The oncoming Prop Tech disruption

The thing that stood out for me at the Toronto Real Estate Forum this past December was when one of the panelists (Mark Wiseman from Blackrock and who formerly headed Canada Pension Plan Investment Board (CPPIB)), said:


“…. this is the least diverse audience I have ever seen….”


There was no arguing this statement. The commercial real estate industry is pretty uniform in its demographics, and he was looking at a sea of older white males with grey hair in dark business suits. The rebels had colourful socks. What became more troubling as I thought about this comment was that he may not have simply been referring to our physical attributes, but also our group-think about the industry.


Part of the reason that I came to this distinction, is it demographics or group-think, is that I had an option for those two days in Toronto. My option was to attend the inaugural SAAS North conference in Ottawa. This conference featured sessions by all the leading high tech software firms in North America.  It was sponsored by Ottawa legend Sir Terry Matthews, and it had a strong local presence with firms like Shopify and You.i in attendance. The choice for me was to attend the premier event for the commercial real estate industry in Canada taking place in Toronto, or attend the event geared towards the future of SAAS firms in Canada.


Recapping the Ottawa Real Estate Forum


The choice was made more intriguing by some of the events at the Ottawa Real Estate Forum this past October. There were two technology presentations, one by Kevin Radford the Assistant Deputy Minister of Real Property Branch at Public Services and Procurement Canada (formerly PWGSC), and one by the legend, Sir Terry Matthews. Both of whom have some serious high tech chops.


Mr. Radford was previously at Shared Services Canada which is the federal government department responsible for all things IT for roughly 45 federal government departments. In his new capacity at PSPC he would be, in part, marrying the changes in how the government works – the workplace, the back office, and the way it works – that new technologies permit with its need for space in which the work is performed. What Mr. Radford pointed to was that the federal government is experiencing difficulties in getting the technology part of that transformation right.


The three-prong approach to this change in how they operate is illustrated below:

Mr. Radford’s presentation focused on how the failure to get the IT part of this approach was hampering the benefits of getting the real estate part of Workplace 2.0 levered to success. He reported that the federal government is struggling with the mobility, video-presence and updated information management systems part of the Workplace 2.0 approach. When he said that Workplace 2.0 is not working, he was highlighting these areas and not the real estate part.


Sir Terry had an entirely different approach to his discussion of the future of high tech in Ottawa. Sir Terry is very excited by 5G, and began to explain its potential for everyone. He said, pulling out his smart phone to use as an illustration, that these phones recently underwent an increase in what they could do when the networks upgraded from 3G to 4G. That 4G platform allows networks to carry 3-4 times the amount of data. Sir Terry said that the big constraint with networks now is the amount of video being generated by users, and video eats up lots of capacity.


The revolution we are all about to experience is 5G, as that upgrade allows networks to increase what they carry and deliver by a factor of 1,000. He said that whatever upset we experienced in how we do things based on going from 3G to 4G will be dwarfed by the arrival of 5G networks. Sir Terry expects these networks will be operational within 3-5 years.


Check out his short video keynote for the Digital 2015 conference held at his Celtic Manor in Wales in June 2015 as Sir Terry talks about similar advances in the ICT field.


Sir Terry knows of what he speaks. He founded Mitel in the 1973 and sold a 51% interest to British Telecom in 1986 for $320 million. He then founded Newbridge Networks in 1986 and sold that to Alcatel in 2001 for $10.32 billion, becoming the single biggest Alcatel shareholder worldwide. He has been involved in the ICT sector of the high tech world for 40-odd years through his involvement with Wesley Clover his serial Super Angel firm in the formation and running of 100-odd firms.


High tech in Ottawa can be confusing, as it can be hard to figure out why some firms will choose to locate in Kanata, while others are inner-city urban live-work-play environments. Invest Ottawa developed this breakdown for high tech firms in Ottawa and identifies 6 broad categories.

Sir Terry Matthews is traditionally associated with the ICT sector, while software as  service firms (SAAS) are listed in the software sector. Kanata has traditionally been the home of ICT firms, while SAAS firms are more easily identified within urban locations.


