Despite all of the PropTech buzz over the last decade, the stark reality is that digital transformation remains an elusive goal for most commercial real estate firms as well as the technology community that serves them.
If we apply this definition from SalesForce to commercial real estate, “digital transformation is the process of using digital technologies to create new — or modify existing — business processes, culture, and customer experiences to meet changing business and market requirements”, I think the industry at-large would have to admit that we are a long way off from that utopian vision.
In fact, a recent collaborative survey and research from EY & CRETech, How Commercial Real Estate Firms Use Technology to Secure a Future, reports that while 61% of firms surveyed have adopted a technology solution, only 28% have adopted multiple products. – That is a stunningly low number when thousands of available solutions funded by billions in investment are at the ready to help with the digital transformation of this giant industry.
Further evidence of this is how few PropTech companies are achieving significant scale. In my *position speaking with and researching companies for M&A or partnership, it’s clear that PropTech is a pear-shaped market of providers. – Measured in revenue, or square footage deployed on a platform, there are a small number of very large organizations (typically legacy companies) at the top. An only slightly larger section of mid-sized providers and the bulk of the market of smaller companies still working on product-market fit or achieving consistent quarter over quarter growth.
It’s important to start with the “why”. One of the many reasons is the obvious one that change is hard. This is an industry that has been operating much the same way for literally, centuries. But other legacy, traditional industries have found their way to fully embracing technology to reinvent themselves. So, why is it so hard for CRE?
A contributing factor is that commercial real estate is not a monolithic industry. It is comprised of segments within segments. And each of them has its own idiosyncratic operating practices. It can be a challenge for any single technology approach within a portfolio.
Different operating structures and stakeholders further complicate things. Even large owner-operators struggle to operate like traditional centralized organizations because operating practices may vary by local market dynamics, asset classes in the portfolio, different investment criteria, and lease structures, as well as the unique tenant and occupant considerations for any single property.
There is also the unique dynamics of the personas and needs within the organizations involved in any entity – many different types of investors, leasing brokers, owner-operators, third party managers, maintenance teams, tenants, vendors, etc.
While the larger third-party firms generally have more sophisticated technology platforms, the reality is that they also often operate autonomously on a region-by-region basis. They are also handicapped from standardizing based on their agent status working on behalf of owners who may have their own preferences for a particular category of solution. Or have a preference for no technology spend at all!
Next, is that for all of the changes in real estate over the past decade and buzz around the promise of PropTech, the industry has not yet gone through enough cycles yet of buying and implementing technology to do so efficiently and effectively. It is a work in progress.
Add to this that until very recently, technology providers were very focused on their own solutions and not thinking enough about the challenges their customers and the market faced in widespread adoption and it’s no wonder that embracing PropTech is challenging for many firms.
However, there are some positive signs that things are improving and trends indicating we may either have turned a corner or is something we can build upon.
One example of this is in the number of executive technology or innovation hires made at the larger CRE firms. Technology strategy needs ownership and experience, and this is a positive trend that the mid-market will hopefully follow soon.
Another is that one of the few positive areas of impact (the only one?) that Covid-19 has had on the industry is the creation of available time to think about how to utilize technology to modify existing business practices. – A component of the digital transformation definition.
We have seen our customers and others take time to consider how they have done things in the past and look to technology for opportunities to streamline or create efficiencies in areas of their business. This a big shift from the common practice of looking at technology to simply replicate existing practices instead of improving them. Frustration always sets in that life was not made appreciably better for end-users if that was the approach taken. This alone is a huge step forward toward mass adoption.
This is also a positive step in modifying culture. For all of the progress made, there is still some reluctance to turn things over to technology and change longstanding practices. This wall is slowly coming down.
The burden doesn’t just fall to the industry, however. As tech solution providers, we have a large role to play in driving adoption.
The market has been very clear about the need for interoperability among products and platforms. – They don’t want to replicate data and move in out of different complementary products. It’s been challenging to deliver on that for many reasons, but until that becomes the standard operating practice for the tech providers, and they figure out how to make it work among them, it will be difficult to achieve scale.
Finally, it’s incumbent upon all providers to understand their customer’s business and job functions inside and out. It’s common for new companies to focus on product and technology first, but this is an industry that demands a deep understanding of their business.
If possible, it’s incredibly helpful to add people in key roles to your team in product management, customer success, and sales in particular who understand how value is created and maintained in commercial real estate and how your product helps support that.