Digitalization is here to stay | Deloitte UK has been saved
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The real estate industry is currently adapting to evolving market conditions, a changing regulatory environment, and a fast-growing technological landscape. This development is described in detail in our recent 2019 European Operations and Technology Survey for Real Estate Investment Managers. A survey that was completed by a range of European real estate investment and asset managers, from the largest to the smallest, but that was surprisingly consistent. What can be learned from their replies? How to achieve an effective digital transformation in the real estate industry?
The overwhelming message across Europe is that there is a drive to embrace and exploit digital innovation. More specifically key messages were that:
This viewpoint is further supported by a recent 'Technology and the Future of Real Estate Investment Management' White Paper1 that stated that ‘as with other industries, digitalization is expected to lead to industry concentration’, and that ‘only 25% of real estate investment organizations currently boast an established data strategy’.
A digital transformation can be characterized by six main elements: elevated and frictionless human experience, real-time relationships, empowered employees, data-based decisions, on-demand delivery, and technology-enabled actions and processes. It is no surprise that the first three elements involve people. It is a common misconception that a digital transformation is all about technology. The success of popular applications is based on the level of adoption by people around the world, and the agility of the applications in maintaining relevance.
COVID-19 has proved the adaptability of businesses to react to the need for rapid change. Remote working, different retail models, the digitalization of contracts, and enhanced remote global collaboration are all examples of how companies have adapted - in some cases almost overnight. Due to this agility they have managed to offset some of the business disruption that might have been predicted from the pandemic, but obviously not in all cases or industries.
Digitalization must be value-enhancing and aligned to solving real business problems. Historically some technology has been implemented because businesses fall in love with the promised functionality and end up disappointed with the reality.
To achieve success, in all cases, strong leadership and sponsorship is a basis requirement. The implementation of new ways of working, which may not necessarily display a tangible benefit at an individual level, is tough to drive through an organization. In addition, a digital transformation may require completely different skills, such as those of data scientists, and may make some roles redundant. This is likely to change the dynamics of the workplace.
The internal impact of digital transformation is huge:
Both structured and, increasingly, unstructured data is used to drive more complex insights. While data quality and availability is often cited as the barrier to change, even with poor data, new analytical and stochastic techniques can enhance insight.
Digital transformation requires leadership alignment as well as a digital mindset - one that is comfortable with experimentation and reimagining ways of working. However, ”being digital” is not as radical as it may seem. Yes, there are elements such as blockchain and machine learning that are difficult to understand conceptually. Yet in our everyday lives we already experience what being digital is like – with our mobile phones, digital watches, and ”intelligent” household appliances. So transferring these concepts into a real estate business is not such a major leap as many might consider.
The next generation organization is likely to be one that can recognize value and move nimbly via its connected platform’s capabilities. Such companies “make room for the machines” – they introduce robotic process automation, machine learning, and AI. Also, they create a connected “crystal ball” by means of IoT and predictive/prescriptive analytics, and big data helps them to see more clearly in the data depths. They “conquer data mountains” (data stewardship in the digital age), and extend beyond a strong core rapidly (by means of Platform as a Service Innovation). Finally, they create the connective tissue through cloud integration. All of these capabilities hinge on connectivity and seamless data integration, from both within the company, and increasingly from external sources such as macroeconomic and sociodemographic data.
There is nothing new about having data flows through a real estate organization. In its simplest form, data ingestion is a series of spreadsheets merged into one spreadsheet with multiple tabs. Data marts might be described as a look-up table from a spreadsheet. Presentation layers can be a PowerPoint with data cut from a spreadsheet. An analytics engine might be a spreadsheet Macro and advanced visualizations might be putting the data into Tableau or PowerBi. On this basis it is not surprising that Excel has maintained such a stronghold in this space and is likely to continue to do so in real estate.
What has changed, is that the tools available to real estate at each of the stages described above have increased beyond all recognition in sophistication and functionality. In addition, both the price point of such tools, particularly if they are on the cloud, and the ability to rapidly deploy them, using enhanced technology implementation approaches, offers new opportunities to exploit digital solutions.
As digital technology moves on, and blockchain is the obvious gamechanger, implementing long, complex programs should become a thing of the past. Applying machine learning and robotic process automation to support data ingestion, alongside complex data transfer engines, will radically improve the collation of both structured and unstructured data. The technology for data repositories is radically changing and it is now possible for analytics engines to use layers of AI. Visualization tools and the use of Digital Twins supporting advanced simulations will likely allow the digital testing of options, without expensive and potentially sub-optimal physical developments.
The real estate industry is beginning to understand that the market cycles for change are far shorter than before. Planning for digital change will occur on a 2 to 5-year time horizon rather than a more traditional 10 to 20-year basis. Roles are likely to change, and aspects of what organizations do today may either be automated or become commoditized.
The steps below should allow digital change to be embraced in a controlled way. This should help maintain the important aspects of a real estate organization such as culture and purpose, whilst exploiting the opportunities of a digital transformation.
Digitalization is here to stay, and real estate investment, fund-, asset- and property managers can either embrace it or risk becoming marginalized within the market. It is a complex topic, but it largely relies on the willingness and ability of people to change rather than pure technology.
Organizations that are willing to experiment and be prepared to try, test and fail - and then try something slightly different again - are far more likely to take advantage of the new offerings than those who are cautious, risk averse and traditional in their outlook. The opportunity offered by digital solutions has the scope to radically change the way real estate professionals work. Therefore, we are entering one of the most exciting times in our industry.
Based within the Occupiers & Capital Projects group within Real Assets Advisory, Andrew is the lead partner for real estate technology. He has 25 years’ deep expertise advising ‘blue chip’ clients across Europe, the US and Middle East. Andrew’s career is founded on leading transformational programmes involving Real Estate technology, organisational change and business process improvement from initial concept through to successful implementation. He is highly experienced in assisting management teams with the alignment of business strategy to operational execution and has served as a trusted business advisor regarding delivering complex and leading-edge real estate technology solutions internationally. Andrew has a market leading reputation for his thought leadership around strategic technology solutions and operational improvements to owners, operators, occupiers and investors in real estate.