Business owners could soon find themselves selecting office space from the comfort of their homes. Whether it’s in the city where they live or thousands of miles away, comprehensive virtual tours of properties are becoming a reality. Property buyers will see the most benefit from this new trend, saving on travel costs and time by looking at virtual open-house tours before deciding to take that next step. On the flip side, sellers will enjoy a wider client reach and a dynamic form of advertising for their properties whether they are hotel owners appealing to travel-savvy clients or landlords looking for new tenants to fill their apartment space. Properties dealing in multifamily, office and industrial services are also seizing the opportunity, finding ways to impress customers through immersive selling tactics. DBRS believes this trend could provide improved analytics and transparency for investors in the commercial mortgage-backed security (CMBS) market.
This trend has taken off in residential real estate, with firms creating simulated open houses through a series of stitched-together panoramic images of the property interior using high-quality 360-degree cameras. The user can then go room to room by activating certain modules in a virtual reality (VR) headset or navigate by pointing and clicking with a desktop 360-degree interactive image. Real estate companies such as Engel & Völkers and Sotheby’s International Realty are already using VR technology to showcase residences, with others currently working on pilot projects. VR companies themselves, like VR Global, are also introducing their technology to the industry. Commercial real estate is beginning to follow suit, with digital open houses eliciting great feedback from buyers and sellers alike.
There are many immediate benefits to the buyer by viewing an open house of a property from their home or office. A business owner looking to lease a new office property in another city or country would need to inspect the property to determine its space is the best fit for the company’s needs. This process would typically necessitate transportation costs and would put them out of pocket before they had even made a decision on the property. With multiple properties in the running, it can be costly to visit these separate locations. To save time and money, a VR firm can map out the interior and exterior of the building and provide an accurate assessment. Once the convenience and cost effectiveness of these virtual tours has been established, the industry could see faster transactions with fewer costs.
Sellers can better advertise and promote their properties using dynamic VR. A property that comes with a convenient 360-degree virtual tour can give the listing a leg up over the competition. Moreover, having an online platform offers the seller wider reach with international clients.
Different commercial real estate markets can excel with VR in different ways. WeWork has already implemented 360-degree technology in its office-leasing business model, finding success matching space with potential clients. According to Julie Smithson, Chief Operating Officer at VR imaging group MetaVRse, the real estate market was one of the first industries to adopt the technology and capture 360-degree footage. “Being able to walk through any space and learn more about the property led many companies into setting the pace for Virtual Tours,” Smithson explained. “The trick was the interactivity and manipulation of the space that changed as well as being able to add portals and customize the look of a home to accommodate the purchaser or provide a view of the renovation.”
Hotels can better advertise their rooms by putting their customers right there in the room before they commit to booking the hotel. Matterport, a 3D and VR model company that captures spaces from multiple angles, has a showcase of different property types (hospitality, industrial, rental and residential) on its website to provide a more immersive look at room bookings. For multifamily properties, websites like Gryd.com show 3D floor plans, a “dollhouse” view (showing the floorplan of the property’s interior from all angles) and a 360-degree interior tour that brings you room to room in a point-and-click environment. InventDev took this technology a step further by creating realistic 3D floorplans for properties still in development. The firm describes the following advantages of this technology: informing the development team and stakeholders of floorplan mistakes before construction begins; savings costs by implementing a virtual model instead of a physical model; and attracting buyers online.
These replications are not limited by the reality of a space. Augmented reality (AR) takes a space captured by cameras and transforms it. For example, a client looking at condo space for rent might use in-app functionality to modify the space, whether it’s changing the colour of the cabinetry or adding furniture from an e-commerce catalogue. The IKEA Place app allows customers to place and preview store furniture in their own spaces before committing to the sale. A similar model is taking place with multifamily properties, adding an element of immersion that appeals to potential customers.
DBRS identified a few pros and cons to implementing VR technology in property site inspections. Site inspections take place when a subject property needs to be assessed for quality as part of the credit rating process for a CMBS transaction. For a property that was previously inspected and requires an updated inspection, it could help save time and costs by providing a quick summary of what renovations and capital improvements were made. Wasiq Chughtai, Assistant Vice President of North American CMBS at DBRS, believes that VR can help analysts get a better idea of what properties look like in the absence of a site inspection — but nothing beats the boots-on-the-ground approach. “It has potential, but the downside is that we wouldn’t be able to ask questions and benefit from the in-person interaction with a property manager.” That said, it could also help cover certain photography angles that were missed during the initial inspection.
VR captures images of collateral properties that CMBS investors have in their portfolios, allowing them to keep tabs on them without actually having to leave the state or province they are operating out of. All these investors need are a few 360-degree captures by each report date to save a significant amount of time and money for travel expenses. DBRS stands at the forefront in providing transparency in the CMBS industry, with the photos of properties on Viewpoint being a positive sign of that. The use of VR could further increase this transparency for the benefit of investors and analysts alike. DBRS has published 3,664 new-issuance site-inspection commentaries for individual properties in Viewpoint since October 2016 — each of which displays about ten photos. Coverage of these properties already tends to be extensive, but VR could move it another step forward.
Virtual hotel tours, such as the kind that Matterport works with, are currently operating largely as pilot projects. As these projects progress, DBRS will continuously monitor the use and benefits of such tours for the wider CMBS industry. Viewpoint could benefit from this technology, particularly though the presentation of a 360-degree virtual tour instead of a series of images. A recently rated hotel, the Hilton Clearwater Beach Resort & Spa, represents a well-photographed site-inspection property. However, an interactive VR plug-in has the potential to further broaden the scope.
VR is demonstrating itself to be an exciting new technology gaining ground in different industries, especially real estate. Property buyers have an innovative new way of browsing properties at little cost to themselves and sellers can make an excellent first impression with their listings. More and more, companies are adopting these strategies and creating better relationships with their clients through convenience and by creating a more immersive purchasing experience, positioning the commercial real estate industry to better handle increased transaction volume.
This research report is available on the DBRS website as well as the Viewpoint blog.
Follow Stephanie Hughes on Twitter @StephHughes95.