James Pennington
Commercial real estate and the high-tech industry are rarely considered to be close companions. They are influenced by very different forces and evolve at radically different paces. However, the time is now for real estate investors and professionals to take a serious look at new technologies that are significantly improving and, in some instances, disrupting traditional real estate processes.
Real estate investment has historically thrived on arbitrage resulting from scarce information, lack of standardization and the lack of technology to improve either. Meanwhile, over its first decades of growth, the dot-com industry has largely overlooked the enormous but highly fragmented real estate industry as a target for technological innovation. Both of these are rapidly changing.
Today, fueled primarily by interest from within the tech industry, real estate technology products are appearing and advancing at an unprecedented pace. There are many specific trends and innovations driving this change, but major forces to watch include:
An entirely new investment group is flooding the real estate market. These new entrants include venture capital firms that don’t necessarily want to own sticks and bricks, but rather the systems and software that surround those sticks and bricks. These new entrants also include entrepreneurs and computer scientists excited by the substantial untapped opportunities in real estate technology. They are busy retooling software, the Internet of Things and physical automation tools from other industries to impact real estate at an unprecedented scale.
Big data is now a major factor in real estate. Public information about real estate assets has become more transparent over the last decade as a result of government managed information systems that are catching up with the rest of the Internet-based world. Now, this information efficiency is being boosted to unprecedented levels by tech companies that combine this data from multiple public sources, add additional proprietary data sourced in increasingly clever ways, and present all of this data in ways that are cheaper (often free) and increasingly useful to the commercial real estate community. For the remaining pool of data that remains private, additional products are providing unprecedented data capture and analysis tools, and the position of “data scientist” is arising in larger real estate firms.
Individual technological innovations are merging with other process innovations and social changes. Many improvements can be made simply by adapting traditional processes to web platforms for automation and more efficient collaboration, but many improvements are much more radical. For example, the sharing economy is providing radical new means to raise equity for projects (crowdfunding), collect private lease data (crowdsourcing) and utilize idle resources (for example, office sharing). Software is often facilitating these advances at the core, but it is the more complex combinations of these various technologies and trends that is creating entirely new business models in real estate, such as the multi-billion dollar WeWork.
Real estate has a substantial amount of latent technological innovation ready to be employed. This is a less obvious trend, but several technologies that were developed long ago are ready to advance as soon as the other necessary compatible technologies catch up. For example, Building Information Modeling (BIM) has long promised the ability to track building data from design through operations. Now, well after most architecture and engineering firms have adopted it, BIM is maturing at a much more rapid pace with improvements in the ability to share and visualize large, complex data model with the larger investment team. Similarly, real estate can benefit from technologies already advanced in other industries such as robotics (and the mass customization potential of 3D printing) now that the more complex building data necessary to drive them is becoming available.
Over the last decade, notable innovations have focused on the efficiency of transactions and property management. Due to the confluence of the trends above, however, commercial real estate is poised to go through the more radical physical and process changes more akin to the changes that occurred after the inventions of zoning, elevators, central air conditioning, REITs and conduit loans over the last century. Investors will be wise to adopt many of these new technologies to enhance financial returns, particularly while low yields demand greater precision across the full operational life cycle of a real estate investment.
It remains to see which of these technologies will be the most disruptive. As with most innovations, there will be winners and losers; some will completely replace existing processes, while others will emerge from existing ones. Already seminars and conferences are springing up around the globe, presenting and comparing new technological offerings for the commercial real estate industry.
Later this fall, ULI Boston/New England and the MIT Alumni Association of the Center for Real Estate hold one of these conferences as part of the ongoing “Real Disruption” breakfast lecture series created in 2014. Drawing from MIT alumni and the global investment community, these events focus on assessing the trends above and presenting actual companies that are making waves in the industry in a dynamic and interactive panel forum.
James Pennington is president of Boston Apartment Advisors.
