PARADIGM SHIFT: Technology’s Impact on CRE

GlobeSt.com, in conjunction with Partner Engineering and Science, Inc., just released a white paper, titled PARADIGM SHIFT: Technology’s Impact on CRE.

EXCERPT

With this survey, Partner Engineering and Science, Inc. and GlobeSt.com probe deeper into the impact of technological developments by exploring the thoughts and expectations of industry leaders about the new risks and opportunities that technology presents in the commercial real estate space. Brokers and owners each represented more than a quarter of respondents, with developers and investors also making up a significant proportion of survey participants. We asked these industry players for their insights on how technology will impact three broad categories: how it changes demand across the commercial real estate space; how it may add value to commercial assets; and how it influences the transaction process.

Looking at demand, a third of the survey respondents recognize the link between technology and building obsolescence. The impact that trends like online shopping and telecommuting have had on demands for retail and office space is well documented, and this was clearly reflected in the survey results. More than 50% of respondents reported these product types as most exposed to becoming functionally or economically obsolete as a result of technological developments. However, the evolving demand and requirements for healthcare facilities as a result of digital medicine developments was also identified by 20% of respondents. A quarter of those polled believe that obsolete buildings can be put to different, possibly higher, uses through targeted upgrades or adaptive reuse projects.

Despite the identification of building obsolescence as a risk, survey participants overwhelmingly believe that technology will be a value creator. Predictably, three quarters of the survey respondents say mobile technologies, “big data” and the increased interconnectedness that this trend facilitates will result in a positive transformation throughout the industry. Mobile and cloud-based tools are having a profound impact on the way transactions take place by improving the collection, management and review of data, and by enhancing the ability to collaborate and share this information with all stakeholders. About two fifths of respondents expect the use of collaboration tools and file sharing to become important in the way sales, leases and acquisitions are completed.

The ability to extract and analyze an increased amount of more detailed data about markets and the operation of individual assets is yielding more efficient decisions and investment processes. Importantly, it also allows for better managed and operated assets through improved facility management and capital planning. Millennials demand more efficiently operated, lower-impact assets. They also expect assets to support their ever-increasing demand for connectivity and data performance everywhere. In this way, technology is creating more marketable and valuable assets. As previously suspected, close to half of the survey’s respondents cited wireless technology as one of the most critical value-add opportunities in commercial real estate.

When it comes to adding value to assets, energy optimization is seen as the greatest benefit that technology will deliver to the industry. Respondents recognize that better operated buildings will yield higher returns, and that investing in technologies to improve energy efficiency has the potential to significantly increase the marketability and value of commercial real estate assets. More than half of respondents believe that such energy improvements will come from retrofitting HVAC systems and adding more efficient LED lights and control technologies. Survey respondents also see building automation as a key driver of ROI. Participants expect a fairly rapid, 3 to 4-year payback on investments in energy optimization improvements. As a result, the vast majority of respondents cited energy efficiency and renewable energy when asked about the most promising technology investment.

The survey brought to light an interesting point: As buildings and societies become increasingly networked, the risk and impact of security vulnerabilities intensifies, and will therefore demand greater attention to data protection and security. The survey clearly indicated that technology is expected to add enormous value to the CRE industry and that the benefits far outweigh any negative implications. But, as technologies continue to evolve at a rapid pace, it is critical that the CRE industry stays ahead of market demands, applications and security risks relating to new technologies to ensure their investments deliver rather than disrupt returns!

In terms of the asset classes “most exposed to becoming functionally or economically obsolete,” retail properties and office buildings were tied for first and second. The report quotes EDR Insight principal analyst, Dianne Crocker’s reaction to this results:

“No surprise here. Retailers are still reeling from the competitive pressures of e-commerce, but technology is also revolutionizing how brick and mortar stores are used. The smart retail centers that leverage technology to enhance the entire shopping experience will find success in the right metros.”

FOR MORE INFORMATION:

The GlobeSt.com/Partner Engineering white paper presents timely survey data on the technological developments that are changing the value proposition of product types across the commercial real estate industry. It also answers questions like:

  • What are the next big game-changers that are coming down the pike?
  • How are they expected to change the CRE landscape?
  • What are the strongest drivers for adaptive reuse opportunities?
  • How will technology add value to the industry, particularly through improved operation and marketability of assets?
  • How will technology change the way CRE transactions take place? How business decisions are made?
  • Which technological developments are expected to yield the greatest ROI?

Read the full white paper, PARADIGM SHIFT: Technology’s Impact on CRE, here.