Industries across the world are being affected by rapidly emerging new technologies and the potential use for the new data that is being created. Commercial real estate is no exception. PropTech – or technology used for real estate – is increasingly being used to improve efficiencies in CRE.
The Altus Group recently released its CRE Innovation Report. The firm interviewed 400 C-level and senior commercial real estate executives from around the world: about 35% each from North America, Europe, Asia, and the Pacific Rim, and 5% from Latin America.
The Report covers five key PropTech areas and the turning points that are emerging in CRE.
Spreadsheets, Data Silos, And Evolving CRE Technology Infrastructures
Data silos are created when information is gathered but can’t easily be shared. When data is siloed organizations can’t maximize efficiencies, the value-added insights that data can provide are difficult to see, and the risk of human error increases.
The use of old-fashioned spreadsheets is the best examples of data silos in CRE. Unfortunately, spreadsheets are still used as a primary tool for many key processes in commercial real estate:
- 60% for reporting,
- 51% for basic valuation and cash flow analysis,
- 45% for budgeting and forecasting.
But on the financial management side of the commercial real estate business, integrated software solutions are more the norm. Over 60% of the CRE firms surveyed say that software – rather than spreadsheets – is being used for accounting and property management, scenario and sensitivity analysis, investment and debt management, and performance analysis and benchmarking.
AI And Machine Learning Are Improving Key CRE Functions
A growing number of CRE firms are also using integrated software solutions to improve business intelligence with enhanced analytics. They’re also eliminating operational inefficiencies by automating processes and using artificial intelligence (AI) and machine learning.
Nearly 50% of the commercial real estate organizations surveyed say they are using AI and machine learning to improve performance in these six key business functions:
- Scenario and sensitivity analysis – 58%
- Benchmarking and performance analysis – 52%
- Valuation and cash flow analysis – 44%
- Budgeting and forecasting – 42%
- Investment and debt management – 42%
- Accounting and property management – 41%
Nine Technologies Impacting The Future of CRE
Most of the CRE executives surveyed say their firms are benefitting from the investment in technology. There are nine rapidly emerging technologies and tech-enabled innovations that have the potential for creating major disruption and significant cost savings in the commercial real estate industry:
- Smart building systems,
- Online lending marketplaces,
- Artificial intelligence and machine learning,
- Online investment marketplaces and crowdfunding,
- Business process automation such as leasing, budgeting, and reporting,
- Virtual and augmented reality,
- Online property exchange,
- Blockchain as a digital transaction platform for smart contracts, and title and lease management.
A growing number of CRE firms are dedicating specific resources, teams, and budgets to explore and understand how these emerging technologies will help their companies. Just over 60% are using online lending marketplaces, while nearly 50% are integrating AI and machine learning into their business processes.
PropTech Is Impacting Investment And Portfolio Decisions
Disintermediation occurs when the layers of middle-men between the producer and end-consumer are reduced or entirely removed. Examples of this are Uber for transportation, Airbnb for housing, Amazon for e-commerce, and WeWork for coworking.
Disintermediation is also one of the largest and fastest-growing tech-enabled trends in CRE. Transaction-based platforms such as online property exchanges, marketplace lending and crowdfunding are creating a profound impact on investment and portfolio decisions. Through streamlining and direct communication, the relationships between buyers and sellers, lenders and owners, and investors and funds are being altered on a fundamental level.
Over 60% of the CRE executives surveyed cite three major market and business trends changing how property is invested in and how portfolios are structured:
- Real estate sharing firms such as Airbnb,
- Coworking office space applications via WeWork, Spaces Coworking, and others,
- E-commerce such as Amazon and Alibaba.
Blockchain And Smart Cities As Future Disruptors
Blockchain is a permanent, unchangeable digital ledger used to record transactions of anything of value. Although blockchain wasn’t noted by CRE execs as a currently disruptive technology, experts outside of the industry recognize how this system can be used to change the management of many commercial real estate functions.
There are seven areas where blockchain could make a major impact in the CRE industry:
- Security of transactions vs. paper or scanned online storage,
- Payment processing,
- Property title management,
- Fundraising and financing,
- Pre-lease due diligence,
- Lease management,
- Smart contracts,
- Fractional or tokenized ownership of properties.
The concept of smart cities has evolved as municipalities struggle with growing populations, rising expectations, and demands from residents and business, and limited city resources. Smart technologies are integrated into city services and infrastructures to improve efficiencies and meet demands.
Although the idea of smart cities is fairly new, smart city initiatives are already significantly influencing how portfolio and investment decisions are being made:
- 80% of CRE executives say smart city initiatives are influencing portfolio and investment decisions,
- 75% say smart cities affect the amenitization and experiential focus of property development.
The Changing World Of Commercial Real Estate
Reporting is the key area where CRE firms can begin leveraging the benefits of integrated technology solutions. Firms that continue to try and manage the business with spreadsheets will find it very difficult to compete because opportunities to gain better intelligence from data analysis will be lost.
The CRE industry is being disrupted from both inside and out by new entrants to the market, new technologies, changing expectations from space users, and evolving demographics. Rather than being viewed as disintermediaries, CRE firms that seize the opportunity that today’s disruptive technologies present will be poised to leverage the benefits that these latest technologies are bringing to the table.