How PropTech in commercial real estate became the new normal

Industrial 2
Why industrial property is a strengthening sector in Australia
November 8, 2019

How PropTech in commercial real estate became the new normal

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Technology has influenced more sectors than any other disruption. So, it’s no shock that real estate technology is now influencing the way investors, tenants and property professionals operate. This influence is called Proptech and commercial real estate investors should be paying attention to it; their tenants probably are.

PropTech is defined as any disruption to the real estate market created by technology.

It could be the way we execute sales contracts, how our tenants automate business activities or how commercial premises are used. All of which are aimed at benefiting property stakeholders.

Few commercial property investors know the trends, possibilities and opportunities that the digital era has created. Here’s how PropTech in commercial property has become the new normal.

Smart offices and the Internet of Things

PropTech in commercial property is not just a phase. More office spaces are adopting digital initiatives to connect and enhance their workplace.

Termed “smart offices”, these premises represent the future of the workplace and rely on automation and what’s called the Internet of Things (IoT); connected devices that monitor, control and manage various operations.

Security systems, like security cameras, smart locks and sensors can talk with each other. Smart lighting can adapt to preferred light intensity and usage hours. IoT in conference rooms can simplify tasks, manage team functions and monitor energy consumption. And smart desks can adapt to user preference and help workers become more productive.

These intelligent office ecosystems are warranted, as a growing workforce and associated costs to house employees impact businesses’ bottom line. Tenants in smart offices see major benefits from IoT for a smart office:

  • Reduced energy costs
  • Increased worker productivity
  • More efficient business operations
  • Increased workplace safety

Whether smart offices are a luxury or necessity is up for debate. But the sector will continue its growth. The global smart office market was valued at US$22.21 billion in 2017 and is expected to double by 2023 to US $46.11 billion.

The grocery wars

Food and groceries have become the new oil. More mouths to feed in a growing, tech-savvy population has led to massive competition in the grocery industry. And where there’s competition, there’s innovation.

The online supermarket segment is forecasted to grow by 75.9 per cent over the next five years, so supermarket giants have turned to ‘dark stores’ to manage booming online sales.

Appearing like a large supermarket on the outside and in, these shops don’t have customers but automated pickers, which select and transfer products to a loading bay for transfer to customers.

Woolworths has taken to dark stores for years, having seen its existing supermarkets shrink as a result. Its online sales are growing approx. 30 per cent every year, so it’s expected dark stores will continue to eat away at traditional premises.

Future investment into the burgeoning supermarket property sector is a possibility as it grows in line with online grocery shopping. With the specialised equipment involved, leases will likely be long and tenant profiles strong.

Blockchain enters the commercial real estate market

Far from being solely used in cryptocurrency transactions, blockchain technology has found its way into the commercial real estate market.

Blockchain, or a ‘smart contract’, is a digital ledger which records and verifies all information for a number of activities or transactions. This data is viewable in real-time by all parties involved and any changes made are recorded for all to see.

It’s highly secure and highly transparent; two major ticks for those in the property game.

Blockchain technology can simplify lease management, removing the need for documentation stored in siloed places and allowing insight into the property’s history, ownership income and expenditure, occupancy and maintenance activity.

Document verification is quick and easy with smart contracts, as all parties involved – banks, leasing agents, sales agents, vendors and buyers – have eyes on verified, real-time information. It improves trust among these entities and promotes a win-win for both buyer and seller.

And property managers and owners can make smarter decisions, with all property information collated and stored.

In a fast-paced property sector, with investors expecting quick decisions and outcomes, blockchain could be a major disruption in the commercial property game.

Automation is key in the industrial property sector

Arguably the mother of all innovations is found in industrial properties, thanks to automation.

Manufacturers, wholesalers and retailers are putting aside outdated equipment and premises and investing in state-of-the-art facilities. The goal? To make and move goods quickly to customers.

Coles and Woolworths have already invested in fit-outs worth $1.5 billion in new Sydney, Brisbane and Melbourne warehouses. Logistics giant Toll invested $160 million in a next-gen eCommerce distribution hub in Western Sydney, capable of picking, processing and packing 70 million items per year.

And in an industrial age where time and cost cutting is key to keep up with online demand, many SMEs are focussing on industrial premises with specialised automation equipment installed (or unlocking floor space to complete the fit-outs themselves).

The result is higher quality industrial premises and more robust rents. Industrial property across Australia has seen rapid demand over the last decade. With the strengthening of automation technology and demand for logistics, this should continue into the foreseeable future.

Technology’s pace of change has rapidly blurred the lines between the digital and physical worlds. As it continues to do so for the commercial real estate market, it’s likely that PropTech initiatives will become mainstream knowledge and a necessity in many premises.

For the best advice on commercial property investment and real estate trends in Australia, get in touch with Heath Bedford at Performance Property Advisory on (03) 8539 0300 or heath@performanceproperty.com.au.