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Horizon Scanning | UK Real Estate 2019 

PropTech: The impact of technology on the Real Estate sector

From online estate agents to smart buildings, PropTech is infiltrating the real estate sector in many different ways; in some cases seeking to replace antiquated and inefficient systems and in others introducing new technologies to drive forward an industry that has traditionally been resistant to change. Few Real Estate professionals, whether millennials or baby boomers, would deny that PropTech is changing the Real Estate industry.

Prop Tech

Some examples of changes we can expect to see over the next few years are set out below:

  • Increased use of analytics and “big data” software will help investors manage their portfolios more effectively;
  • Automated warehousing technologies in the industrial and logistics sector will create greater operational speed and efficiency;
  • Smart building technology will generate cost savings and increase environmental efficiencies as well as allow landlords to offer tenants advanced features and services (at higher rents);
  • Driverless cars and drones will dramatically increase capabilities in the logistics, retail and construction sectors;
  • Many traditional office jobs will become automated through the use of machine learning and robotics, which may have knock-on effects on the demand for office space; and
  • Development of smart technology in the residential sector will pave the way for more sophisticated urban regeneration and allow for increasingly connected communities.

All of these changes present exciting opportunities if the industry is prepared to adapt to and embrace the challenges that accompany them.

In this article we are focussing on two key areas where technology is already transforming the Real Estate industry: the occupation of buildings and the digitisation of HM Land Registry.

The role of technology in the occupation of buildings

Experts are predicting that technology will play an increasingly prominent role in how occupiers use and operate their real estate. Over the next few years, we can expect to see a number of sophisticated tools being used to change the way real estate is managed. As the way in which occupiers interact with their space evolves and as technology changes the nature of urban communities, landlords will need to be increasingly flexible to meet ever-changing occupier demands. Requirements for technological features and increased flexibility will become standard. Data collecting sensors which enable building owners and occupiers to monitor anything from building conditions to footfall and a vast array of things in between are becoming much more sophisticated and, perhaps equally important to the market, more affordable. But it’s not just about facilities management: at the other end of the spectrum from those buildings where sensored lighting and air conditioning are considered advanced proudly sits The Edge in Amsterdam, acclaimed to be the greenest, most intelligent building in the world, where the whole infrastructure has been created to allow people to connect both to it and to one another. These sorts of building advancements are surely a prime example of the role which the built environment must play in the development of the “human right to mobile telephony” established by the new Telecoms Code discussed above. 

The digitisation of HM Land Registry

Not only are we seeing changes in the market itself, but key industry bodies are also developing their digital capabilities to increase efficiency. For example, HM Land Registry has publicised its interest in digital transformation (a project known as “Digital Street”). In particular, it is currently considering how the use of blockchain, the ledger system behind the Bitcoin cryptocurrency, and smart contracts in the conveyancing process could improve the service offered. It is hoped that with the use of blockchain, property transactions could be registered almost instantaneously thereby reducing the risk of fraud, speeding up the process and creating overall costs savings. The introduction of new digital land registration services and increased use of interactive tools are ideas that are being taken seriously by HM Land Registry - will this influence other market players to follow suit?

Great opportunities

The Real Estate industry, whilst historically undoubtedly slower than most other industries to adopt advances in technology, is showing itself willing to embrace technological change. Real progress has been made in the last few years. While the question was once “What is PropTech?”, we are now asking “Which technology businesses are likely to gain the most traction?” and “How will PropTech change the way we use, trade and operate Real Estate in the coming years and decades?

We are already seeing disruption to how the industry operates and interested parties should keep a close eye on further developments to avoid falling behind. It is not enough just to be aware of the need to engage with technology; Real Estate professionals will actually have to do it, backed up by a meaningful strategy. Yes, any period of change comes with uncertainty and a risk of failure, but sometimes inertia poses the greater risk. Keeping up with technological developments or, one better, predicting which of the thousands of technologies will prosper most will, we think, be key to future success in the Real Estate market.

Brexit 

Ever since the unexpected referendum result in 2016, the nation has been in a curious state of befuddlement and limbo. The process surrounding the UK’s departure from the EU has been enveloped by a dense and numbing political fog, punctuated by seemingly erratic whirlwinds of frenetic activity. Progress as to the terms of our exit - and future relationship - appears simultaneously to stand still, reverse and speed up. But, with approximately three months to go until 29 March 2019, the storm shows no sign of abating yet – if the last few weeks are anything to go by … that said, we can still usefully look at what, if any, progress has been made this year - and what effect this has had on the real estate market.

"The process surrounding the UK’s departure from the EU has been enveloped by a dense and numbing political fog"

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Retail Insolvencies 

In the 12 months ending Q3 2018, the wholesale and retail trade sector saw the second highest underlying of new company insolvencies in the UK with a number of household names dramatically reducing their real estate footprint or disappearing altogether. Casual dining and fashion have been particularly affected, with the number of CVAs for Q3 2018 rising by 200% compared with the same period in 2017.  

"The number of CVAs for Q3 2018 rising by 200% compared with the same period in 2017"

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Overseas Investors 

In recent years, an increasing number of jurisdictions across the globe have either introduced new or strengthened existing rules controlling foreign investment: the UK is no exception and the trend for even greater transparency in UK real estate has continued, especially where overseas investors are involved, driven by the UK Government’s wider push to tackle corruption. Here we look at a number of the key changes which overseas investors in UK real estate need to be aware of; the likely impact of those changes and the reaction from overseas investors so far.

"$13.7 billion of overseas capital piled into the City in 2018 attracted by favourable occupancy rates, dependable investments with yields higher than elsewhere in Europe.” (Cushman & Wakefield: Winning Growth in Cities)

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New Telecoms Code

It is only in recent months that judgments on the new Electronic Communication Code (the “Code”) have started to emerge from the Upper Tribunal (which now decides telecoms disputes). They confirm what many businesses and individuals have sensed over the last year; that what has been referred to by the Tribunal as “the human right to mobile telephony” is likely to trump the human right to enjoyment of one’s own property. The new Code came into force on 28 December 2017 making it much easier for telecoms operators to acquire rights to install and maintain electronic communications equipment on, under or over land. In the absence of reaching agreement with the relevant landowner, an operator has the right to apply to the Upper Tribunal for an “enforced agreement”.

"The human right to mobile telephony is likely to trump the human right to enjoyment of one’s own property"                                                                 

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Tax Update 

What are the UK tax questions that matter most to the real estate sector? How will we be taxed on our income and gains, how much SDLT will we need to pay and what capital allowances are available are invariably near the top of the list. At least for some investors, the answers to all of these will be changing over the next couple of years. Add to this a new 2% digital services tax that will apply regardless of physical presence and there is plenty to think about following the 2018 Budget.

"As previously announced, the taxation of non-UK residents in relation to UK property is to be fundamentally changed"

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Regeneration

Urban regeneration is at a turning point. Even in our present polarised political climate, few would deny that there is a problem with housing capacity and affordability in the UK. Acknowledging the problem is, seemingly, the limit of the consensus. Perhaps one more thing is certain: private developers are inherently a key part of the solution.

"Genuine engagement with residents and other local organisations and institutions early in the development process is crucial"

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Prop Tech

From online estate agents to smart buildings, PropTech is infiltrating the real estate sector in many different ways; in some cases seeking to replace antiquated and inefficient systems and in others introducing new technologies to drive forward an industry that has traditionally been resistant to change. Few Real Estate professionals, whether millennials or baby boomers, would deny that PropTech is changing the Real Estate industry.

"Experts are predicting that technology will play an increasingly prominent role in how occupiers use and operate their Real Estate"

Find out more >

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