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Navigating Technological Disruption in Commercial Real Estate

Shashank Kumar • January 10, 2022
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Over the years, the real estate industry has seen significant disruption from regulatory and demographic perspectives. However, the technological disruptor in real estate is a recent phenomenon.

The commercial real estate (CRE) industry has a complex ecosystem with multiple stakeholders and has been relatively slow to adopt new technologies. However, it is evolving, and the commercial real estate industry has started to go through a digital transformation. Tenant experience is one of the key elements and drivers of these developments.

Digital transformation in commercial real estate comes as a challenge and an opportunity for CRE firms. For many organizations, the pandemic shattered the illusions that their digital capabilities were mature enough to keep up with the sudden increase in demand for digital services. There are plenty of opportunities in this sector, and companies must start upgrading operations and leveraging digital platforms if they want to stay competitive and viable in the long run.

Factors Impacting Commercial Real Estate

COVID-19 has rattled the commercial real estate industry, with landlords and other CRE investors possibly experiencing a continued impact on their revenue stream. Some of the factors that may contribute are the CRE investments in 2022 and beyond include:

  • Increased Demand: There has been a significant increase in demand for investment properties, which will continue to grow in the secondary and tertiary markets as investors gain higher yields. The low lending rates and the inflationary pressures have fuelled the growth in this sector.
  • Wider Adoption of Technology: Many technologies will go from “nice to have” to “must-have.” These may include tracking people in buildings, contactless doors and elevators, air and water quality monitoring, airflow and recirculation control, mandatory remote building services, and health screenings. This could potentially generate a wider adoption of technology and a need for a better understanding of market data.
  • Environmental, Social, and Governance (ESG) at a tipping point: COVID-19 has underscored the importance of ESG issues, especially considering that new “normal” is the result of trends already underway. The role of resilience and control of operating costs is more important now than ever as investors and operators navigate the blow of near-term rental revenue losses.
  • Increase in Investor Interest: Post the pandemic we notice a surge in capital from lenders and investors that may give more impetus to new development and transformation.
  • Everchanging Tenant and Resident Expectation: There is a need for a consistent customer experience across the home and work environments, and CRE must adapt to these expectations.

Repositioning commercial real estate using digital technologies

The digital transformation of commercial real estate has just begun, providing CRE firms immense opportunities to reposition themselves in the market by doubling down on technological skills and digital trends in real estate. We see the rise of digital twins, direct digital engagement, data and analytics, robotic process automation, and digital maturity to drive CRE in 2022 and beyond. Data-driven decision-making will continue to mature as demand and behavior patterns change rapidly. 

The impact of the Covid-19 pandemic on commercial real estate (CRE) is rapidly accelerating the use of technology. In Deloitte’s 2021 CRE Outlook report, 56% of surveyed CRE industry leaders said the pandemic of 2020 has significantly exposed their shortcoming on digital capabilities. On the other hand, only 40% of those respondents said they had a clear plan for digital transformation. CRE firms can improve their operations through digital transformation and new technologies while at the same time strengthening the trust of their tenants. Some of the key drivers for digital transformation in CRE and digital technologies to support that are:

  • Tenant Experience: Tenant experience is one of the key digital transformation priorities in the commercial real estate industry. With an increasing focus on digital experiences and services, the tenant is also looking for an improved and consistent experience.
    • Technologies are used as enablers to enhance this experience across different types of buildings. IoT- enabled smart capabilities and mobile apps are among the two most important ways to enhance tenant/end-user experience.
  • Safety and Cybersecurity: Cybersecurity is one of the key threats, frightening even the most seasoned CRE firm leaders. There is an increasing need for safety, physical and electrical security, and cybersecurity. From a technology investment perspective, we see that Physical security and cybersecurity are crucial, especially in the context of facilities and where ‘newer’ technologies are the game-changers.
  • Smart buildings: There has been an increasing focus on the digital, smart, and connected commercial building aspects and their sustainabilityThe most important value of smart buildings is that they address the pain points of all concerned parties: owners, managers, and tenants. IoT in commercial real estate helps to create a safer, more productive, and comfortable facility that will pay off on multiple levels. Smart building automation creates a better experience for everyone involved.
  • Data-Driven decisions: Leveraging sensor data from IoT devices can help better understand how tenants use their facilities. This can help implement pandemic-friendly changes that add value and provide better insights into tenant behavior.
  • Digital Communications. The pandemic pushed the need to communicate with the tenants through digital channels to better understand their needs and increase occupancy.We also see digital marketing as a key factor to attract tenants going forward. Significant investment in search engine optimization (SEO), responsive websites, paid media, and digital public relations are going to be the key to success in the post-pandemic CRE market. 

Going Ahead of the curve

 The CRE industry is behind the curve, and there’s still catching up to do. But we also need to keep in mind that your firm can only handle so much change at once. CRE should look for digital transformation in an incremental or phased manner because a big bang approach may lead to increased pressure on operations. These actions will usher in a greater emphasis on CRE’s developing and implementing a structured digital transformation roadmap for business and tenant experience for a long-term competitive edge. Leaders will be required to walk the tightrope between managing costs and investing in the future.

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