Is the return on the billions spent on future-proofing assets by using the best materials, improving sustainability and deploying smart building devices being diminished by inefficient asset management?
We are not talking about inaccuracies made in reading the property cycle, or customers lost to rival assets, but about a lack of modernisation in asset and portfolio management applications, especially in software, investment reporting and data management.
For an industry that can deliver stunning developments through ambitious construction techniques and highly innovative financing models, it is out of step to see the real estate world’s low levels of investment in IT spending.
Research group IDC found that, measured by global IT spending as a percentage of revenue, commercial real estate, at 3%, badly lags manufacturing and resources (4.3%), infrastructure (5.2%), financial services (5.7%) and the public sector (6.2%).
Having discovered this, we asked IDC to survey more than 300 senior executives at fund managers and landlords across Europe, North America, Asia Pacific and Latin America with assets under management of at least US$1tn (£651bn) for their views on IT in real estate.
The survey showed that:
● 70% of the firms surveyed felt they either needed more data or additional metrics to benchmark their performance against the market;
● more than two-thirds of those surveyed believed they could increase their investment returns if they improved their asset and portfolio management decision-making processes; and
● 77% of the firms surveyed said they were prioritising investment in technology and process improvements to support decision making on their portfolios.
Part of the problem is that many real estate businesses still use old-fashioned spreadsheets to manage their portfolios, raising the risk of delays and errors.
Sharpened forecasting visibility – covering leasing income, capital expenditure and overall cash flow – is seen as the key benefit of improved technology, and it is not just a wish to improve performance that is driving that desire.
At the back of many investors’ minds is the need to satisfy increasing regulation, and if global real estate suffers another downturn, to explain and justify decisions made in better times.
The global recession focused many shareholders’ minds on the need for increased reporting, transparency and detail. There is no reason, too, why investors should not expect increased regulatory scrutiny.
More than anything else however, the property world needs to understand that it is at a crossroads, and that those who recognise the opportunity now will stand to benefit.
A strong performance since the depths of the slump in 2009 has woken global investors up to the potential of real estate as a major emerging global asset class.
In the UK, managing property by “gut feel” has its fans – and the UK is renowned for some of its entrepreneurs’ almost mystic ability to read the property cycle. But why not leverage that with a more sophisticated approach to the asset management basics to becoming more nimble and efficient ?
More than half the respondents to our survey, the Altus Group CRE Innovation Report, were concerned about the veracity of the data with which they were being supplied. That is, they were indicating that they were not fully confident in the accuracy of what they were being told about their portfolios.
Bear in mind also that if institutional investors deploy their expected targeted allocation to real estate in 2015, $500bn of new capital will be spent in the sector this year alone.
It is crucial that the real estate world doesn’t squander this position by operating through dated systems, by failing to integrate data now sitting in silos and by running the risk of errors when rival asset classes are operating in a far more sophisticated way.
Download the report at www.argussoftware.com/innovation_report
