’t been many successful disruptors yet. An example here is Purplebricks.”
As consumers expect faster deliveries, retailers and logistics companies are expanding their distribution networks. Last-mile delivery hubs, urban logistics centres, and high-tech warehouses are in high demand with operators looking for well-located centres with good transport links, and this is a trend the panel predicts will accelerate and affect many real estate sectors.
PN: How can tech identify the best locations for retailers, from retail outlets to distribution hubs?
Jonathan de Mello said he and, now his company, JDM Retail, have been assisting major international retailers in strategic identification of UK locations for over 10 years. “We're using data analytics to determine exactly where retailers should be and how many stores retailers can sustain. This is mapped against what money can be made in that location when the leasing costs have been taken into account. “
For Martin’s Properties, Bourne explained that AI and data capture was hugely influential across its Chelsea King’s Road portfolio and specifically the repositioning of 33 King’s Road. “Analysing data in this location was key to highlighting what the potential turnover was for each unit. This created a strategy where we knew what rents should be achievable and that enabled us to attract the right customers who can sustainably deliver the turnover potential. Alo Yoga opened its first flagship UK store at 33 Kings Road as our main anchor tenant. Its trading success since opening eight months ago has been extraordinary and the knock-on benefits to footfall and the trade of our adjoining occupiers has been extremely positive.”
Edwards agrees that data capture by landlords helps attract the right tenant mix. “I think the job of the landlord or the provider of this retail space is to capture useful consumer data and provide that back to their occupiers. This will help entice new tenants and help existing operators with their business decisions and marketing efforts, in turn driving the value of the retail location."
The panel believed technology is revolutionising the way buildings are designed, managed and experienced. Smart technologies, internet of things sensors and data analytics are improving building operations and energy efficiency. Areas mentioned are smart lighting, predictive maintenance and contactless access controls. These are setting top-tier office buildings from others in the market, furthering their appeal to tenants and investors.
PN: How can tech help create spaces that prioritise collaboration, wellness, and connectivity?
Edwards and De Mello drew attention to the positive role that AI can provide in the implementation of ESG requirements and decarbonising buildings.
Edwards said: “I think in terms of the key challenges the owners of real estate are facing, one of the areas that technology could have the biggest impact on is decarbonising the built environment. There's huge scope for the role of technology here but we must also be mindful of the ESG implications, given the significant energy requirements of the technology sector."
De Mello added: “If we can utilise AI effectively to decarbonise some of our buildings that would be a great achievement given the requirement for everything to be grade B EPC by 2030. At the moment, 80% of all commercial buildings are below that requirement. Therefore, a key question is can we use the right technology to more efficiently decarbonise some of the buildings we have and also assess if buildings are fit for purpose.”
Adrian Love, Love Ventures, views the role of technology as intrinsically linked to people. “What we always need to remember in the real estate industry is the marrying of physical space, people and the technology that sits behind it. This has a hugely positive impact where there is a focus on wellness as at the heart buildings are the people in the place."
PN: How can technology be used to increase the security of our properties further, combat theft and make our streets safer?
Bourne said: “One of the big issues across London that we've been addressing in the King’s Road is reducing the increase in theft and pickpocketing. The King’s Road Partnership has used tech applications which enable GDPR compliant sharing of information between local occupiers and businesses relating to offenders and offences and it is linked into the street police. Since its introduction we have seen a massive reduction in the amount of crime and improvements in physical security.”
Edwards and Kirby have seen huge improvements in online technology security and says this has helped contractual and transaction professionals.
Edwards said: “There's a big role for technology companies to play in adding value when it comes to the security of the transaction process itself. We are definitely looking out for partners who we can collaborate with to empower our agents and customers to both streamline the transaction process and make it more secure.”
Kirby added: “There's definitely a forward-looking argument to have properly digital documents and smart contracts, powered by a distributed network in the background so that we can understand what they say and what they do without having to use another technology to analyse documents.”
Lu Suo and James Culley were keen to highlight the risks of too much reliance on AI for security.
James Culley, Knight Frank: “We spend a lot of time thinking about what governs the ethics with data, AI and technology, and making sure that if you use third-party apps where you're sharing data that you know all the procurement and compliance and all those things are checked thoroughly.”
Lu Suo, Fifth Dimension AI, added: “The intricacies of building rock-solid security systems internally and how businesses partner with AI will be a moot point if we don't nail permission controls.”
PN: Who will be the winners and losers and what will the biggest changes be in proptech over the next few years?
In relation to planning, while technology will speed up many processes, Culley argues that “planning schemes are being held up in this country because many areas lack the energy infrastructure to support more homes. Another area that this will impact is on the development of data centres which require a huge amount of energy to sustain them.”
Love said: “We see best in class providers with specific offerings and over time we expect those to consolidate. There will be winners in various sectors who will become market leaders. AI is here to stay and it's really going to make a big impact on several industries that are particularly analogue at the moment and bring them into the 21st century, with real estate being a key benefactor.”
Kirby added: “In a sense, what is next is not known today. If you look at the pace of change over the last two years and in particular the pace of change over the last six months, this gives credibility to what people are saying is going to happen in 24 months; it is quite amazing."
Culley said: “AI is here to stay, whilst some of the other technologies have died away. It is going to change things. We're still seeing a very fast evolutionary stage of AI and everything is really exciting. As AI hits a stage of maturity, we are seeing what works for real estate itself and which areas we are seeing big advances in. I think a big step change will be the democratisation of data and technology which is quite exciting as more people in more areas are able to access data analysis.”
Bourne concluded: “This debate has reminded me of an interview with Steve Jobs who was challenged about Apple’s direction with their software. Steve Jobs said, ‘when trying to effect change, it is important to start with the customer experience and work backwards with the technology, rather than create complex technology and then try to sell it'. When looking to adopt technologies and create new service lines reliant on technology Steve Jobs' advice will always ring true.”