Proptech Is Here for Brick-and-Mortar Retail’s Revival

In the category of everything old is new again, the brick-and-mortar retail experience is reasserting itself after an e-commerce surge that appears to have peaked during COVID.

The rebalancing of virtual and real retail sites is happening with the aid of proptech that landlords and occupiers are increasingly demanding, said sector tech experts.

“We write investment manuals — the data aggregation as well as the analysis,” said Steven Song, CEO and founder of Diald.AI, a Los Angeles-based full investment memo technology company. “So, if there’s a retail property on the market, it can include 1.7 million data sources, quantitative and qualitative data. The typical quantitative data that you get from data streamlining companies, but the qualitative includes neighborhood sentiment, culture of that location, things that don’t get captured in Microsoft Excel.”

Diald uses its signature technology to frame that context with data.  “Then, we combine both of those to suggest whether an investment is going to be good or not,” Song said. “For retail, our users include debt and equity investors as well as operators, the franchisee or the franchisor of retail brands.”

Although AI has been available to the public for a relatively short time, it has a great understanding of human society, and can read written data, not just numerical data, said Song. For AI to understand the nuances of retail location, for instance, it needs to digest and make sense quickly of different genres of data — cultural, sociological, historical and more —subjects that require many different human experts and a lot of time.

“Basically, what we created was that in an ideal world, what if there was a big round table where all these different experts sat and they were all talking about one site, but with respect and thoroughly, with no egos, no judgment, no fatigue,” Song explained. “So we created that using an agent AI system.”

Diald’s platform has only been fully operative since January, but its clients speak well of the technology.

“Diald isn’t just about saving time, it’s about seeing clearly when traditional signals start to blur,” Kevin Ratner, co-founder and managing partner of developer and operator The Max Collaborative, said in an email. “In today’s dislocated and confusing market, where historical numerical indicators are increasingly decoupled from reality, having a tool that cuts through the noise is of great value. Diald helps us focus on the site fundamentals: market, financials and viability and is therefore more critical than ever.”

Zoning is another challenge for brick-and-mortar retail. Matthew Player, CEO of the Boca Raton-based zoning intelligence platform Zoneomics, said retail real estate professionals are using his Boca Raton, Fla.-based firm for zoning and land use data..

“Basically, we’re the number one provider of zoning and land use data and the other development trials that are typically associated with what can collapse a deal,” Player said. “We’re being used either directly by the landlords or the retail companies themselves and their real estate teams, either via API accessing our data for an internal application or by using our SaaS platform to identify locations and perform pre-screening or pre-entitlement due diligence. So, if a broker is telling them this is a great site for them, they can quickly check and either validate or invalidate those claims on our platform.”

Having come out of stealth mode in 2018 and fully commercially available by the end of 2021, Zoneomics originally started working with appraisal firms and lenders, Player said. “We started from there, working more with owners and developers, and then more recently with corporate real estate,” he said, “because they’re being exposed to our reports that they’re seeing from brokers, and then they’re adopting it all.”

Across the pond, London-based Kinexio (formerly Mallcomm) is a platform for commercial property management and portfolio performance. Its view of brick-and-mortar sites is seen through the lens of hands-on experience, said David Fuller-Watts, Kinexio’s CEO.

“Our view is that brick and mortar retail is fundamentally important to the economy, to people’s well being, because building community and feeling connected to that community is so important,” said Fuller-Watts. “I think shop retail property has evolved over the years so much that the days of the traditional shopping mall are kind of gone now. They’re much more leisure or lifestyle destinations. They’re places where people want to go and spend time with their friends and spend the day out with their family, have some food and maybe see a film. They’re also into the convenience aspect of, ‘I need something right now, and I can go and try on my children’s shoes and pick them up at the same time.’ The experience aspect of retail property has really started to come back and become really important.”

From a proptech perspective, the lines are blurring among pure retail, commercial, office and residential, resulting in many people being part of one flexible mixed community, Fuller-Watts said.

