Commercial Real Estate's Slow Tech Adoption Is Hurting Investment
Commercial real estate is falling behind on investing in tech and data analytics, and it's creating potential roadblocks to effective asset management, decision-making and deal flow.
So says a new report on real estate innovation from Altus Group, whose EVP, Raj Singh, is seen here. The Toronto-based advisory firm and data solutions provider surveyed 300-plus global CRE execs at organizations with at least $500M in assets under management (representing a total of $3 trillion).
The findings reveal that 89% of firms face major impediments to collecting and utilizing data to drive asset and investment management decision-making. Global investors have never been more keen on real estate, Raj tells us, but data and analytical tools “just aren’t up to the same level they’re used to” with other asset classes.
Real estate has traditionally been the investment domain of private corporations, firms that would develop a property, then own and operate it. This has meant most data is kept in silos.
But real estate has become an “accepted fourth asset class,” Raj says, alongside equities, bonds and commodities. Professional and institutional investors are allocating considerably more capital toward CRE these days, and those firms are accustomed to assessing a portfolio using the sort of advanced analytics that don't exist for CRE.
“It’s a lot harder to benchmark the performance of real estate assets against peers or their own targets,” Raj says.
Cushman & Wakefield global chief innovation officer Adam Stanley concurs with the Altus assessment.
“As one of our senior leaders often says," Adam recounts, "we are like a large brain that is using only 10% of its capacity.”
So much of the information to support enhanced decision-making is “in the heads” of thousands of professionals, he says. So finding ways to make it easy for those pros to find each other, share data and solve complex problems should be priority No. 1 for any CIO today.
If a startup can build an analytical model that enables more effective decision-making, Adam asks, “why should our legacy systems hinder our ability to do the same?”
A gap is forming between the CRE firms that embrace data and analytics and those slower to innovate, which will see their competitive position weaken. A decade back, CRE investors weren’t using data in a sophisticated way. "It wasn’t a differentiator or advantage,” Raj says.
Now, with investment managers vying to raise capital from institutional investors, and competing with rival firms for assets, increasingly globally, those that can demonstrate they value analytics and are making data-driven decisions (on what to buy, how to price bids) will probably outcompete in terms of fundraising, Raj tells us.
CRE may be lagging, but 68% of industry leaders surveyed told Altus they plan to up their investment in data/analytics over the next two years.
Good thing, says Raj, as innovations like crowdfunding and real estate exchanges are bringing even more capital into the market, pushing down cap rates, increasing prices, and making it harder for investment managers to find value.
One way to create value is by operating assets more efficiently, which means benchmarking investment performance and operational details (leasing velocity, energy spending) against the competition. “Data and analytics will be needed to give you an edge."