Virtual Reality (VR) is far from a new concept but it has now reached such a scale of usage in other areas of life, plus a level of sophistication, that commercial real estate (CRE) players have begun to take notice.
VR has the potential to be a powerful tool in CRE particularly by providing a fully immersive means of “touring” a property. Once adoption of VR by the CRE industry takes hold, it has the potential to expand apace with applications for other aspects of CRE.
What is VR?
Early VR concepts date back to the 1970s with the development of military training tools and flight simulators. In recent years, it has become increasingly sophisticated and synonymous with the computer gaming industry and technology firms.
VR provides an interactive experience taking place within a simulated environment. This immersive environment can simulate the real world, or it can be fantastical.
Augmented reality (AR) systems, considered to be a form of VR, layer virtual information over a live camera feed into a headset or through a smartphone or tablet device giving the user the ability to view three-dimensional images.
A person using virtual reality equipment can “look around” the artificial world, move in it and interact with virtual features or items. The effect is commonly experienced by wearing VR headsets.
Adoption of VR by the CRE Industry
While VR applications such as Google’s “Street View” have been used for several years, adoption of VR specific to the CRE industry is in its relative infancy.
However, the potential is considerable. Goldman Sachs projects that VR could be a $2.6 billion market in real estate alone by 2025. Recent generations are used to interacting with VR on a frequent basis, making it a likely necessity in CRE rather than an optional add-on.
We’ve identified three areas that are expected to be among the first applications to play a role in the CRE industry: building tours, space customization and virtual advertising.
Virtual Building Tours
VR has the potential to revolutionize property marketing — either to investors or tenants. Using a VR headset, it’s possible to do a tour or walk-through of a property.
It’s not just about existing space. One of the key areas with significant potential is the ability to tour a potential construction project without any site work having started. It’s applicable for multiple players: brokers, prospective tenants, developers, investors and lenders. It also means that the project can be toured from anywhere — particularly helpful for overseas clients.
Moreover, VR property tours have the potential to offer a fully immersive experience enabling users to experience what it’s like moving around the property rather than just panning through a 3D model. The easier and more detailed the ability to visualize and experience a potential project, the quicker the likelihood of deciding to move ahead, thereby accelerating deal time.
Thus, VR technology has the potential to increase the pool of investors in a building or tenants in a workplace, each of whom can tour the facility remotely.
Using AR technology, prospective tenants can create and view customized fit-out options. Furniture and fittings can be dropped in to unfinished space to give tenants the ability to better virtualize alternative workplace designs. Changes in lighting are another example. Effectively it gives the prospective user the ability to explore multiple scenarios for how they could customize their space.
AR can also include information in a building’s “digital shadow” about features such as the energy management system along with information about their benefit to the tenant.
Another application under development is providing virtual advertising on building facades through augmented reality. It is expected to be more fully developed in the next couple of years and work in conjunction with Apple glasses or similar devices.
As the wearer walks down the street they see virtual advertisements and billboards that are specifically targeted at them, whether it’s an offer or reminder to buy your favorite drink from Starbucks or specific products from retailers. One of the key issues is who benefits from the income stream. The building owners or the VR operators. If part of this goes to the property owner, another point for consideration is how to factor the revenue into valuations.
Where to Next?
The most immediate impact of VR on CRE looks set to be in the marketing of properties and development projects, both for leasing and sale. As the CRE industry and VR developers work together, more synergies should emerge, with virtual advertising being one of the first to come in to play.
The ability to undertake immersive tours of planned projects from a remote location has game-changing potential. Additionally, we are at a stage in the property cycle where owners are seeking to reposition older assets, and tenants are looking to find the best way of consolidating and reorganizing their real estate footprint to control costs and maximize productivity. VR and AR technology make it possible to envisage and experience potential space solutions.
CRE markets are becoming increasingly competitive as owners seek to draw from a more cautious tenant and investor base. Early adopters of VR could differentiate themselves and gain a competitive edge, while also increasing the pool of parties who can tour their assets with remote VR technology.
Watch this space!
Stephen is the National Director of Office Research for Colliers International, where he focuses on analyzing office property trends, compiling Colliers’ thought leadership and delivering timely market projections to provide clients with a leading edge in our industry.