“We’re seeing a lot more developments that are truly mixed use,” he said. “One of the ones we work with is Battersea Power Station in London. And it’s a big redevelopment project. It’s award winning and a fantastic building.”

Kinexio’s tech stack provides owners, property management companies and teams on site a suite of tools to streamline operations and support security to make people feel safe while they’re on a property, as well as to support marketing, said Fuller-Watts.

Paris-based Squarefeet is also part of the both sides of the Atlantic trend in bringing more technology to retail brick and mortar. The company streamlines retail leasing and bridges e-commerce with physical retail, said Mehdi Alaoui, founder and CEO of Squarefeet.

Alaoui describes Squarefeet as an industry-specific customer relations management tool for retail real estate landlords. “It streamlines operations and organizes for those types of properties, making leasing transactions more efficient and profitable,” he said of his startup, which is operating in France and Germany, and will expand into the U.S. in the coming weeks.

Large and slow-moving corporate ownership of retail sites, along with the rapidly rising cost of acquiring product placement on e-commerce platforms, has caused the sector to lag other real estate sectors in adopting technology, Alaoui said.

Squarefeet aids retailers who want to move into brick-and-mortar sites by organizing leasing operations as a business-to-business provider, he explained.

“There are a whole bunch of new features and processes that simplify a lot of things,” Alaoui added. “The first thing we do is digitize operations, and then we combine it with a marketplace that is connected to e-commerce. We build the bridge between landlords and the complex processes with e-commerce players, of which there are 24 million active online.”

U.S.-based real estate tech giant MRI Software sees the number one innovation area for brick-and-mortar retail as increasingly sophisticated ways to count foot traffic, said Carla Hinson, vice president of North America solutions and innovation for MRI.

“Capture rates and things like that are critical at MRI,” said Hinson. “We have MRI On Location for footfall. By linking into our client’s camera system, we can actually count pedestrian traffic and vehicles. We can see when people walk by versus when they come into the store. That really helps us when a retailer changes something inside their store. We can see how that impacted the capture rate. Did more people actually enter the store as opposed to passing by?”

Although retail landlords and occupiers have for years used customers’ phones to gather such data, camera capture provides more demographic insight into potential and actual customers, she said. “We can see that through the camera, through visual AI, and actually impact them and their experience while they’re there,” Hinson added. “Give them different specials that are coming up, rewards programs and things like that, while they’re actually inside the store.”

Global brokerage services companies are also assessing the impact of proptech on opening up the brick-and-mortar retail experience, said Lee Jackson, senior vice president in digital solution advisory with JLL.

“We were founded in 2022 as a result of the global pandemic,” Jackson said. “Technology was something that was helping our clients at JLL at sort of that peak destruction period, on the retailer and on the retail shopping center or retail destination ownership side.

“We spend our time exploring solution providers that are in the marketplace, and speaking with owners and operators on the challenges, opportunities and products that are helping them in their business every day. We serve as an intermediary focused on proptech full time in the retail sector.”

The sector is complex and the JLL advisory group attempts to navigate that complexity through identifying and pairing proptech providers with landlords and occupiers, said Jackson.

“I would say that today it is not one or the other,” he said of the e-commerce versus brick and mortar retail dynamic. “It is very much an omni channel, or a unified commerce kind of environment, and the customer journey is really an inception that can happen at home on your mobile device or at work at your desktop, while you open up your browser and start searching for something that you are looking to purchase. Or it can happen inside a social media platform where things like marketing and branding activations are taking place.”

Jackson described this activation concept as technology driving the top of the funnel with the physical stores the place where activation occurs.

“Brands and shopping centers are looking to connect with people at home or on digital platforms, but they’re looking to convert them and drive them to the store through unique bespoke activations and opportunities, whether that’s a sneaker launch, a celebrity appearance, a special product or giveaway,” said Jackson. “Some sort of a unique offering, like a food and beverage experience — they’re marrying all of these components of where the journey can start for a customer.”

Philip Russo can be reached at prusso@commercialobserver.com.