Innovation, digitalization, proptech

Foreword

When I was asked to write the proptech-themed article for the LEO Yearbook, I felt honored. I have been following LEO’s development since the beginning (and I even had a little inspiring influence on them at the start on how to build something valuable from nothing). I love creating value, coming up with new things, building, discovering opportunities and talented people, and helping and supporting them—through setting an example, conversations, mentoring, or simply thinking together.

Because progress lies in the sharing of information and ideas, and this is the main reason why the real estate market is one of the most under-digitalized markets. It is so distrustful and keeps information to itself that collective progress becomes very difficult. For digitalization to spread and to be efficiently integrated into our daily operations, serious organizational development changes are also needed—and these are very hard decisions. This is exactly why organizations like LEO or HuGBC are necessary, whose purpose is teaching, community building, and inviting industry players to think and talk together.

Introduction

In my analysis I will talk about proptech solutions affecting the operations market, about my most recent digital maturity research, reporting on its results applied to FM companies, but first of all about what we are facing in the coming period: digital transformation and the change management associated with it.

Recently I carried out a survey in the real estate market, asking small, medium, and large companies about the challenges and thoughts connected to digitalization. Nearly 90 companies filled out the survey, and it turned out that most of the respondents believe in digitalization: they don’t fully know and understand all its details, but they deal with the subject. The research revealed that the three most important drivers are efficiency, innovation, and measurability.

Change management

When we talk about the proptech market, we have to take a step back, because digitalization does not mean simply starting to use a digital solution or hiring an IT colleague.

But why should we change anything if it has been successful so far and worked well, since “the numbers came in”? The answer lies in the present situation: in our lives there is only one constant—change. Therefore, the role of resilience—flexible resistance and adaptation to changes—has become more valuable. This requires a new type of leadership, a self-operating, autonomous culture.

In recent times, several changes have strongly affected the real estate market: Covid completely disrupted the leasing market, previously considered so stable; the energy crisis put the focus on operating costs and energy prices; and the market is still unprepared for the challenges of compliance with sustainability and ESG.

Data-driven operations

Uncertainty is a state where little information is available, and we must strive to collect as much as possible in the shortest time, to understand our present situation. The future can be predicted best if we ourselves shape it.

First of all, data must be collected about the company’s activities, KPIs must be defined so that their implementation can be seen objectively. These KPIs can be financial, but many other types of data can also be measured: conversion of websites and campaigns, efficiency of issue management, implementation of tasks, efficiency of cleaners’ work—perhaps compared to a robot—recording the data of meters, efficiency of maintenance work and/or its increase. Today there are too many variables, too many things that have an impact on everyday operations, their frequency is also greater, so constant measurement is necessary. From deviations and anomalies we can draw conclusions, examine seasonality, and most importantly predict based on the data.

Appointing a dedicated person

It is not new, but I wanted to include here the thought that it is important to appoint someone within the organization who deals with this subject day by day. The biggest problem in a company is if no one deals with innovation. Unfortunately, in most cases it has been shown that if someone only deals with this part-time or for a few hours a month, it does not mean much in the long run; innovation requires commitment, cost, and resources if it is to be taken seriously.

Digital readiness, digital maturity

Some research shows that compared to the banking market, the real estate market is 8 years behind in digitalization. But what is the reason for this, and how can we help the sector to develop and accelerate digitally? This is exactly why I carried out the digital research in the real estate market: I wanted to get a picture of what the players think about digitalization, where they stand in maturity, and how much they deal with the subject.

FM companies claimed above average that they had data during Covid or the energy crisis. This gives reason for optimism, but based on experience and conversations this is typical of only a narrow segment. Especially in older, B-category and outdated buildings, there is no real-time data from meters. Although its implementation has started rapidly—thanks to shortened payback times—it will still take years before the majority can rely on real-time data.

It is very interesting to see that during the energy crisis, many companies already had data and were measuring changes. The question, of course, is how effectively they used the information, but one thing is certain: this crisis had a great impact on the market, particularly on the FM sector, which raised the importance of the profession. High prices induced many changes in companies: smart meters were installed even in buildings where previously there was no measurement beyond monthly readings. Companies that had already been analyzing these data daily or hourly were at a huge advantage, because here the results could really be converted into money.

