By Gavin Gleave, CEO of fu3e.
The real estate sector is looking beyond what it perceives to be cyclical headwinds - rising interest rates, declining GDP, and sinking deal flows - and is investing in real estate assets for long-term success. Real estate professionals feel cautiously optimistic amidst an uncertain market - their strategy is to ride out the current economic downturn while repositioning their companies for another period of sustained growth and high returns.
With an ever-growing demand for SRI (Socially Responsible Investment), the pressure on real estate owners and investors to disclose more about their environmental, social, and governance (ESG) investments is increasing. Furthermore, rising interest rates reduce potential rates of return, making acquisition and construction debt more expensive at a time when operating income appears destined to fall as the economy weakens.
Financial Challenges Faced by the Real Estate Industry
The global economy has undergone testing times in recent months, with the Consumer Prices Index interest rates rising up to a peak of 11.1% in the United Kingdom over the last 12 months. These increased prices have placed significant strain on the finances of businesses, investors and the wider public alike, placing the UK into a cost of living crisis. As a result, it is only natural for investors and property developers to review the risk and safety of their investments.
The recent collapse of Silicon Valley Bank (SVB) has reinforced the importance of evaluating risk for businesses across the globe where the fall has caused immense disruption to the financial services that the bank provided to its clients. This has resulted in exacerbating the financial uncertainty faced by property investors.
Investor’s Response to a Changing Market
Capital availability is expected to decrease soon, though the denominator effect may not force as many sales as in typical downturns. Many institutional investors, for example, won’t rebalance their cap stack by selling real estate assets because they have been under-allocated in commercial real estate. Businesses that use the next year to drive productivity and efficiency improvements will thrive.
Organisations' attitudes to data should be at the top of decision-makers minds. In a rapidly changing market, developers must rely on tools that provide real-time reporting and building a solid data history that provides insight into due diligence, commercial controls, risk management and ESG. In addition, information schedules that establish the basis for project forecasting and planning are essential for optimising costs, project durations, and risk management.
Introducing PropTech Solutions
Through the investment and implementation of proptech solutions, investors and developers alike can reap significant rewards from being able to track and manage risk, cost and efficiency in real-time. This provides them with the opportunity to be more flexible, allowing them to accurately react to any short-term changes in the market and navigate risk effectively.
Historically, data would be stored in both physical and digital copies, and stored in a number of different places. This leads to files becoming misplaced and data duplication, which complicates organisational workflows and causes mass disruptions. The utilisation of Proptech eliminates this issue, with its centralised data, streamlined operational efficiency and increased transparency serving to rapidly benefit those that adopt the technology.
The Importance of Real-Time Data
In business, accuracy is essential. However, it’s more significant to understand that the accuracy of data is a dynamic concept; what was accurate yesterday may not be applicable today. Ensuring accuracy in combination with the latest information is the most effective method to allow businesses to achieve their desired results.
The usage of real-time data can be instrumental for property investors who are looking to retain their investments amidst turbulent times in the market. The increased flexibility, adaptability and insights that real-time data provides propels the opportunity for businesses to make more informed decisions at a much faster rate.
A Hope-Filled Future
The property market has undergone a troubling time in recent years, with rising inflation rates, falling GDP and a suite of additional financial obstacles placing an immense strain on the economy. The recent collapse of Silicon Valley Bank has highlighted the importance of accurately and timely measuring risk for business across the industry. This is something which can be managed successfully through the implementation and maintenance of Proptech solutions.
The world is developing quicker than ever before, with innovations and breakthroughs in technology continually becoming more available. As a result, it’s the businesses that adapt to this change and utilise real-time solutions to increase accuracy, reduce risks, and streamline operations, that will gain a significant advantage over their competitors.
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