Although data has long been fundamental to real estate transactions, the wider real estate data ecosystem is still developing. Lessons can be learned from other sectors to drive forward the transformation of the sector, as our report, The New Age of Data in Real Estate, co-written with Nuveen Real Estate, explores.
The tech sector has inspired “as-a-service” business models. The automotive sector has developed this approach into subscriptions for assets and is being reshaped as software and connectivity become fundamental to what was previously a very physical engineering field. We also consider the challenge of smart cities and the pioneering example of “mobility-as-a-service” initiatives, requiring multifaceted collaboration between diverse stakeholders.
Lessons can be learned from other industries that are further ahead in their data journey than real estate.
In our first article, we looked at the drivers that are moving the real estate sector towards a more data-centric approach, and the hurdles inherent in the characteristics of the sector. This article will consider the lessons to be learned from other sectors, before our third article discusses the challenge of creating the legal framework for a collaborative, data-driven real estate industry.
“As-a-service”
The data-enabled “as-a-service” business model is a significant import into the real estate sector.
“As-a-service” terminology comes from the software industry. Previously, a customer downloaded software on to its own servers and was then responsible for managing the software’s deployment across its systems, as well as issues such as updates and cybersecurity, etc. The emergence of “the cloud” has introduced an alternative approach. Cloud-based software remains on the supplier’s servers. The customer does not download it but accesses it via the internet. The supplier is responsible for maintaining and updating the software, and has a much more dynamic, ongoing relationship with the customer. The focus is no longer on the one-off sale and purchase of a licence, but on accessing the ongoing functionality of the software, and the related performance levels.
The “as-a-service” concept has spread out beyond the tech sector into physical assets in many sectors. However, it is usually powered by digital technology. A digital interface and platform is typically integrated with the physical asset to manage and monitor the customer’s use of it. Data collected via the interface may drive “pay-per-use” pricing. Significantly for the balance sheet, this genuinely transformative change alters the customer’s financial position from capital outlay on an asset, to operating expenditure on a service.
Data-driven business models
The concept of “property-as-a-service” is emerging in the real estate market. This business model is most established in relation to office space, where shared workplaces offer flexible access to premises, rather than a lease of the space. Digital platforms are used to advertise availability of space in different locations, to manage bookings, payments and subscriptions.
This tech-enabled approach often extends to the premises themselves, using sensors to monitor use of spaces and activity. Over time, data from bookings and from the premises can combine to build granular understanding of how best to serve customers, both in terms of anonymised groupings of customer types, and potentially also individual users. Data about user preferences can then inform future design decisions such as whether to include a gym or a canteen, the ratio of breakout areas to meeting rooms, and the best configuration and size for these areas. Individuals’ profiles may be used to drive personalised offers and marketing, or to power a tailored experience in the space.
Subscription models
Our report considers the lessons from the transport and automotive sector, among others.
“The automotive industry offers strong parallels, particularly in terms of how business model change is leading to a fresh approach to data.”
Lease finance and contract hire arrangements have long been options when purchasing a new or second-hand car. A number of brands have repackaged their offerings into “subscriptions”, using “as-a-service” terminology. Customers pay a flat monthly fee for a vehicle and all associated repair, maintenance and other services, with the option to change car models every few months. These innovative business models are not only reshaping customer perceptions of ownership, but also disrupting the traditional industry structure of manufacturer, dealer and customer.
The parallels with flexible office space are clear, but it is an intriguing question whether this business model could move into other asset classes. Could a subscription model for accommodation, for example, give the “tenant” the freedom to book premises and locations according to their needs, remaining with the same provider and paying an agreed monthly rate?
Wheels on software
The automotive sector has also seen the growth in importance of using data-enabled technology in a physical asset. Cars may not yet be fully autonomous, but are already largely software-driven and new cars now include integrated connectivity. Manufacturers are able to collect vehicle data, both to track performance to inform servicing and maintenance, and to feed back into design decisions. The value of having access to performance data is causing legal challenges because of the knock-on impact on aftermarkets.
Connectivity also allows some brands to deliver software upgrades remotely on an ongoing basis. Insurers collect driving data to refine motor insurance premiums. Once 5G connectivity networks are in place, superfast data transfer will allow entertainment to be streamed directly into vehicles. New opportunities will open up, such as in-car advertising – which could be location-specific and might incorporate real-time data about the passengers.
The real estate sector is seeing a similar growth in importance in software systems and connectivity. As we discussed in our first article in this series, internet of things systems are introducing technology to monitor conditions and activity within buildings. Tenant engagement apps in residential real estate might combine access controls, smart home controls, wellbeing monitoring, etc, as well as delivering information about available services. As the importance of data collection, software and digitally enabled services grows in the real estate sector, customer trust and brand reputation may become much more important issues.
“Typically, this is an agile and incremental process, trying out ideas, building out the successful ones and adding to them over time.”
Smart cities
Smart buildings and transport come together in the context of smart cities. Data is fundamental to these interconnected urban systems, and collaboration is critical to success.
Smart cities can be built as jigsaws, steadily and progressively connecting existing (increasingly smart) buildings and systems. Greenfield projects for smart urban quarters, on the other hand, might design everything to be interconnected from the outset. One of our clients envisages a single platform for all digital interactions in their smart district, from booking a taxi or a restaurant, to controlling the heating in an apartment or accessing car parking. Either option requires collaboration across diverse stakeholders, both public and private.
“Mobility-as-a-service” projects are in the vanguard of this complex challenge. Mobility-as-a-service aspires to bring together multiple modes of public and private transport in an integrated way. Journey planners for public transport organisations (such as Transport for London) might currently combine all of their own offerings into their journey planning tools (buses, trains, metro, trams, etc), but the many additional options such as e-scooters, private street bikes, private hire taxis, etc, will be missing. That information will often be readily available, but it is up to the individual to work out the full set of options.
The underlying complexity of mobility-as-a-service is self-evident, requiring collaboration across many public and private organisations. As smart cities grow, investors and tenants will need to evaluate the benefits of integrating their buildings, the activities within them or the data that they generate, into these wider digital systems. It may well be that lessons can be drawn from the early pioneers in complex, multi-stakeholder data-centric collaborations such as mobility-as-a-service initiatives.
Steady progress
“The huge promise of data-driven transformation is not realised without a considerable amount of effort.”
As Bill Gates observed: “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10.” Digital transformation of real estate, or of an individual business in this sector, will be an incremental process. But lessons from other sectors offer new ideas for data-driven services, as well as shortcuts to success and examples of how to overcome barriers.
Conrad Davies is head of urban dynamics, Simon Spooner is transport and automotive partner, David Ferris is energy and technology partner and Catherine Hammon is digital transformation knowledge lawyer at Osborne Clarke
