Digital Transformation in Commercial Real Estate
Commercial real estate (CRE) is changing. It was already changing before COVID-19 took the world by surprise, but the pandemic accelerated the pace.
In particular, digital transformation in commercial real estate has become both a challenge and an opportunity for CRE firms. It is a challenge in that, for many CRE firms, the pandemic stripped away the illusion that their digital capabilities were sharp enough to keep up with the sudden increase in demand for digital services. It is an opportunity in that the essential nature of digital transformation in the CRE industry has become clear. Upgrading operations and leveraging digital platforms is essential if firms want to stay competitive and viable in the long run.
In Deloitte’s 2021 CRE Outlook report, 56% of surveyed CRE industry leaders said the pandemic of 2020 shed light on the shortcomings of their organizations’ digital capabilities. Meanwhile, only 40% of those respondents said they had a clear plan for digital transformation.
CRE firms can improve their operations through digitalization and the application of new technologies. This has the added impact of strengthening the trust their tenants place in them.
This article provides a roadmap to digital transformation for CRE firms and takes a look at the events that turned the walk toward digital transformation into a race.
New Developments of Technology in the CRE Industry
Take a moment to picture CRE firms in the weeks and months before COVID-19 broke out across the world. Workers commuted to the office every day. Property tours were in-person walk-throughs. Meetings happened face to face. Collaboration occurred in conference rooms.
Fast forward to a few weeks after cases started climbing. Every single one of those items was no longer true — commutes were canceled, and in-person property tours were suddenly no more. There was only one way to truly cope with commercial real estate disruption: technology.
In a matter of weeks, CRE firms turned to remote work, virtual property tours and meetings, online communication with tenants, and cloud-based productivity and collaboration tools. The digital transformation in the real estate industry went from being a sparkler to a stick of dynamite overnight.
Since then, CRE organizations have shown signs that they want to be proactive, not reactive, when it comes to new technologies. Even as the pandemic decelerates, staying nimble remains a top priority for many industry leaders.
Was CRE Behind the Curve?
As fast as the digital transformation in commercial real estate seemed to happen, it’s possible that the industry was behind the curve. In other words, leaders in other industries skewed the curve for CRE firms.
Almost without skipping a beat, grocery stores implemented online ordering, pickup, and delivery systems, complete with intuitive and highly functional apps. Schools adapted to rotating schedules and fully online curricula fast enough to finish out the academic year.
In contrast, the CRE industry, by and large, did not innovate so much as it retreated to existing technologies. In many cases, the square peg of CRE marketing and operations was forced into the round hole of Zoom, rudimentary cloud document collaboration, and shaky virtual tours via cellphone video cameras.
Our industry was behind the curve, and there’s still catching up to do. Even in 2021, with a year of change to look back on, 57% of North American CRE firms say they expect a decrease or no change in their investment in digital technology, according to Deloitte.
Reality Check: Customers Expect More
Digital transformation in commercial real estate has been slow. But there is much at stake. Customers draw hard conclusions about CRE organizations based on their online presence, often long before they ever speak to someone at the firm.
Consumers are conditioned to vet businesses online. Roughly 85% of customers do online research on companies before making purchases. Not having a well-developed online presence is not only problematic, it could spell ruin. While old-school CRE leaders may hold out for a return to business as usual, that is not going to happen.
The Digital Transformation
Despite a slow start, many firms have made significant progress toward digitization. Three strategic moves typified firms that excelled through this season of change:
Virtual Tours have become commonplace in real estate marketing
1. Virtual Services: With a little time and practice, virtual tours for commercial leasing purposes became standard operating procedure. Many firms instituted processes for uploading professionally made virtual tours to their websites. This move alone allowed customers to get the full picture of office suites for lease without even contacting the firm. The byproduct actually improved the sales process, saving time by delivering customers with higher intent to a firm’s (virtual) door.
2. Data-Driven Decisions: Some firms used sensor data from internet of things (IoT) devices to better understand how tenants were using their facilities. This data was used to implement pandemic-friendly changes that added value.
3. Digital Communication: Occupancy declined under lockdown orders. CRE firms that successfully used digital communication with tenants were able to offer support that hardened their occupancy numbers.
How CRE Firms Can Reposition Themselves in the Market with Digital Technology
The digital transformation of commercial real estate is far from over. In many ways, it’s only just beginning. CRE firms have an unprecedented opportunity to reposition themselves in the market by doubling down on technological skills and digital trends in real estate.
A wise place to start is the hiring process. Hiring for traditional skills does little to position CRE firms at the forefront of an increasingly digitized market. For example, while demand for finance and accounting skills categorized 34% of open CRE positions in 2019, demand for data analytics was only detectable in 4% of industry job listings. AI and machine learning tech skills are increasingly important for data analytics. It’s reasonable to expect a similarly increased importance of the role of CRE professionals who can implement these technologies.
An increased focus on automation and mobile app development in the CRE space will call for even more specific digital skill sets. Hiring early-career professionals who bring these skills with them can pay big dividends when the time comes to leverage these new technologies.
Meanwhile, digital marketing will be key to attracting tenants in 2021 and beyond. The days of physical signage aren’t done, but they are certainly diminishing. Significant investment in search engine optimization (SEO), responsive websites, paid media and digital public relations is going to be key to success in the post-pandemic CRE market.
A Stronger Digital Presence Brings with It More Cybersecurity Issues
Clearly, going all-in on digital is important for CRE organizations. But there is a drawback: firms now face cybersecurity threats. Here are some of the potential cybersecurity threats firms could face as a result of boosting their digital presence:
- Cloud-based communication can be vulnerable to ransomware attacks that expose tenant data.
- More digital entry points to CRE firm networks leave open opportunities for bad actors to get in and cause problems.
- Data capture efforts that are essential to predictive analytics can lead to inadvertent exposure of firm and tenant data, if done incorrectly.
How to Bolster Cybersecurity
Cybersecurity threats are frightening to even the most seasoned CRE firm leaders, but there is some good news here. Because digital transformation in commercial real estate has been slow when compared to other industries, CRE can benefit from the cybersecurity technologies that have already been developed and deployed elsewhere.
Here are some examples:
- Cloud-based communication platforms have begun to adopt government-level security to keep out hackers.
- Role-based identities in digital systems track access and use. This restricts access to inauthentic users.
- Blockchain technology has added an impenetrable layer of security surrounding tenant data.
- Next-generation firewalls have learned how to detect threats before they happen and lockdown systems to prevent them.
Many cybersecurity firms offer turnkey solutions that can help CRE leaders sleep much better at night. While cybersecurity threats should be a major concern during the digital transformation in commercial real estate, they shouldn’t be a deterrent. The risk is manageable, and the reward is the ability to rise to the top of the market and thrive.
Digitization: Every Step Counts
Remember to keep in mind that your firm can only handle so much change at once. Smaller CRE firms should take digital transformation one step at a time. Even larger firms need to be mindful of the increased pressure these changes can place on operations. Whether in small steps or giant leaps, movement must be made in this direction if your firm hopes to survive, and thrive, in a digital age.