Property investors to gain by embracing e-advances

Real estate, perhaps the ultimate "old economy" industry, is rushing to embrace the new, technology-driven economy with an enthusiasm unimaginable a year ago. This week, two technology-based consortia were launched in the UK, each promising to marry technology to real estate in order to create operating efficiencies for owners, occupiers and intermediaries.

First, a consortium of five of the UK's largest real estate owners - British Land, Canary Wharf, Legal & General Property, Norwich Union Investment Management and Prudential - has been created to effectively bulk purchase the high-technology telecommunications services increasingly demanded by tenants. The group is advised by US-based investment bank Morgan Stanley Dean Witter and is holding talks with a wide variety of potential providers, including several recently formed companies that are already providing similar services to their US counterparts.

Second, three of the UK's largest estate agency firms, Jones Lang LaSalle, CB Richard Ellis and DTZ, announced the formation of a business portal which will allow participants to advertise properties for sale or to let, and to act as a billboard for the bulk purchase of a broad range of property related services. These latest decisions, and a host of others in prospect, illustrate even more starkly the truth that - far from fearing the effects of new technology - property owners should rush to embrace it. Real estate is arguably one of the sectors of the economy best placed to benefit from the so-called new economy.

Certainly, real estate investment trust analysts at Deutsch Bank Alex Brown think so. "Real estate in our opinion may be one of the most significant beneficiaries of the new economy," analysts wrote in a recent report, Wired Real Estate; The Ultimate Portal: "A change in mindset is in order as visions, executions, and marketing of the e-enabled real estate industry are established." The challenge for the industry, the analysts argue, is to make real estate an appropriate host for the new technology which occupiers so desperately need to make their businesses run more efficiently. The key to the industry's success, the analysts say, will be its ability to exploit its unique role as gatekeeper to millions of terminals housed within buildings. "Armed with the knowledge about the people who enter and leave a building, real estate becomes the ultimate portal to be wired with high-speed access to the internet," Deutsche Bank says.

"The real estate platform may then be leveraged to create intangible value, via new economy services for its tenants and customers, and thereby, shareholders." These may be new ideas in Europe, where companies are only beginning to understand the operating efficiencies which broadband-delivered technologies can bring, but they have been home-truths in the US for several years. An April publication from analysts at JP Morgan in the US lists 176 e-real estate companies, up from 121 in a previous bulletin only the month before. Nearly 40 of the largest US REITs have potentially moneymaking relationships with real estate-related technology companies. So the latest European initiatives are only the first steps along what is already a well-travelled road for the US. The research divides the US initiatives into seven different categories, of which the latest UK ventures fall into two: brokerage and telecoms.

Perhaps the most striking thing about the panoply of ventures which have arisen in the US, and more lately, Europe, is that they are formed by avowed competitors who now see advantages in mutual effort. Lee Schalop, REIT analyst at Credit Suisse First Boston, points out that companies are saying that in an uncertain world "two heads are better than one". Consortia allow members to share risk and costs, he adds. They are not, however, without their own inherent risks. Mr Schalop points to the Multifamily Consortium, created with an e-procurement strategy intended to allow participants to share the benefits of bulk purchasing online. It was formed by some of the largest multi-family residential chains in the US, including Equity Residential and Avalon Bay Communities, companies whose managements are viewed as generally astute negotiators.

However, Mr Schalop notes, the consortium is being disbanded because too many members viewed their participation in it as a starting point for negotiating an even better deal with providers on the side. Jim Reid, of CB Richard Ellis, says the new brokerage consortium is unlikely to run into that sort of risk: "We believe there is such a commercial interest to achieve critical mass that none of us could go off and do this ourselves." The portal to be created by the combined firms will become the industry standard, if only because it will contain the broadest and deepest information on properties and markets available.

Creating critical mass is also the logic behind the second venture started by the five big UK property owners. The combined groups own more than 200 million sq ft of space; more than enough to have the largest telecoms providers banging on their doors, hoping to do business.

A possible strategy is for that consortium to reach an agreement on the installation of the appropriate wiring necessary to deliver a wide variety of voice, data and telecoms services free. The group could then arrange for the bulk purchase of services, with each tenant able to buy the services at a lower cost than he would be able to negotiate for himself. Landlords, as the gatekeepers to their tenants, stand to profit from every technology service provider seeking access to their customers.