Commercial Real Estate's Relationship With Technology
While the Covid-19 pandemic was challenging in many ways, it marked an incredibly progressive time for technology adoption within the commercial real estate industry.
Commercial real estate has a reputation for its delayed response to adopting technological advancements. According to Deloitte's 2024 Commercial Real Estate Outlook: Finding Terra Firma, "Most respondents (61%) admit their firms' core technology infrastructures still rely on legacy systems, but nearly half are making efforts to modernize" (pg. 2).
The pandemic presented this golden age of property technology development and implementation, most recently called the PropTech boom. According to a report by Grand View Research, "The global PropTech market size was valued at USD $25,145.1 million in 2021 and is expected to expand at a compound annual growth rate (CAGR) of 15.8% from 2022 to 2030. The growth is anticipated to be driven by the increasing adoption of ... the Internet of Things (IoT), machine learning (ML), artificial intelligence (AI), and virtual reality (VR)."
Given current industry challenges such as managing remote and hybrid work environments, marketing space availability in a competitive tenant-centric market and disjointed operations management, I believe commercial real estate's relationship with technology will continue to flourish and will ultimately become the industry's most valuable asset by being able to solve these challenges.
Commercial Real Estate's Current Threats
It's no secret that remote work has become a considerable challenge for commercial real estate owners and operators. A recent article from Forbes notes research from Ariel Property Advisors that shows how remote work leads to significant drops in lease revenues and renewal rates, occupancy and market rents in the commercial office sector. The research stated a 43% decline in investment sales in New York City, primarily due to remote work.
Tenant retention is the number one priority for landlords, and they demand strategies from property management teams that encourage existing tenants to renew their leases. A common issue arises from a potential disconnect between property managers' understanding of tenant preferences and the services they actually provide.
Furthermore, access to your portfolio's space optimization and utilization insights emerges as a critical function. The ongoing transformation in work styles requires owners and operators to understand the locations where their tenants work, enabling effective cost control and budgeting. Landlords must consistently adjust and enhance their spaces to meet evolving tenant expectations. This adaptability is pivotal in ensuring tenant satisfaction and facilitating lease renewals.
Marketing space availability has also become a challenge, with an increased supply of vacant office space, each requiring a distinctive approach and getting in front of the right qualified tenant. Standing out amid the competition poses a significant hurdle for landlords, emphasizing the importance of effective digital marketing strategies to ensure potential tenants interact with a landlord’s available spaces, and that they choose a specific space over the alternatives on the market.
To navigate the complexities of marketing space availability to the right tenant, landlords need to vet and choose the most capable digital marketing platform.
Bridging The Gap
Technology is bridging the gap between people and properties by offering much-needed solutions, including connecting companies to their remote workers, streamlining property marketing and property management operations and collecting data to help us better understand the market and be prepared for economic downturns.
According to my company's recent Global Workplace Report, 34% of employees surveyed say a poor on-site technical experience is a significant pain point in their office space. If we want to change market dynamics, we need to focus less on the buildings themselves and more on the people working in them.
It's less about forcing your employees back to the office and more about meeting them where they decide to work and providing the right kind of convenience-forward experience when they’re in the office. Tenant experience technology has taken center stage for enhancing employee experience. Specific solutions can simultaneously provide insights for landlords so they can better inform their tenant experience strategies moving forward.
Results of a recent EY survey claim that 87% of respondents in real estate said that collecting data is a top business priority in formulating strategy and operations. The survey also expressed that real estate companies that were early adopters of the technology could better capture near-real-time data at scale, which has to be proven critical in navigating the complexities of the current landscape.
Readily available data is crucial in today’s dynamic landscape of ever-evolving market conditions. Utilizing the most recent data offers a real-time understanding of the market and grants a competitive edge, instilling confidence in strategic planning and operational decisions.
Technology has also emerged as a critical ally in relation to property operations. For property marketing, several solutions are available to support marketing strategies, from content creation—including automating property listings and developing branded marketing collateral—to data analysis for calculating the ROI of marketing efforts, all of which allow your team to home in on what’s working and what isn’t.
Through the arc of history, technology has aided industries and their people through challenges by way of innovation. As the commercial real estate sector navigates headwinds presented by these market complexities, we as an industry must continue to embrace technological advancements as a way to learn, innovate and perform more optimally.