With this year’s annual report on CRE Technology and Innovation, Altus set out to gauge the level of impact that modern technologies are achieving in the commercial real estate industry.
No Great Concerns About Disruption
Disruptive technology by its very nature is often difficult to recognize in its initial stages. According to Clayton Christensen, the author of “The Innovator’s Dilemma,” in which he coined the term, a market disruptor establishes its first foothold with either low-end or new-market customers who are completely unserved by incumbents. Considering that this survey was sent to executives at just the type of firms that Christensen would call incumbents, any disruption that may be already brewing in the CRE industry is likely invisible to them at this moment.
The findings bear this out. The survey explored attitudes among CRE executives about six specific new areas of technological development:
- Driverless Vehicles
- Augmented and Virtual Reality
- Blockchain Technology
- Smart Building Technology
- Artificial or Machine Intelligence
- Big Data and Predictive Analytics
By and large, there was little concern that these technologies are likely to upend the CRE industry as we know it. While it has been reported that these technologies have enormous potential to “change both the use and supply-and-demand dynamics for CRE,” as stated in Deloitte’s 2017 Report on Innovations in Commercial Real Estate, 80-90% of respondents doubted that would be the case with AR, blockchain and driverless cars. Even Smart Building Technology was only seen as being potentially impactful by 35% of those surveyed.
More Investment in Proptech
While a majority of CRE insiders may not yet fully recognize the potential that modern technologies have to change their industry, venture capitalists are placing ever larger bets on what is now referred to as “proptech.” The amount of investment into CRE-related startups and technologies has risen in correlation with the amount of institutional investment allocated to commercial real estate.
Executives surveyed do generally recognize that investing in technology is valuable from a strategic standpoint. Large majorities of both larger and mid-sized firms report positive payoffs from investments made in information technology. Benefits cited include: greater operational efficiency, higher quality insights, improved deal transaction time, greater visibility into portfolio, and even improved ability to raise capital. 58% of respondents identified tech adoption as being more about making money than saving money.
Low-Hanging Fruit: Automation and Operations
The report explores the main benefits of and challenges to adoption of new technology. The two areas of CRE business operations that present the greatest potential for positive improvement are process automation and performance management.
In the near future, technology is most likely to drive change in four main aspects of commercial real estate:
- Automation of processes and workflows
- Performance management
- Data integration
- Training and hiring for technological skills
Many workflows are likely to see greater automation. Debt underwriting is reportedly the most likely candidate, with 61% of those surveyed responding that it can be either highly or fully automated. Other activities also cited by more than half of the respondents include capital markets brokerage, property management, asset management, budgeting and forecasting, and valuation and appraisals.
The survey asked executives in which areas are their firms currently employing benchmarking to evaluate their performance. The greatest gap between current practice and recognized need for improvement was in the area of operational expenses, followed closely by leasing. Considering that more than $650 billion is spent on operating expenses in the US annually, that leaves a great deal of potential returns unrealized - something that Waypoint has been talking about as well.
Areas for Concern: Integration and Technical Hiring
The report identified one negative side effect of the explosion of new proptech offerings is that not all systems are currently able to integrate with each other. This might actually hinder the flow of information and negatively impact decision-making. Executives expressed caution in the areas of integration and data standardization.
The first changes likely to be seen in the industry as a result of new technology is in the type of skills required to make adoption worthwhile. With 58% of those surveyed acknowledging that they are using many more CRE-specific applications than they were 3 years ago, it is not surprising that more than two thirds reported a gap in knowledge between both IT and business professionals. Addressing this need is likely to also help another aspect where change is needed: improved data integration between systems.
Other Key Findings
- Most major activities in CRE are ripe for automation, according to more than half of those surveyed.
- Operational expenses are the least likely area to be benchmarked, but 69% of those surveyed saw this as an area for significant benefits
- 58% of those surveyed agreed that their use of CRE-specific applications has risen over the past 3 years, but system integration is still lagging
- Lack of skilled technology staff is seen as a challenge by 50% of those surveyed.
You can download the report by Altus here at their website: 2017 CRE Innovation Report