What I missed at the Toronto Real Estate Forum


With these presentations in Ottawa last October in mind, I was looking forward to the Toronto Real Estate Forum to see how the industry was dealing with all the new technologies that at a minimum were impacting tenants, such as:


  • new office space layouts incorporating collaboration space;
  • retailers adapting to on-line sales;
  • logistics dealing with distribution to the last mile

The Toronto forum did deal with these issues; however, it did not seem to deal with how the ownership of business was changing with the availability of new technology. The property operations side seems to be ready for the Internet of Things and how that will affect the tenant experience as well as dealing with large data from multiple operations. What I missed was a discussion as to how new technologies were affecting getting “bums in seats” – how is it that firms are changing their marketing, leasing and web presence to make that “suspect to prospect to tenant process” mobile-enabled?


My concern for the mobile experience was the result of a Globe and Mail article about the concerns that Tobi Lutke had for Shopify as of November 2014. The Globe reported this in December 2016 and just a few days after the Toronto forum:


Tobi Lutke had run out of patience. As the chief executive of Shopify Inc. walked into his office on Aug. 12, 2015, he knew he had to drive home a message that his staff had been ignoring for too long, so he sat down to write something that would scare them.


“There is no way to sugar coat it. Shopify doesn’t get mobile yet,” he typed in a characteristically direct e-mail. “I’ve been doing a lot of pushing on mobile, but I just can’t seem to make enough of a difference due to the magnitude of the change needed.


“There is no way for me to overstate this. If we want to avoid being yet another BlackBerry/Nortel, we have to build mobile into our DNA.” He sent the message to all employees at 11:16 a.m.


The game changer


This quote from Tobi Lukte, the founder of Shopify. If his firm does not get “mobile”, if they do not understand that it was their customers and not Shopify being mobile that drove their mobile traffic, if Shopify did not consider that more than 50% of their traffic to the merchant sites it hosts were from smartphones and tablets, they will soon be out of business.


Pretty dramatic for a firm that went public in May 2015 with a $1 billion valuation and that has a market cap as of February 22, 2017, of C$7.468 billion. What I had hoped to find somewhere at the Toronto Forum was some of this urgency, passion or sense of impending doom that the commercial real estate industry was getting tech fundamentally wrong, and there was little time left to correct it on our own before some start-ups disrupted this business model.


Because, even though they were not at the Toronto Real Estate Forum, those start-ups exist and are securing funding. CRE//Tech reports in its 2016 survey of firms that are intersecting the real estate and technology sectors that fundraising in 2016 has declined from a previous high:

The same CRE//Tech report identifies these firms with the following specialties:

Crowdfunding alone has these participants, according to Joanna Schwartz in her presentation hosted on the CRE//Tech site “The Aggregated Open Future of CRE Finance”:

Where does that leave me?


It feels like the industry I have known for 30 years is about to be disrupted and disintermediated. It feels like many of the standard business practices of the mobile social media age have not been adopted by this industry. For example, I do not know of a community manager monitoring user feedback and discussion groups on social media for how occupants find their accommodations or their property manager experience or the speed by which their requests are met. For example, I struggle to find basic information from web sites that have space for lease, never mind the struggle to do so on a mobile device.


It feels like the Toronto forum was for the existing taxi industry while Uber started, or the existing hotel industry while AIRbnb kicked in, or like all those big retailers watching Amazon start an on-line book selling business.


I struggled to choose between the Toronto forum and the SAAS North conference in 2016. I will be attending the SAAS North conference in 2017, as it is likely to be a much better indicator for things to come here in Ottawa.


That impending intersection with all the things that prop tech or CRE tech firms are doing to disintermediate and disrupt reminds me of that old Star Trek episode:

We are The Borg. Your culture will adapt to service us. Resistance is futile. Prepare to be assimilated.


How about you? Are you concerned about the commercial real estate industry and its hate-hate affair with new technology? Do you sense impending disruption or, even worse, disintermediation? Is there willful blindness by this industry to its attractiveness for disruption and/or disintermediation?


Or is it the result of being the least diverse audience that the presenter had seen and the group-think that engenders?

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