COMMERCIAL: EMBRACING THE INEVITABLE
January 30, 2018
President & CEO, NAIOP Arizona
The Internet. Big data. Virtual reality. Machine learning. Blockchain. Crowdfunding
In the past, these technology terms were not part of the vernacular in the commercial real estate (CRE) community. How times have changed. With the quickening pace of innovation and the growing sophistication of investors and occupants, the CRE industry is adopting a range of computing platforms, software and applications.
Technology is a great supplemental tool for the industry. Commercial real estate transactions can be incredibly complex due to the many variables, players and personalities involved. Technology helps speed up the process. The pros include fantastic mobile capabilities, engaging properties digitally, and simply the ability to serve more clients. However, it also sets client expectations of instantaneous response times, which can be a challenge for brokers.
The use of digital platforms and data is accelerating at such a rapid pace in CRE that practitioners who fail to fully embrace what is happening will be left behind. Many major brokerage firms and developers have already joined the race to invest in technology, which they believe will provide them with a competitive advantage.
Technology in building design is already in use. Architects have transitioned from two-dimensional documentation using software like AutoCAD to 3-D building information modeling (BIM). Virtual reality also enables prospective tenants to visually inspect the “finished space” before a building is actually constructed, allowing them to determine whether the build-out will suit their business and explore possible modifications. It layers computer-generated images atop an existing reality and allows clients to explore their space before and during construction. The ability to detect building system clashes allows for quicker, more informed decisions with fewer errors. The upside to this technology is it empowers commercial teams to make faster decisions, but the downside at the present time can be the cost associated with the technology.
Another technology that has made a significant impact on the industry is the “Internet of Things (IoT),” the interconnection via the Internet of computing devices embedded in everyday objects. A 2014 Goldman Sachs study predicts that there will be 28 billion connected devices on the Internet by 2020. In commercial buildings, these devices include sensors that monitor the environment and measure temperature, humidity, water pressure, power consumption and more. These sensors generate data continuously. Machine learning and artificial intelligence platforms can use this information to dramatically lower energy use and other operational costs. The CRE industry is beginning to adopt these technological advances to provide more sustainable buildings for tenants.
Logistics real estate leader Prologis utilizes three areas of technology throughout its portfolio that is an example of innovation: the Internet, cloud storage, and artificial intelligence. It also utilizes a fourth, blockchain, that will have a profound impact in the future.
We are still in the very early stages of seeing what will be possible with blockchain technology. However, there is a lot of promise. Large CRE transactions are very complex and involve numerous private sector entities (i.e, buyer, seller, financer(s), legal counsel, architects, engineers, brokers, title companies, etc.) Many transactions also require several levels of governmental approvals (i.e. zoning, environmental permits, etc.) Blockchain has the potential to make these complex financial and legal transactions both more secure and quicker. For example, if ownership of an asset is transferred on a blockchain platform from one party to another, the exchange is time stamped, sealed in a block and chronologically linked to previous transactions related to the asset. This process creates verified transactions with a clear timeline that cannot be pulled apart.
At the same time, thanks to the IoT, the same technologies that are launching a revolution across other industries will allow building owners and occupants to capture more data than ever on how goods flow through buildings. The scale of Prologis creates unique opportunities to collect huge amounts of data over long periods of time and incorporate it into advanced analytics analyses that will benefit customers.
While the IoT helps developers and occupants gather great amounts of information, how and where will they store all that data? Today, Amazon, Microsoft and Google are all delivering cloud-based data platforms that essentially let businesses to pay as they go. A CRE company can also save all of the data it collects in the cloud, then examine it for patterns and relationships that may help the company move faster and serve customers better.
Crowdfunding is a new financing option for companies or individuals looking to enter the commercial real estate market who may not have access to traditional funding mechanisms. However, currently most of NAIOP’s developer members are large, well-established companies that utilize institutional capital for their financing needs.
Although technology will have a dramatic impact on the industry, commercial real estate will continue to be a relationship-based business. Clients rely on trust to ensure that they are properly advised and guided by those with whom they have professional relationships. In the future, human interactions could involve more digitally-enabled functions, but the business will remain relationship-based. With more information available, developers, brokers and occupants will be better able to make smarter decisions together.
Suzanne Kinney is President of NAIOP Arizona, a prominent commercial real estate voice in the state. Kinney has been involved in Arizona public policy since the early 2000s, holding leadership positions at the Arizona Chamber of Commerce and Industry and the Arizona Mining Association as well as her own consulting firm. She wishes to credit NAIOP’s Development Magazine, Winter 2017-2018 “CRE Tech Adoption Speeds Up” by Ron Derven and Margarita Foster as a resource for this article.