Healthy offices will command a premium – and benchmarking will be key to assessing their value. Nicol Dynes reports.
The pandemic has brought health to the fore and technology is the great enabler of healthy solutions for buildings. It is widely recognised that a healthy environment and clean air have a positive impact on employees’ cognitive functions, so it gives the companies they work for a competitive advantage.
“Now it’s the time to act to improve offices, before people go back to the workplace,” says Francesca Brady, CEO of certification provider AirRated. “Before Covid-19 healthy offices were nice to have, but now everyone’s awareness has been heightened and everyone is clued up and better informed and demanding change from property owners.”
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Measures including introducing insulation and energy efficiency or improving air circulation and air quality will give employees more confidence and “more faith in indoor spaces”, encouraging them to return to the office, she adds.
“Having a technology that delivers a better experience for both tenants and customers is a competitive advantage for a landlord,” says Michelle Buxton, managing director of proptech provider Toolbox Group. “But many landlords don’t have a tech strategy, they have a strategy and want to add tech on top and that just doesn’t work.”
‘Selling tech to investors or landlords is like selling a mobile phone in the 1980s. It is still an embryonic market. In the end the product wins – if it works, people are easily persuaded.’
Florin Iarca, Datscha
What works is having an integrated platform that includes all aspects of a building and a business, from tenant engagement to workflow management, security and sustainability. “Occupiers will drive that demand for healthy productive spaces and demand improvements, and legislation will follow,” says Brady.
The regulations bar is low, at the moment it is in line with minimum health & safety standards, but progress is being made. “You are really unproductive with the levels of air quality that are allowed at the moment, because ‘safe’ and ‘healthy and productive’ are very different things,” adds Brady. “But new building regulations will have to include higher indoor air quality standards. We must move on to the next stage.”
The next step is benchmarking and standardisation, to be able to measure and compare data like-for-like, give clear guidance and reference points and assess ESG compliance objectively. “There’s a huge opportunity to focus on sustainability and use technology to prepare our clients to meet regulations,” says Lukas Balik, co-founder and CEO of tenant experience app developer Spaceflow. “We know that more legislation will follow and demands will grow, so it’s better to be prepared.”
Proptech is a good investment, not a cost, experts agree, but it will take a little time for the message to filter through to all companies. “Selling tech to investors or landlords is like selling a mobile phone in the 1980s,” explains Florin Iarca, head of sales, UK & Europe, at online data provider Datscha. “It is still an embryonic market. We are educating people as well as selling, but in the end the product wins. If it works, people are easily persuaded.”
‘In future we’ll see higher valuations for buildings with good air quality. At present we see lower vacancy rates rather than higher prices, but soon there’ll be a shift to lower values for non-compliant buildings.’
Francesca Brady, AirRated
As they adopt tech solutions, users quickly discover the value they can deliver and their perception changes. “At the beginning people see the cost and there’s a fear that tech might not work,” says Buxton. “There are cultural, social and skill barriers and a lack of understanding, it takes time to see how much value tech can add and how it can contribute to reducing costs.”
To mitigate companies’ fear of failure the customer management process is crucial. “We share our roadmap with our key clients and make sure our thinking is aligned with their vision for their portfolio,” says Balik. “It is important to bring them on board and have a joint strategy.”
Having an integrated platform can lead to huge savings, but it can be difficult to quantify the value tech brings. “We’ll be monetising things we never monetised before with an on-demand services model,” says Balik. “It’s an opportunity to reshape your product and grow your business.”
The speed of change technology-wise has accelerated enormously but the real estate industry is still in a transition phase. “In future we’ll see higher valuations for buildings with good air quality,” says AirRated’s Brady. “At present we see lower vacancy rates rather than higher prices, but soon there’ll be a shift to lower values for non-compliant buildings. Companies will have no choice if they don’t want to be left behind.”
Proptech eyes fintech growth
Despite massive growth in the past few years, proptech is still small in comparison to fintech, taking into account the different sizes of the sector they cater for. But proptech will inevitably catch up, it is only a matter of time, say experts.
“Real estate provides investors with access to the largest asset class in the world, which exceeds by almost a third the total value of all globally traded equities and securitised debt instruments put together,” adds Cations. “This highlights the importance of the role that real estate plays in the economies around the world. Yet fintech receives eight times as much investment even though financial services is a much smaller sector than real estate.”
“The volume of investment going into proptech has been growing year-on-year, not just from the likes of SoftBank and property-specific venture capital companies, but from institutional investors as well,” says Scott Cations, vice president of Altus Group. “There are now over 9,000 proptech companies registered globally, most of them in the residential real estate sector, but there are opportunities in the commercial space as well.”
The reason for fintech’s growth is that the financial services sector has opted for fast, all-out digitisation and automation, with passive investments like ETFs increasingly replacing active investments.
This fast transition is not feasible for real estate, Cations says: “In the short term there is a need for active asset management, even more so in a pandemic. These active management strategies require local expertise, local presence and local relationships, which will ultimately limit the bold changes we saw in the fintech market.”
But it’s only a matter of time, he adds. Real estate has a reputation for being slow moving, but the pandemic has shown how quickly it can adapt to changing circumstances when necessary.
“Both traditional investors and service providers managed to go overnight from 100% working in the office to remote working,” he says. “Ultimately, they broke decades of traditional office working and yet business continued.”
IT teams adapted very quickly to increase infrastructure and implement tools like Zoom, while everyone else managed to continue doing their jobs remotely, from valuing properties to carrying out due diligence to signing off deals.
“Until data and transparency improve, the road to a fully automated proptech world will continue to be slow,” Cations says. “But if you think things cannot change quickly, just think again, because things can change overnight.”