“Antiquated and undervalued”

Nicholas Russell

How property technology is set to unlock trillions in value

Location, location, location — A $30 trillion market

The size of the global real estate market is $30 trillion dollars. Equal to the combined annual economic output of the United States and China. Most people in the world somehow interact with real estate all day, every day.

Yet, the property industry remains the least democratic sector of the mainstream economy. An anachronistic place of walled gardens largely untouched in a world of big data, transparency, and open access.

2015: Prop Tech rises

5 examples of prop tech rising:

Novel: The Co-Living REIT — http://www.thecaravanserai.co

Innovation: Cushman Wakefield’s prop tech accelerator — http://www.pilabs.co.uk/

Simplicity: House sharing simplified — http://www.splittable.co

Efficient: The future of asset managementhttps://www.vts.com

Transparent: “Who owns Los Angeles? — http://robrhinehart.com/?p=1224

In 2014, investment into property technology grew 250%. Today, there are a hundred prop tech start-ups. Tomorrow, there will be thousands, disassembling every piece of industry, from appraisals to zoning.

“The impending opportunity in real-estate technology” is a succinct overview of what happens when technology sees a kept industry where the prizes are so big.

Josh Guttman hits the nail on the head with what we’re doing at We Are Pop Up:

“A real opportunity exists for tech-enabled commercial listing services that could level the playing field, acting as marketplaces, and replacing the less efficient relationship-driven model that still persists today.”

Another word for “less efficient relationship-driven model” is agency. 3.5M retailers across Europe pay $234B in rent each year — and a lot of that rent passes through agencies.

Start with rent that’s not paid

In our segment of prop tech, what key is the amount of rent not paid. Ideas and retail ventures that don’t fit the agency business model don’t happen.

Tens of thousands of empty shops. Hundreds of thousands of jobs not created. Billions of retail sales not made. Billions of retail rent not passed.

Starting with rent not paid, prop tech companies create property markets in three steps:

Transact couches. Start transacting castles. Replace agencies by taking lower fees in the existing $234B retail market.

Agency — Increased complexity for a 20% fee

Here’s a question. If we have a system that:

Directly connects tenants and landlords, manages deals of any size, and transacts instantly — for a 10% fee

Would we replace that with a system that:

Isolates tenants and landlords, discards billions in deals, and takes weeks to transact — for a 15–20% fee.

Complexity for complexity’s sake

From the outside, retail property deals look like a complex web of relationships built on exclusivity clauses and long-term contracts. That process makes transactions laborious and complicated. But the essence of every contract is the same: “Return the property in the state in which you found it.”

The first thing we did at We Are Pop Up was standardise the property contract — “return the property in the state in which you found it” — thus removing the contract from the renting process.

Removing the contract negotiation totally changed the nature of landlord / tenant interactions — so much so that we changed our vocabulary from “tenants” and “landlords” to “brands” and “spaces”.

It turns out, by removing agents, lawyers, and contracts, not only did we remove delays and costs associated, we also changed the inherent nature of the interaction from adversarial to collaborative.

Accidentally insulated

Direct disintermediation — direct connections and standardised interactions — is sweeping every industry. And the property industry has been insulated from disintermediation by three factors:

infrequent transactions high deal values mental models about what defines a “property transaction”

Infrequent transactions. While buyers universally regard retail property transactions (and property transactions at large) as inefficient and costly, the average retail lease was 10+ years. Buyers didn’t interact enough with the process to demand a different version of it.

High deal values. As corporate retailers replaced independents, retail property transactions grew in size. High Streets were no longer community destinations, but showcases of national and international retail brands. Those brands transacted through national and international property agencies. Large agencies require large deals — squeezing out smaller transactions and smaller retailers.

New retailers demand new ways to transact

With the rise of pop up retail, a new type of retailer has entered the market. Retailers that look for lower contract values and do more transactions.

These retailers launch for three months, and then extend their stay for three more months. Some go permanent, others change locations. The new alpha retailers share their shops and create micro-department stores.

They also expose the weaknesses of a property industry that can only profit from infrequent, high-value transactions.

And they’re perfectly served by a property platform that directly connects brands and spaces, manages deals of any size, uses a common contract, and transacts instantly — for a 10% fee.

How prop tech unlocks trillions in value

We’ve seen this kind of disruption before.

Residential property transactions were measured in months and years. Those transactions involved credit checks, reference checks, and took several days — if not weeks — to complete.

Then in 2008, Airbnb launched, allowing guests to rent homes by the day. Rent spare rooms by the day. Rent couches by the day. In less than ten years, Airbnb radically transformed what a residential property transaction looks like.

Before Airbnb, very few people would have considered their couches to be economically productive. No agency model is capable of generating revenue from letting a couch at $10 a night.

Only a technology platform can do that.

The moment Airbnb generated a profit from transacting a couch, it instantly created millions of new hotel rooms around the world.

Prop tech unlocks micro-transactions that agencies cannot efficiently serve. Thus, there is no such thing as “wasted” space — only space that doesn’t fit with agency. After renting couches, prop tech companies move upmarket. The same models that transacts space at low values easily start transacting space at higher values.

Airbnb started with couches, and now rents castles.

***

1. The sharing economy for retail shops goes mainstream
We Are Pop Up finds product-market fit

2. “Antiquated and undervalued”
How property technology is set to unlock trillions in value

3. 6 reasons why prop tech will win
Our data: How property technology looks on the inside

Originally published at www.linkedin.com on February 19, 2015.

    Nicholas Russell

    Written by

    Founder / Speaker / Advisor. Currently, Project X NYC. Previously, @WeArePopUp, @Oxford

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