Buildings may last decades but their ownership is likely to change multiple times. In fact, short-term hold strategies are becoming increasingly popular in the property market. Flipping, wholesaling, and bird-dogging have long been in the wheelhouse of savvy real estate investors but the strengthening short-term rental market in major cities around the world has seen a rising trend of short-term hold strategies for rental properties in residential, and commercial real estate (CRE).
“While rental properties are not generally considered as short-term investments because a real estate investor will have to hold the property for a long period of time before reaping the maximum rewards, income properties can be considered short term investments in the sense that they can start generating profits and a positive cash flow as soon as the investment begins,” says Nasser Mansur, a real estate expert writing for investor-focused real estate data analysis firm Mashvisor.
While up to five years may be considered a short-term real estate investment, Mansur points out that “short-term rental properties can generate profits over shorter periods of time, such as on a nightly or a weekly basis,” especially in the rapidly evolving residential rental market. In both residential and CRE, short-term investments are boosted by more rent-to-loan and lease-to-own options that allow investors to acquire a building for minimal capital. These trends increase the prevalence of short-termism amongst building owners, which is beginning to shape the evolution of Proptech according to major players in the sector.
“It can be hard to justify a huge hardware investment or structural change if the landlord has a short-term hold strategy,” said Andrea Jang of global real estate and property investment firm JLL. “An owner may only intend to hold onto an asset for two years, so offering short payback periods and strong ROI can be a huge advantage for PropTech.”
There has been a wave of Proptech companies following a “hardware-light model” according to Jang, where physical upgrades take a backseat to data-focused software and services. In doing so, they are making buildings smart by providing quick value increases for short-term investment mindsets. JLL is not just talking about trends, they have put “their” money where their mouth is through their independent venture capital arm Spark .
Spark has funded a handful of solutions that install quickly to streamline repetitive tasks, for example. Jang said first-generation enterprise software technology created static databases that made collaboration between users impossible. “Historically, analysts had to manually clean datasets and build dashboards before they could interpret the data,” Jang said. “Modern software platforms allow users to collaborate in real time, assign tasks, and not only centralize but also structure data to show users insights at the click of a button.”
Proptech is not just improving workplaces, it is helping them fight for their survival, or at least fight to resist trends that reduce the need for physical workplaces. The rise of remote, flexible, and co-working, alongside freelancing and the gig economy, mean that an increasing number of people are spending their working hours away from traditional office environments. According to a Freelancers Union report http://freelancersunion.org/53million, there are more than 53 million freelancers workers in the US, making up 34% of the national workforce.
51.5% of freelancers work from home, others choose co-working spaces, cafes, the beach, or wherever they feel most comfortable and productive. This level of freedom and control is hard for the traditional office to compete with, especially when it is supported by increased productivity. The WorkMarket Workforce Productivity Report found that 83% of business leaders consider contractors more productive than employees, a trend noted in a number of recent studies.
“The office has to be a compelling and interesting place to work, or else people are just going to work from home,” said Jang, Head of Growth at Spark, JLL’s venture arm. Jang is charged with helping identify trends in the real estate market and selecting investments along those lines to maximize ROI and JLL’s leading position in the sector. Increasing short-termism of landlords while trying to make the office more attractive in the face of remote work trends has lead Spark to a series of low-capital, fast-value-generating technologies by innovative startups.
VergeSense is an AI-enabled room and desk - monitoring and utilization platform, allowing customers to optimize their office layouts for capacity, health, or productivity. VergeSense sensors are battery opperated, T-bar or adhesively mounted on the ceiling, and require no cabling or structural changes, so can be up and running in minutes.
BureauOne is a furniture leasing company that turns vacant spaces into fully-equipped offices in just a few days. In doing so, short-termist landlords can get their tenents in quickly by offering smart office design at attractive timescales. A proptech offering that supports the objectives of tenants and landlords, especially those focused on the near future.
This is another trend the Jang and her team have identified, the convergence of platforms that support the commercial building owners, operators, tenants, and users. “You can’t have one without the other,” Jang said. “Owners and operators need to gather knowledge faster to make the right decisions, and you only obtain that knowledge quickly by having platforms for occupants.”
These kinds of quick-value proptech improvements are not unattractive to landlords with long-term ambitions but the intention to plan beyond the next five years or so will favor different proptech strategies. The fact remains that long-term thinking facilitates much more comprehensive and effective smart buildings, which offer greater ROI but at longer timescales and higher capital outlays.
“These [quick-value] improvements can certainly make buildings smarter in the short term,” said JLL’s Jang. “Creating a 100% super-smart building from the ground up would be a longer-term endeavor.”
If short-termism continues to grow its presence in the real estate market then we may end up with a polarized smart building landscape, where the quick-value short-termist proptech may be seen as superficial and not-smart in the eyes of the purist smart building owners and operators.
More optimistically, growing short-termism should lead to the reduction of initial cost and implementation timeframes in typically long-term smart building solutions trying to capture a larger market, thereby increasing adoption and accelerating us into the smart future.