The London office market is experiencing a ‘rental recession‘. Vacancy rates remain high, business rates are rising, and property prices are falling. Driven in part by the fallout of the COVID-19 pandemic and a lack of industry wide digitisation, the commercial real estate market is in need of a reset.
Designed to enhance tenant experiences, improve operational efficiency and maximise utilisation of space, from virtual property tours to AI-driven market analysis, PropTech has the capacity to reshape how office space is marketed, managed and sold.
In this article, we explore if the adoption of PropTech can help boost occupancy rates in the City and regenerate demand for commercial real estate.
PROPTECH: A KNIGHT IN SHINING ARMOUR FOR CRE?
With the persistent shift towards remote and hybrid working, commercial real estate owners and operators are turning to building management software and occupier experience platforms to attract and retain tenants.
One company making big strides in the PropTech sector is Smart Spaces, founded by brothers Dan and Tom Drogman in 2010. They recognised a need for ‘a workplace that emphasised sustainability and wellness within the office’ and their solution was to create a white label, IoT platform that connects occupiers to their building community and systems.
Smart Spaces now operates worldwide with over 60 million sq ft of global office space managed through its award-winning software platform that simplifies the day-to-day operational management of buildings, boosting energy efficiency while saving costs. Its smartphone-based app is used by tenants to enter buildings, book desks, meeting rooms, and parking or to access a host of other services. To date, their portfolio connects thousands of brokers and building providers within the co-working and serviced office sectors.
PropTech pioneers VTS offer data-driven analytics that help investors make informed decisions on acquisition and development targets. AI-powered tools analyse market trends and predict demand patterns, enabling stakeholders to adapt their strategies accordingly and identify growth opportunities.
Another leading the charge in the quest to redefine the real estate experience sector is HqO. The company, which has raised $200 million in total funding, has developed its proprietary Real Easte Experience (REX) platform. HqO is steadfast in its belief that commercial real estate only functions best when asset-owners and managers are intimately aware of the myriad of experiences of their tenants in real-time.
The adoption of these technologies is already having a positive effect on how commercial real estate is managed, experienced, and perceived within the market and, ultimately, valued as an asset class.
THE REALITY OF THE PROPTECH MARKET
However, it’s crucial to temper optimism with a realistic assessment of the current market conditions. The recent slowdown in VC funding for European property technology startups (decreasing from $1.8 billion in 2022 to $478 million in 2023) highlights a cautious outlook from investors. The fallout from COVID lockdown has led to sustained high vacancy rates in major cities and a corresponding decline in property values and rents, exacerbated by rising interest rates.
McKinsey’s projection of a potential 26% decline in the value of office space by 2030 further underscores the challenges facing the commercial real estate sector. While PropTech offers promising tools for improving operational efficiency and enhancing tenant experiences, it cannot single-handedly reverse broader market trends.
THE FUTURE OF COMMERCIAL REAL ESTATE
Valued at $24.67 trillion this year, Forbes reports that the commercial real estate market is expected to see a compound annual growth rate (CAGR) of 2.7% from now until 2028, resulting in an estimated value of over $28 trillion at the end of the forecast period. PropTech companies must be primed to take advantage of this growth, aligning communication strategies with industry needs and positioning themselves as vital partners in reshaping the future of this world’s most valuable asset class.
Building owners and operators should emphasise the efficiency gains, cost savings and enhanced tenant experiences that their PropTech solutions enable. Clear, data-driven messaging showcasing a new and more meaningful office experience, and better than can be possibly experienced from the comfort of their own home, is the only way occupancy rates will improve.
However, success will require a nuanced approach that recognises both the potential benefits and current limitations of technology in navigating an ever-changing real estate landscape.