This summer, Osborne Clarke released its latest research report on smart cities, “Smart cities in Europe: the future of the built environment“, written in collaboration with the Lawyer Research Service. How can the built environment become smarter? What are the challenges and obstacles that might prevent this from happening? These are the two core questions this new report sets out to address. To obtain answers we conducted a series of interviews with some of the leading individuals in the smart built environment movement, including Dominic Wilson, Managing Partner at Property Innovation (Pi) Labs. Property Innovation Labs (Pi Labs) is Europe’s first venture capital platform to invest exclusively in early stage ventures in the property tech vertical.
Which technology most excites you and has most potential?
We sometimes don’t know the answer to that until we see the idea. We are looking for technology that is going to make a complete step change in the market in the way things work. If you look at the transactional nature of real estate, whether that’s on the revenue or cost side, we are looking to completely change the way those systems and transactions work, as opposed to the technology being a marketing tool that doesn’t change the status quo.
We also look at big data around consumer and business usage, be that in the home or an office. Those data sets aren’t monetized or as available as they should be. These are the trends that we look for, though there are lots more.
What are the major challenges to getting the technology you invest in into the market?
Construction and real estate companies are very slow innovators; it’s pretty shocking in some respects. This is partly because the industry is traditionally based on asset growth through bricks and mortar and partly because it’s quite an insular industry, particularly in the UK. Power is held by a relative few and it hasn’t seen the same level of innovation as in other sectors at all. But as a frontier investor we see this as a huge opportunity. For example, at present development managers constantly have to go to the site and tick off various stages of a project, approve budgets and release funds. Is there a way that process can be automated and made more efficient? Of course there is. The development of projects can be made a lot quicker.
The challenge for companies that come up with this tech is to get in front of the right people and get customers to move as fast as they can. An early stage company can get something done in a week but a large company may take one year.
Are there many challenges of introducing technology to market specifically related to procurement processes?
There are two issues regarding procurement. Procurement is very process driven and most large corporates have a set procurement methodology that requires certain criteria to be fulfilled in order to be eligible for a procurement tender or process. Some early stage companies might for whatever reason fall outside of that envelope despite having absolutely the right product at that point in time. But this is probably the easier issue to overcome.
The second is to do with legacy systems. A large corporate or government might spend £25 million on a new software system. But by the time it is implemented it is more or less out of date. How does a new innovation fit in with that system? That always causes a headache because the customer might have just spent lots of new money on a new system, even though it isn’t new anymore. The challenge for proptech companies is to develop solutions that fit alongside new or existing systems. That issue of legacy systems creates a mental block for a lot of people.
To what extent is it easier to introduce new technology to new buildings?
It is a lot easier to introduce smart proptech into new-build. The most energy efficient office buildings tend to be the newest ones. Retrofitting is a hugely expensive exercise. This is comparable to railway infrastructure – it is far easier to install super-fast railway links in China on a blank canvas compared to a retrofit within the UK’s convoluted system. They can do that in China in 12 months because they are putting it in brand new. In the UK there are bridges, tunnels and so it is pretty much impossible to do.
This is why tenants are increasingly just relocating to new buildings, where they just expect to have energy efficient and smart technology in place. So new build is always the preference.
Can building data be monetised?
The ecosystem of usage in commercial buildings includes employers’ liability insurance, buildings insurance, contents insurance, the individual people – what are they doing for lunch, the gym, corporate entertainment. All of this data in a package is useful for utilities and other service providers. It enables them to tailor their offers and marketing.
To what extent does tech innovation need to be accompanied by new business models?
Absolutely the technology that we invest in needs to be underpinned by complementary changes elsewhere. There is a huge role for planning to become more transparent and in line with what cities and conurbations need to be. This has a lot to do with public realm, green open space, better connectivity. Technology has a role to play in visualising all of that but ultimately you need people to buy into the right methodology and vision. Some companies buy into this but there are not enough of them. This is the critical element because everything needs to be connected.
Click here to download a copy of the research report “Smart cities in Europe: the future of the built environment”.
These materials are written and provided for general information purposes only. They are not intended and should not be used as a substitute for taking legal advise. Specific legal advice should be taken before acting on any of the topics covered.