The real estate market is in a special position, with several parameters that distinguish it from other sectors and which may even be the reason for this digital lag: on the one hand it is an extremely inflexible market, on the other it is an investor-driven market, where everything is measured by return indicators, leaving very little room for innovation and experimentation. Since most real estate in the commercial market is sold, the developer is not motivated to invest in long-term digitalization that pays off later.

Digitalization challenges in the FM market

The facility management market faces many challenges and opportunities when it comes to digitalization. The most important ones include:

• Data security and data protection: using digital platforms increases cybersecurity risks and it is important to ensure user data protection.

• Transforming customer experience: the spread of digital tools creates new challenges, as customers expect fast and intuitive online communication and services. The problem is that the budget is not in the operators’ hands, and although they see the opportunities, they cannot respond.

• Complexity and integration: digitalization of FM requires integrating many platforms and systems, which makes operations more complex and brings technological challenges. Very few companies have internal IT staff supporting development or build their own systems. Dependence on boxed products is high, and it is important that these later integrate into the existing ecosystem and workflows.

• Shortage of specialists: applying new technologies and digital solutions requires professionals who understand and can operate these systems. However, FM is not very attractive to young people—there are exceptions, but generally it is not considered trendy. LEO has been dealing with this issue, with campaigns every year since 2016, but making the sector attractive will be a long process.

For the FM market, digitalization means not only challenges but also opportunities:

• Increasing efficiency: processes can be automated and optimized, reducing costs and increasing efficiency. Those companies that start preparation earlier will have a huge advantage later.

• Data-driven decision-making: digital platforms and tools make it easier to access and analyze real estate data, supporting decisions and strategic planning.

• Better customer experience: digital solutions make it easier for clients to contact FM providers and receive information and services quickly. Issue tracking systems and automated access systems are already spreading, but there is room for development. Time factor is critical—for example, in access systems, customer experience improves significantly if entry time is shortened.

• Sustainability and energy efficiency: digitalization creates opportunities to improve building energy efficiency and sustainability. Smart building management systems make it possible to manage energy consumption more efficiently and reduce greenhouse gas emissions. This is now one of the market’s most important goals: preparing for ESG reporting, reducing energy costs, and ensuring sustainable operations. The EU has also launched many programs supporting this direction (Net Zero, CSRD, CSDD, etc.).

Proptech companies in the FM market

About 120 active technology companies are operating in the Hungarian proptech market. Around 80 are purely B2B, and about 40 target the FM/PM market. This is a high number, considering that proptech is divided into five main lifecycle categories:

• Finance & Invest
• Design & Build
• Market & Transact
• Facility & Maintenance
• Live & Work

It is debated how many of these 120 are true proptech players bringing digital transformation to Hungarian real estate, and how many only provide digitalization of some traditional services. Recently, in addition to Hungarian companies, CEE and other international players have also appeared.

Interestingly, according to my 2022 research, 35–38% of proptech companies in both Europe and Hungary belong to the operations category, meaning the FM market is overrepresented. These can be further divided into:

• Financial FM and PM software
• Integrated solutions based on smart technologies
• Companies focused on energy rationalization, energy measurement, energy sharing
• Service providers dealing with issue management and efficiency measurement
• Technology solutions dealing with CO2 emissions, air quality measurement, cleaning, and work efficiency

There are numerous PM and FM technology solutions that have been on the market for years, offering alternatives for handling all activities and tasks arising in property management with their cloud-based property management software. These solutions support and simplify reliable accounting, cost analysis, proper billing scheduling, and document management. They are already well known to many, such as the APFM or the Eniac systems, and there are challengers that have only recently, or in the near past, entered the market with innovative and rapidly developable solutions, such as the Sigtree property management system (the latter Romanian-developed). Although IREMS primarily focuses on the asset management market, many of its modules support the work of the PM and FM market.

In asset and facility management, many players are active, including the largest ones such as SAP and IBM Maxabo. In addition to those mentioned above, solutions are also offered by ArchiFM and Orthograph, and we can also mention leading technology providers in neighboring countries, such as Slovakia’s Chastia or eDocu, whose intelligent enterprise product family includes asset and facility management. Verde Group also focuses on this market, which automates real estate management and operations based on its Ausemio intelligent platform. Other players have been present here with their tools, facilities, and property management platforms for a much longer time, including the Czech service provider Alstanet or the Czech Insio solution. The Polish Velis tech group also cannot be left out of this list, with its SinguFM product specifically offering solutions for operators.

