This guest post is authored by Mark Bivens. Mark is a Silicon Valley native and former entrepreneur, having started three companies before “turning to the dark side of VC.” He is a venture capitalist that travels between Paris and Tokyo (aka the RudeVC). You can read more on his blog at http://rude.vc or follow him @markbivens. The Japanese translation of this article is available here.
As I’ve written in these pages before, for startups working on innovative tech in the real estate sector, a compelling market is emerging here in Japan. Whether it be property management tools, construction tech, blockchain-based real estate solutions, commercial and residential marketplaces, etc., there is demand.
Now, the Coronavirus pandemic appears to be accelerating the innovation drive of Japan’s real estate developers. To delve deeper into this topic, I have sought the wisdom of Agya Ventures, a VC fund purely focused on early stage proptech startups (full disclosure: I am an advisor of Agya). Much of what follows is an extract of Agya’s detailed assessment, The Future of Real Estate Post Coronavirus. Feel free to contact me directly if you are interested in the full paid version of the report.
The coronavirus pandemic has fundamentally transformed the real estate landscape. Office buildings and standalone retail stores have shut down and malls are vacant. Common areas in residential buildings are empty and people are spending more time at home than they have before. In-person conversations have shifted online, and the definition of a community stands altered.
Agya has examined what a new normal in real estate might look like in the post coronavirus environment, and where technology will play a role. Seven key trends that deserve the attention of senior management at companies with real estate holdings: (1) Increased Hygiene, (2) Social Distancing, (3) Healthy Buildings, (4) Shifts in Mobility, (5) Virtual Everything, (6) Eating Out While Eating In, and (7) Doing More With Our Space.
Growing standards of hygiene will permeate across real estate asset classes. Technology that makes real estate contactless and frictionless will go a long way in enabling landlords to adhere to growing demands of cleanliness. In this context, Agya foresees growing demand for:
- Hands-free access control systems: Such systems leverage cellular data, bluetooth or WiFi and enable entry into buildings and offices through tenant smartphones. Further, access can be issued by accredited individuals within a building to guests through a mobile guest pass effectively bypassing the need for a front desk or paper-based entry cards.
- Automatic door openers: With the ability to retrofit almost any door, automated operators will become a key component in making office spaces contactless.
- Elevator holograms: Elevator buttons are a high-touch zone, and holograms could substitute for physically touching these buttons. In technology that is relatively nascent, early adopters will need to pay specific attention to integration with existing elevator numberpads.
- Elevator voice control systems: An alternative to elevator holograms are voice control systems that give people another contactless approach to get to their desired floors.
- Cleaning robots: Consistent cleaning rests central to hygienic real estate, and robots are expected to play a bigger role in the built world. While robots have already been in warehouses and large retail facilities, and often come armed with infrared, gyroscopic, ultrasonic and camera sensors, the time is ripe for a lighter robot that can effectively navigate its way in residential and office buildings.
Encouraging people to return to offices will partly be contingent on ensuring effective measures for social distancing. Employers and landlords should look at incorporating both technology and design changes to help facilitate this in a timely manner.
- People counters: Installing sensors that measure real-time space occupancy will allow property managers and retail store operators to better manage traffic. Corroborating this occupancy data with recommended safe levels of density will ensure that offices and stores don’t get overcrowded.
- Dividers: The traditional office cubicle or open floor plans made popular by coworking spaces could give way to the 6-feet office that ensures reasonable distance between employees.
- Wearables: Devices that warn individuals when they come in close proximity with others will gain traction in densely populated settings. While contact tracing apps usually have a lag and come with privacy concerns, certain wearables provide a more preventive solution for social distancing.
In what is increasingly relevant today, the Harvard School of Public Health’s ongoing research for what constitutes a ‘healthy building’ underscores how workplace productivity can be enhanced by quality of office spaces. While Agya forecasts a graded Healthy Building Rating System similar to the LEED Rating System coming to fore over time, some key aspects to make buildings healthier in the near future include:
- Temperature tracking cameras: At the heart of keeping a building healthy is a mechanism that tracks people who are symptomatic. The installation of temperature tracking cameras lobbies can lead to privacy issues but is now considered essential.
- Smart windows: Windows that enhance natural light – said to reduce eye strain, headache and drowsiness – and reduce glare and heat, stand to generate greater interest from real estate developers.
- Advanced ventilation systems: Deemed as the “most valuable healthy building tool during COVID-19,” advanced ventilation systems are poised to become another must have. In particular systems that induce clean air ventilation, where fresh outside air is pumped in (versus recycling existing air), and negative air pressure that prevents pathogens from spreading should rise in importance.
- Hygienic surfaces: Copper alloy surfaces and antimicrobial polymers that resist the spread of bacteria have traditionally been used in hospitals. These will likely be adopted into commercial office spaces as well, particularly when it comes to the introduction of copper alloy for door handles and handrails.
- Rooms for meditation and spaces for exercise: Amenities that allow tenants to remain calm and fit are complementary to a healthy building. Specifically, leveraging underutilized real estate space on an existing floor and carving out dedicated fitness areas can help accomplish that.
