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Real estate investment managers face ‘perfect storm’

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‘The prevailing macro-economic conditions of 2020 leave investment managers little alternative but to embrace technology with much more intent.’

A research collaboration between Saïd Business School’s Future of Real Estate Initiative and real estate venture capital firm PiLabs finds that a majority of real estate investment managers are in danger of falling behind a cultural and technological revolution which is sweeping through the industry. 

Despite a wave of PropTech innovation in the last decade which has seen over $100bn invested in PropTech firms, only 25% of real estate investment organisations currently boast an established data strategy.

The report finds that the industry’s most urgent need is for investment managers to structure, standardise and digitalise their existing data in order to accurately position their portfolios and unlock value, a task which the authors state can be accomplished using today’s technology.

Investment managers must also change the way they assess property. Most real estate assets were once ‘non-operational’ – the costs and risks of ownership could be pushed onto the tenant due to long leases. But changes in the way buildings are used is leading to shorter leases, requiring owners to pay more attention to the revenue they can generate. Embracing this change will require investment managers to delve into a world of ‘employees, health and safety, feedback platforms and big data.’ Those that master ‘operational’ real estate will be rewarded with diversification opportunities and added growth.

Real estate investments are increasingly required to meet a high level of environmental, social and governance (ESG) criteria, but the industry has been slow to adapt. ‘Perhaps the biggest issue facing the industry is the need to upgrade the current building stock to meet 2050 net zero targets, with no clear model as to how this can be achieved in a profitable way,’ state the authors.

Remember Amara’s Law: we tend to overestimate the impact of a new technology in the short run, but we underestimate it in the long run.

Andrew Baum

Professor of Practice

The fourth industrial revolution has challenged the economics of the occupier markets, illustrated by the rise of online shopping and the decline of the high street and shopping centres – a process that the authors stress began long before the pandemic, though it has accelerated it.

Despite these challenges, co-author Professor Baum states the industry ‘doesn’t seem to be expressing these stresses too much at the moment. We haven’t seen fund managers going bust. But a perfect storm is on the horizon. Remember Amara’s Law: we tend to overestimate the impact of a new technology in the short run, but we underestimate it in the long run. Many investment managers have wisely stood back, observing others overestimating the impact of new technologies. But, sooner or later, the long run will arrive.’

Co-author and PiLabs research associate Andrew Saull stated: ‘The macro-economic conditions of 2020 leave investment managers little alternative but to embrace technology with much more intent. This report aims to provide a roadmap for the industry, identifying the key process inefficiencies within real estate investment management and highlighting relevant technologies able to overcome them. We hope that this will contribute to the development of a more efficient industry in a time of considerable challenge.’

Download Technology and The Future of Real Estate Investment Management.