Roll back the clocks 20 years. Imagine sitting in an auditorium with 100 other industry professionals. On stage, a speaker asks how many use the internet to do business. Silence. Somewhere on the edges 10 or so of your competitors sheepishly raise their hands. How many expect to use it in the coming years? A few more hands creep up while the rest stay still.
You would hope that in this scenario you would be one of the few raising their hand, recognising the invention of the internet as the sea change it proved to be. But is that you now?
A report by Altus Group shows that property is in a period of technological transition, and there is a split between those companies preparing for the changes and those bound to be left behind.
In a survey of 400 property executives with a combined $2tn of assets under management, half of them said they expect most commercial real estate processes to be significantly or completely automated.
But that does not mean half of jobs are safe. It could mean there are swathes of the industry that are unaware of the oncoming paradigm shift. Just over one-third of respondents expect smart building technology to create major disruptive changes to the industry, and only 15% believe Blockchain technology will do so.
Robert Courteau, global chief executive of Altus, says: “If you’re not thinking about it and you’re not planning to deploy technology as part of how you’re going to run your business, then you will be left behind in realising the greatest performance for your investments, your portfolios and how you run your business.”
Rather than being a buzzword among millennials to innovate for the sake of innovation, the proptech boom is about cost cutting. The amount of venture capital targeting proptech annually has grown from $459m in 2013 to $2.7bn in 2016, and the majority of these companies target operational performance within a company – something real estate has historically failed to track.
Only 14% of respondents said they benchmark operational expenses against competitors or the wider industry, while 22% said they do so with leasing data.
Courteau says: “When you look at manufacturing and banking, they have metrics for every part of their business organised and their processes mapped. They’ve made improvements across the board. This is all just new coming to the real estate industry which, frankly, has been behind.”
But that means there are huge opportunities. Some 69% of industry professionals expect there to be “significant potential” to conduct more extensive benchmarking in operational expenses, aligning them more directly with their competitors and finding ways of cutting costs.
At the centre of all this potential is data, Courteau says. Collecting information about the market alongside your own performance means you can identify where your company can be more efficient or drive up better value. With 51% of those surveyed reporting that they have issues capturing, collecting and managing data, there is considerable room for improvement from both the industry and the tech innovators supporting it.
Breaking the cycle of scepticism
Courteau says initial scepticism is a normal part of the cycle of technological adoption: “You see these seminal technologies come along – the internet, data analytics, social media. Every one of those things had the same level of sceptics and the same adoption by fast followers.
“There’s always going to be an innovation cycle where certain companies that are more aggressive in deploying technology will go first and they will get the benefits.”
This is now happening with Blockchain, he says. As early movers experiment with how to put the digital ledger structure to use in real estate, others are bound to follow: “We’ll see it arrive in the mainstream in the next couple of years and certainly within five years there will be a material impact in the way business is done in real estate.”
As the industry stands on the cusp of major changes, companies need to ask themselves whether they are prepared. Do they have the will to invest time and money into making advances themselves and get ahead of the market, or will they fall behind? More importantly, even if there is willingness, do they have the capacity to do it?
Unfortunately, half of property firms said they lack the technology skills they need, while 66% said there is a gap in business professionals’ understanding of tech and IT. As with the threat of automation, the real picture could be dimmer.
Courteau says: “There are three categories of companies: those moving and finding ways to innovate; those that understand there could be an opportunity here and they’ve got to figure out how to get organised; and the third category is not even aware of the opportunities.”
But progress is being made: 58% of those surveyed said they use more commercial real estate-specific applications than they did three years ago and the same amount said that investing in and using technology has helped them make money.
Becoming the industry
Courteau’s six steps to staying ahead of the competition:
- Invest the time to understand emerging technologies and how they might affect you – including smart building technology, artificial and machine intelligence, big data and predictive analytics, augmented and virtual reality, Blockchain, and driverless vehicles
- Have a data strategy to improve the way you make decisions about your investments
- Measure your performance and benchmark it against competitors – this includes metrics like leasing and operational expenses
- Bring people into your business who are innovators and have technical skills – whether or not they are from the industry – and shake up the executive teams
- Partner with early-stage start-ups to get a clearer understanding of how you can integrate and deploy technological advances
- If you’re a larger company go as far as to invest in a proptech start-up
To send feedback, e-mail karl.tomusk@egi.co.uk or tweet @ktomusk or @estatesgazette