Shifts In Mobility
Mobility patterns in cities will shift significantly over the short to medium term. People will be encouraged to walk and bike, at the expense of crowded public transport, subway lines and pooled rides.
- Less room for cars: Governments, particularly in Europe, are calling for restrictions to private car ownership, citing a high correlation between air pollution and COVID-related mortality rates. The mayor of Milan has been particularly vocal in his advocacy against cars, suggesting that “if everyone drives a car, there is no space for people, no space to move and no space for commercial activities outside shops.”
- Expansion of cycling and walking spaces: Cities are working overtime to expand roads and sidewalks to allow citizens to walk and bike without being in close proximity.
- Berlin has installed pop-up biking lanes almost overnight to respond to the crisis. Brussels is now making the entire city center a priority zone for cyclists and pedestrians. Paris is fast-tracking its plans to build a new network of 9 long-distance cycleways.
- Curtailed public transport: In what will be particularly challenging for cities like Tokyo and New York that rely heavily on metros, strict distancing curbs will need to be applied, especially at peak office hours.
- Milan is expected to limit ridership to 400,000 daily rides for its metro, down from 1,400,000 before the crisis. To accomplish this, it will draw circles on the floor of the metro trains to ensure social distancing and temporarily close stations when capacity is reached.
- Emergence of micromobility: In the context of reduced public transit options and growing infrastructure for cycles (alluded to above), we anticipate a surge in demand for micromobility options. Specifically, companies that are responsive to the needs cities and work collaboratively with governments will benefit from these tailwinds.
Agya anticipates an accelerated embrace of technology across various points in the real estate leasing and property management value chain, specifically in areas that previously required in-person visits or frequent human interactions.
- Apartment viewings: Future tenants and homeowners will increasingly view apartments only online, partly basing their decisions based on the quality of virtual tours offered by developers: schematic floor plans, interactive maps, VR offerings, voice-overs and live panoramas will assist in closing transactions.
- Lease Closings: Commercial lease transactions that tend to be complex with multiple parties, documents and rounds of negotiations involved also stand to get more streamlined through workflow / process automation software.
- Interior Design: Using software to design the interiors of an apartment or office will gradually shift from the domain of experts to that of regular individuals wanting a visual sense of how their future space may look like.
- Tenant Communication: Landlords will need to communicate cogently with tenants to ensure they feel safe and confident in returning to their workplaces.
Eating Out While Eating In
As we increasingly move towards a stay at home world, there will be a surge in getting food delivered to our doorsteps. While this will have ramifications for the traditional restaurant industry, Agya forecasts that ghost kitchens and drone deliveries will further accelerate an ongoing trend.
- Ghost kitchens: Often referred to as the ‘coworking of the food and beverage industry’, ghost kitchens have attracted a lot of press over the last few months. Such companies offer kitchen space to restaurants, purely focused on takeouts and deliveries, helping them lower their fixed costs.
- Drones for deliveries: Given the increase in demand for food deliveries, companies like Uber Eats have experienced a surge in demand in recent weeks. This increased demand will likely be met partially by the deployment of drones, either by incumbents or by established players in the space.
Do More With Our Space
As we emerge from this crisis, one of the key learnings for the real estate industry should be to identify ways to make our spaces less intractable, more flexible and responsive to the needs of society. Agya envisions this trend playing out in the medium term in the following ways listed below:
- Hybridization: There has been a growing realization in the commercial real estate space that existing lease structures are not nimble enough.
- Moving forward, a 10,000 SF food and beverage facility should allocate space not just for restaurants but also for ghost kitchens, food delivery company warehouses, pop-ups and drone delivery stations.
- Similarly, existing tenants should be given the flexibility to use their spaces for different purposes – ghost kitchens in the afternoon and restaurants by night – and not remain confined to a specific use case.
- While demand for such hybridization is imminent, supply will need to consider design, safety and zoning considerations over the medium term.
- Agile Construction: Over time, developers will be expected to move faster to build new buildings or modify existing ones. Of particular importance would be to come up with a strategy of whether to build these capacities in-house or strike strategic partnerships with startups operating in the space, and leveraging key aspects of their technology.
- Adaptive Reuse: Agya would encourage real estate developers to also think about the industry’s role in such crises. One way for to make an impact during these times is by designing buildings in a fashion such that they are adaptable for reuse as emergency medical facilities.
- Similar to how Javits Center in New York was converted to a 2,900-bed hospital, and London’s ExCel Field turned into a medical facility for 4,000 patients, perhaps it is time to think about how real estate can double up as space for emergency healthcare in times of dire need. While the financial implications of building such adaptable real estate is unclear, the societal impact will be extremely high.
In summary, Agya Ventures believes there will be an initial wave of incremental innovation in real estate to address immediate needs cantered around increased hygiene, social distancing, and making buildings healthier as employees gradually transition back to office. Subsequently, this pandemic is likely to bring some lasting shifts to how real estate operates over the medium to long term. This includes shifts in mobility patterns, hybridization of leases and making real estate more open to adaptive reuse. While the real estate industry evaluates the impact of the Coronavirus crisis, for pro-active real estate owners, this could be an opportunity to leverage technology and position their businesses for sustainable growth.