Some writers seem to regard contech as a small subset of proptech, but data created during asset delivery will be a foundation for many future proptech transactions.
I recently subscribed to a proptech newsletter from James Dearsley’s online community Unissu, wanting to understand a little more about how the real estate world is developing, using and potentially being disrupted by new technologies.
My interest was partly stimulated by realisation that the UK architecture, engineering and construction (AEC) industry is increasingly being exhorted to think about the whole life value of the built assets it creates (see the 2018 UK Government Construction Deal, for example, and the Construction Leadership Council’s 2018 Procuring for Value report). And recent UK attention on the potential of ‘digital twins’ also underlines the connection to be made (literally!) between the digital delivery of built assets and their design, construction, operation, maintenance and use in real life (read post). I subsequently had an interesting conversation with James Dearsley about my views of proptech versus contech – and I was reminded of this recently by a Unissu newsletter link to a blog post by US writer Logan Nagel: PropTech and ConTech Aren’t So Far Apart (stimulated by a US State of Construction Technology report from Jones Lang LaSalle).
Proptech v contech
As a technology consultant and analyst, I have watched the AEC sector shift from being a largely paper-based analogue world in the late 1980s to one where digital transformation is now widely discussed. Suffering from decades of under-investment in ICT, construction currently has low levels of digitisation – as repeated analyses from the McKinsey Global Institute have shown – with other market sectors far more advanced. MGI’s European study puts construction bottom of the table.
Real estate, by contrast, sits mid-table. However, it is one of the worse sectors in terms of its “digital asset stock” (basically, the extent to which its assets incorporate digital technologies and are digitally connected, and how far its firms are data-enabled). This is perhaps to be expected: the real estate market operates with buildings that may have been built decades, even centuries ago, and retrofitting legacy buildings with new digital technologies is a relatively slow and expensive process. MGI’s assessment of European real estate sector, though, also says that while it is relatively under-digitised, it has some digital disruptors. These operate in the proptech space.
Common definitions of proptech describe it as digitising property management using a variety of smart technologies to enable financial and information transactions, to manage properties and related documentation, and to provide research and analytics. There has been significant investment in tools to digitise the sale, purchase or rental of residential or commercial properties, for example, and also in managing the associated financing, insurances and contracts – areas where proptech overlaps with professional services and with financial technologies, fintech.
In terms of size, the global real estate market – in 2016, the residential market was worth some US$170 trillion, while the commercial real estate market was worth over US$32 trillion – dwarfs global construction output: US$10.8 trillion. Similarly, investment in proptech has outstripped investment in contech. It is perhaps understandable, then, that some commentators see contech as a much smaller subset of proptech.
However, perhaps we should regard the two areas as complementary: one pushing data, the other pulling it? Construction is, after all, more than just buildings, and it is an activity that precedes real estate occupation and use.
First, if we remove the ‘real estate blinkers’ and look at the bigger picture, we can see that construction is not just about buildings. It also includes extensive developments in infrastructure including transportation and utilities. Investment in such infrastructure, often with longer life-spans, is critical to the success and continued value of real estate projects. So, if we regard infrastructure as the necessary foundation for successful buildings, perhaps we should be adopting a more holistic view of the built environment than one which is mainly focused on ‘property’.
Second, increasingly digitised planning, design, construction, commissioning and handover processes involve capturing, creating and developing rich data about our built assets – data which will often find itself being reused for post-construction activities. For example, cloud-based collaboration platforms, reality capture tools, building information modelling (BIM) processes, geospatial data, and embedded sensor technologies are now being used to create the digital foundations for future owner-operator or end-user interactions with their surrounding built environment.
In the aftermath of London’s Grenfell Tower tragedy, creating a digital “golden thread” of information about our built assets from planning through to occupation and eventual demolition may well become obligatory. And looking ahead, strategic decision-making about future built asset investments will be informed by economic, social and environmental insights made possible by securely connected ‘Digital Twin’ capabilities.
Third (and following on from the previous point), efficient planning, design and construction of built assets will have a direct bearing on how rapidly they deliver a return on investment and on how well they perform as (data-rich) assets. With asset owner-operators able to ascertain the energy efficiency and space utilisation of their buildings, the productivity of their people, and the real-time costs of maintenance activities (among and other metrics) – in short, the value created – they will be in a better position to define their future asset needs (and associated information requirements), while also providing a feedback loop to designers and constructors about how well they contributed to the asset’s value.
This enables a virtuous circle in which data – initially created by designers and constructors, then expanded and extended by owner-operators – evidences the opportunities to continuously improve asset delivery processes. By moving from digitisation – the replacement of analogue processes by digital approaches – to digitalisation – “changing the business model and providing new revenue and value-producing opportunities” (to paraphrase Gartner’s definition) – asset owners and their asset delivery teams will use technology to enable new forms of digital business, while eroding the distinction currently made between ‘contech’ and ‘proptech’.