Some, however, have recently developed new automated IoT solutions: Konica Minolta and Axxonsoft, where a multitude of sensors can be used to predict events, as well as perform many other useful functions. Engie, for example, introduced a complex automated intelligent measurement and operations solution based on various IoT networks.

There are also further stable players in the B2C segment focused on managing and operating apartments and condominiums, such as the ehaz.hu platform, which is considered a market leader in Hungary in this segment.

There are solutions that focus only on one specific area, including:

• Fireg’s paperless fire safety log system

• Access4you, which has made accessibility its mission

• Parkl, which in the past five years has grown into a serious platform, dealing not only with parking spaces in office buildings but also with public parking and electric charging networks

• Invensol SAM, a specialist in office booking systems and corporate internal IT platforms.

Another segmentation can be made by industry:

• Hotelify is a solution supporting operations that focuses solely on the hotel market, while Smartapart supports short-term residential leasing, having digitalized not only access and payment but also optimized operations, thereby reducing both operating and HR costs.

• In the commercial real estate market, the Smart Edge Solution and B-Grid systems are of outstanding importance, and in the future, more and more will look for such integrated systems, whose essence is that all sensors are in a single device. This way they can automate CO2 and fresh air measurement, monitor room activity, and based on these data even control BMS systems. According to their claims, they transform intelligent strategies into solutions that ensure complete optimization of buildings. In addition, they provide seamless post-implementation operation and maintenance of smart building solutions, which will also be very important in the future.

Regarding energy, numerous startups have been launched recently, but there were also companies that merely jumped on the trend, such as Ista, Konsys, or Energrade. Engergo.cloud is a new and dynamic team that has brought a quick and effective solution to the market. And there are truly fresh startups as well, such as Wenerate. Almost all of them use the latest technologies. Artificial intelligence is practically the foundation of these systems, which in the tech sector has become more of a building block than a novelty.

Realsight.ai’s system was also launched to optimize operating costs, also calling upon artificial intelligence for its solution. This system is an advanced AI-based SaaS platform that enables companies to sustainably and cost-effectively optimize their real estate operations.

These examples are only a fraction of the countless solutions that support the market, and their spread is becoming more and more visible. Some companies have already grown into market-leading platforms and are almost embedded in our daily workflows, while others are only just starting. At the same time, from the client’s side, it seems like a good strategy if controls and dashboards are self-developed and all other applications are integrated upon introduction, thereby eliminating siloed operation.

Proptech startups are revolutionizing how we think about and interact with the built environment. From property management platforms to real estate marketplaces, these innovative companies are changing the way properties are bought, sold, and managed.

However, proptech startups face a number of challenges that may hinder their growth and success.

• Lack of understanding or skepticism from traditional industry players: Proptech startups often seek to disrupt traditional industries, which can meet resistance from incumbents who may not be familiar with the new technologies or remain skeptical of them.

• Difficulties in securing financing: For proptech startups, raising funds can be a challenge due to the risks associated with disrupting established industries.

• Competition: The proptech sector is becoming increasingly crowded, with many startups competing for the attention of investors and clients.

• Client-side strategic approach: It is becoming more difficult for companies to navigate and make long-term, profitable decisions about which solutions to choose:

  • developing an in-house system, which is very costly

  • adopting a large, established system, which is less tailored to the company

  • supporting a small startup, which is much more flexible but may not remain viable in the long run.

• Limited access to data: Data is often critical for proptech startups, since digital products are built on data using lean methodologies, constantly monitoring user needs, analyzing habits, and life cycles. Regulatory restrictions or reluctance of incumbents to share data, however, can make it difficult for these companies to access the necessary information.

• Complex regulatory environments: The real estate and property management industries are heavily regulated, which can present challenges for proptech startups trying to navigate these complex systems. Just think of the different interpretations of common area factors or net versus gross areas.

• Difficulties in building and maintaining client trust: Proptech startups have a harder time establishing trust with clients, since they aim to disrupt traditional industries, and in many cases their solutions are still immature, which makes clients less willing to rely on them. Many clients also fear for their data, as they are not familiar with how startups handle it, which makes them reluctant to share.

Afterword