The Real Deal New York

While the construction industry eats up virtual reality, the tech has been slow to penetrate the leasing market

Experts say VR is costly and should also be marketed to tenants
By Konrad Putzier | February 23, 2018 02:32PM

Illustration by Daniel Nyari

About six months ago, a team of architects at Perkins+Will met with executives from a major health care company to discuss the design of new medical exam rooms. The architects suggested a tweak to the planned design, but the client balked.

Historically, that interaction would likely have ended with the architects going back to the drawing board, said Iffat Mai, the firm’s digital practice manager. But in this case, the architects handed the client a virtual reality headset.

After “walking” through the redesigned space, the client signed on for the proposed changes, according to Mai, who called virtual reality a “game changer” for real estate.

“Over the past 24 months, virtual reality and augmented reality just kind of exploded and became readily available and affordable,” said Mai, noting that

Perkins+Will began researching the technology about five years ago.

Today the company has its own VR software, which it uses as a more realistic substitute for drawings and to show clients what a space may look like.

VR’s big breakthrough came in March 2016, when Facebook-owned Oculus Rift released its first headset to the mass market for $599. Since then, the technology has become a staple in luxury condo sales galleries. New developments traditionally had a major disadvantage: Buyers couldn’t physically walk through apartments that weren’t yet built. VR solves that issue, and developers are increasingly relying on software to sell units.

And now both VR and AR are starting to seep into the construction industry.

Turner Construction created its own AR software, which gives project managers hands-free access to their documents while they’re on-site, Barrett said. (AR goggles show users their actual surroundings, overlaid with computer-generated renderings or even their emails.)

Barrett estimated that Turner invested between $75,000 and $100,000 in the technology in 2011 and 2012, in part because VR headsets were more expensive back then. More recently, the company spent about $50,000 to create virtual models of a New Jersey cancer clinic the company was building. The investment pays off — at a return-on-investment ratio of about 10 to 1 — because the client is better aware of what the space will look like and is less likely to request late, costly changes, he said.
“It’s a no-brainer,” he added. “Solving problems virtually long before they might become reality is a far better, cheaper alternative to traditional practices.”

And there are plenty of startups betting on the profitability of just that.
Matterport, a California-based startup backed by $66 million in venture funding, is building VR technology for construction projects. Like OnSiteIQ, its devices capture 360-degree, 3D images of construction sites that can be accessed remotely using VR headsets.

The firm’s director of architecture, engineering and construction, John Chwalibog, described the technology as an asset in today’s international real estate market.

“A lot of product and design teams are global now,” he said. “The project is in New York. An engineer might be in San Diego, an owner might be in Melbourne. Everyone can get together and do that virtual walk-through.”

But VR has been slower to take hold in the office leasing market.

In 2011 and 2012, two startups, View the Space and Floored, launched to great fanfare. Floored offered 3D visualizations, and View the Space created video tours of office buildings — two products that seemed destined for VR devices. But View the Space (which ultimately changed its name to VTS) successfully shifted its focus to offering online portfolio and lease management software. And Floored was acquired by CBRE and folded into the brokerage’s data and technology division in 2017.

“A few years ago VR was all the rage, and now you rarely hear about it anymore,” said Ash Zandieh, founder of the real estate tech research and consulting company RE:Tech.

VTS co-founder Nick Romito said he is “baffled” by the slow pace at which VR and AR are spreading across the office leasing industry.

“If you would have asked me three years ago, I would have said the next generation of our industry is … anything virtual,” he said. “But it almost feels like we’ve kind of taken a step backwards.”

Romito speculated that the slippage might be a product of the marketing, which has largely been targeted at brokers and landlords rather than to the potential tenants, who might see the most use.

Zach Aarons, an executive at the real estate investment firm Millennium Partners and co-founder of the New York-based tech accelerator and advisory firm MetaProp NYC, argued that AR and VR have yet to fully take off because the devices and software still tend to be expensive.

But that could soon change. The price of an Oculus Rift headset has already dropped to $399 from $599. “There’s some magic price. I don’t know what it is, but we’re close to hitting it,” Aarons said. “It will explode on the marketing side.”

Check out the complete version of this cover story in the February 2018 issue