Thank you to everyone who has been following this series about the fourth industrial revolution and its potential impact on the planning and development lifecycle so far.
My fourth article focuses on the technological capabilities of AI and its potential to transform valuation techniques, supporting the development process. I should add at this point that while valuation is front and centre right now due to the uncertainty caused by Covid-19, this piece is focussed more on speeding up the process through better data flow and automation.
As long ago as 2008, the Automated Valuation Model (AVM) was defined by the RICS as: ‘Automated Valuation Models that use one or more mathematical techniques to provide an estimate of value of a specified property at a specified date, accompanied by a measure of confidence in the accuracy of the result, without human intervention post-initiation’.
Currently, AVMs are most commonly used to provide estimates of capital or rental value for residential property, but models do exist for commercial sectors. In Sweden, for example, the Datscha system provides an online valuation tool for all sectors that is used widely in the evaluation of funding.
The current generation of AVMs are hampered by the poor quality of data available and the resulting limited options for machine learning. Nevertheless, they produce valuations consistently and in real time. With good, accurate data on characteristics and prices achieved, the accuracy of the valuations will improve and could be increasingly applied to development sites as well as completed developments.
The initial land valuation has extensive ramifications for profitability throughout the development lifecycle. With accurate data on characteristics, market prices and risk profiles, AVMs can provide objective valuations that consider all the relevant data in real time. However, they are at a crucial juncture. To progress and move towards near accurate valuation of development sites and completed schemes they need a better, more timely flow of data and, given their importance in transactional terms, a means of underwriting their results.
This proximity to a market breakthrough is attracting significant investment and will pose a fundamental challenge to the labour intensity required for many valuations. As information and automation improves, valuation may also be able to respond quicker to disruptive events and shocks like the current pandemic. However, while commoditised valuations may be under threat from automation, specific human expertise will become even more important to valuation – particularly for complex assets and situations. Valuation around development sites and historic building conversions are highly nuanced and high skill human input and experience will be needed and in high demand for the foreseeable future.
This proximity to a market breakthrough is attracting significant investment and will pose a fundamental challenge to the labour intensity required for many valuations. As information and automation improves, valuation may also be able to respond quicker to disruptive events and shocks like the current pandemic.