In the era of innovation and disruption, has the commercial real estate industry become a laggard?
Multiple stakeholders with varying degrees of influence and protectionism inhabit the commercial real estate industry. These stakeholders - such as real estate investment trusts, multiple-listing services, brokerages, lenders, buyers, sellers, and many service providers - have prevented the industry from strategic and impactful transformation. While this stakeholder community mostly has been resistant to change, big industry firms also tend to be risk-averse.
While consumers have benefited from significant innovations and even disruption in industries such as retail and hospitality, the property-buying process has remained relatively unchanged and cumbersome. The exception is technology that allows customers to view property details online.
To facilitate innovation, industry leaders must embrace a fundamental shift in the way they think. Stakeholders will have to adapt to shifting economic, demographic, and technological changes, as well as redefine a gamut of business processes. If they don't adapt, they could become irrelevant.
Every industry rides on some fundamental pillars. Identifying a few of these pillars for commercial real estate automatically uncovers areas that provide the greatest scope for innovation.
Data plays a pivotal role. Whether a person buys, sells, manages, maintains, or renovates an asset, most decisions are data-centric. Key structural and transactional data on listings sites such as multiple listing services, Zillow, and CoStar are only a fraction of the records.
Data supports complex transactions, available from multiple sources, such as tax records, insurance information, mortgage loans, credit reports, economic activity, demographic records, and lifestyle databases. The creation, collection, analysis, and distribution of this data remain mired in resource-intensive processes, which can further compromise its accuracy and accessibility.
Opportunity 1: The area of data processing and information dissemination is crucial to decision-making. Innovation here will have a large impact on key areas of the value chain.
The industry relies heavily on interparty transactions between intermediaries, such as title companies, public agencies, escrow agents, trustees, banks, and attorneys. These transactions slow the process of closing a deal while increasing cost. Transactions have numerous interfaces, and participants must navigate through fees, agencies, and documents.
Opportunity 2: In the final analysis, real estate is about closing deals. The smoother the process, the easier the closing. Innovation that optimizes, automates, reduces, or eliminates these transactional steps will resonate across the industry.
Real estate assets are plentiful, and real estate brokers abound. Which assets get sold quickly and which broker gets the business often depends on customer experience.
Today, the experience for all parties is exasperating. Changing transactional efficiency to improve the user experience must encompass ease of access to the asset; availability of information; ability to conduct business anytime and anywhere; complete transparency; and interpersonal trust.
Opportunity 3: Any innovation that enhances the customer experience will affect the entire industry positively.
To drive innovation, use an experimental and design-thinking approach that identifies quick wins and solutions to persistent problems and limits the resources invested in launching the product. Take a long-term approach to digital transformation.
In these increasingly complex times when business moves at breakneck speed, commercial real estate practitioners can build expertise by collaborating with external partners. Gain access to talent and technologies through outsourcing to, partnering with, or funding niche ventures.
A small innovation or process improvement might contain the germ of an idea for a larger innovation. Over time, successful initiatives can be scaled up by aligning internal information technology and business organizations.
No innovation is likely to see substantial implementation without effective change management. As a result, to sustain innovation and adoption, it is important to inject a strong change-management culture and process.
Underestimating the importance of a clear plan to introduce new technology processes most certainly will hinder user adoption. Internal marketing, communications, training, and user feedback must occur in tandem with leadership support.
Commercial real estate companies should recognize that their business models will need to evolve, stakeholder equilibrium will be challenged, and business processes will need to be reimagined. Organizations exist to serve their customers; intermediaries are a means to an end.
By considering innovative ways to assess and manage systematic change, firms will weather the fourth industrial revolution. Although we have seen incremental innovations, real disruption in the industry is just beginning.