Real Estate

Perspectives

How can commercial real estate companies reimagine the tenant experience?

Key insights from our 2020 Outlook

In October this year, I was fortunate to attend Expo Real, Europe’s largest B2B real estate trade fair. Hosted at the Messe München exhibition center, the conference was spread over 777,690 square feet, had 2,000+ exhibitors from 45 countries, and 46,000+ participants from 76 countries. Indeed, Expo Real was larger than life and covered the entire real estate ecosystem.

December 6, 2019

A blog post by Surabhi Kejriwal, a research leader at the Deloitte Center for Financial Services

In October this year, I was fortunate to attend Expo Real, Europe’s largest B2B real estate trade fair. Hosted at the Messe München exhibition center, the conference was spread over 777,690 square feet, had 2,000+ exhibitors from 45 countries, and 46,000+ participants from 76 countries.1 Indeed, Expo Real was larger than life and covered the entire real estate ecosystem. A couple of interesting themes that caught my attention were:

  • European countries’ emphasis on smart cities: It was fascinating to see that there were more than 30 European cities with booths displaying various projects related to smart cities—both greenfield and brownfield projects. One that particularly stood out for me was the Netherlands’ smart city plan, covering its five largest cities—Amsterdam, Rotterdam, The Hague, Utrecht, and Eindhoven. The key themes that bind the smart city plan are digitization through use of the Internet of Things (IoT), artificial intelligence, mobile apps, and extensive collection and use of data using a variety of analytics tools and technologies, with the citizen at the center of every decision. The country plans to achieve its smart city target through strong public-private partnerships.
  • Digitization as the backbone of the real estate of the future: Several sessions and booths highlighted the growing importance and role of technology in real estate development, management, tenant experience, and investment decisions. To that extent, the exhibitors added a new space (the NOVA3 hall) that had 60+ proptechs and technology companies displaying a variety of solutions to accelerate digital transformation across the real estate value chain. The proptechs offer opportunities to incumbent commercial real estate (CRE) companies to leverage ready-to-use digital solutions in various business processes.

Given the global focus and the highlighted themes at Expo Real, it was an appropriate setting for Deloitte to launch its 2020 CRE Outlook, which delves into the urgency for CRE owners and operators to understand the tenant/occupier preferences and the growing importance of digitization in enhancing their experience. The report is based on a survey we conducted in summer 2019 among 750 CRE executives—owners/operators, developers, brokers, and investors—from 10 countries.

As I spent two days at the conference, I drew more connections between the sessions and our study. For instance, the discussions at the conference confirmed our survey finding that CRE executives are recognizing the need for digitizing operations and investing in technology. More than 70 percent of our surveyed CRE executives plan to maintain or increase their overall technology investments, even if an economic slowdown occurs (see figure 1). When it comes to tenant experience–related technology investments over the next 18 months, 36 percent of respondents expect their organizations to hold the line, 42 percent anticipate a moderate increase, and 14 percent are likely to more than double (see figure 2).

Figure 1.

Figure 2.

Looking deeper into our study, which is based on an analysis of the survey results, conversations with our practitioners, and secondary research, we have explored the various technologies that are reshaping the tenant and end-user experience, looking first at how the Internet of Things (IoT) and mobile apps are changing the front-end experience. We then examined the growing importance of data and how AI and digital reality technologies are becoming the backbone of most digital real estate organizations. Finally, we analyzed how the increased use of technologies typically increases data privacy and cybersecurity issues, both of which are becoming core business issues.

Let’s dive into the key themes of our report:

  1. The CRE industry is on a solid footing, despite global economic volatility. Our survey respondents have a divergent view about how the CRE industry will perform over the next 18 months: 15 percent are very optimistic, 61 percent are somewhat optimistic, 14 percent are neutral, and 10 percent are somewhat pessimistic. Regionally, respondents from Asia are the most optimistic, followed by those from North America and Europe. Despite the macroeconomic concerns, the CRE industry, particularly in the United States, seems on solid footing to attract capital. If there is a downturn, the short-to-medium-term challenge will be budgetary pressures weighing against the requirement to make technology investments.
  2. Tenant experience is a top priority, which requires companies to put tenant and end-user preferences at the center of every business decision. The on-demand economy is reshaping tenant expectations about how real estate is consumed, and technology-enabled facilities and personalized experiences are already transforming the CRE industry. Most respondents rated tenant experience as a top priority. Yet, for a majority, digital tenant experience is not a core competency. Respondents believe that IoT technology and mobile apps are important elements in enhancing tenant/end-user experience.
  3. Data control, access, and analysis are expected to become more critical as data generation and leveraging data continue to rise. Most CRE companies have not yet fully explored how to capture and use information to enhance decision-making, improve operating performance, and create a differentiated tenant experience. CRE organizations appear to recognize the importance of data governance, as nearly two-thirds of the respondents plan to up their investments in this area over the next 18 months.
  4. Companies should more fully embrace artificial intelligence or AI, which can not only enhance operational efficiency, but also help identify risks and opportunities much more quickly than current technologies and processes. AI technologies are evolving fast and redefining the way humans and machines interact. However, AI is still in the early stages of adoption in the CRE industry, and organizations have yet to develop a deeper understanding of how to use these technologies effectively. The ultimate value that CRE organizations can derive from the use of AI is generating new revenue sources.
  5. Digital reality technologies are likely to enable early-stage tenant connections. The overall adoption of DR technologies such as augmented reality (AR), virtual reality (VR), and mixed reality (MR) remains low, as less than one-third of our survey respondents currently use any DR technologies. DR technologies could redefine the way we interact with digital information—from screens and hardware to gestures and emotions. CRE companies can attract, retain, and engage tenants during the development phase of a CRE project. Companies can also drive operational efficiency and bolster employee experience.
  6. Cybersecurity and tenant data privacy are becoming top priorities, as the CRE industry now has access to a wider variety of personal data, such as user location, communication, behavior, and sentiments. The attack surface and vectors are widening as more CRE organizations partner with external vendors, and cyberthreats are increasingly real and pervasive. CRE organizations are beginning to realize the inherent risks of managing data through external entities, as 41 percent of the surveyed respondents consider vulnerabilities in connected systems of multiple vendors and third-party service providers as the biggest data security risk.

As we look to 2020 and envision the next decade, the evolution of the industry is likely to be fascinating, just like the Expo was for me. The most successful CRE companies are expected to follow the mantra location, experience, analytics and not remain solely focused on the popular adage of location, location, location. And considering the strong focus on technology at the Expo Real, I feel the new mantra may remain for a while. This would require companies to fundamentally rethink location, space requirements, users, and user preferences. CRE leaders would have to use data to understand tenant behaviors and create unique experiences. Companies that remain in the weeds and are evaluating operational efficiency alone are likely to be at a competitive disadvantage.

2020 commercial real estate outlook

Read our report 2020 commercial real estate outlook: Using digital and analytics to revolutionize tenant experience to learn more about these themes and recommendations and gather more global- or country-specific insights. You can also consider analyzing different cuts of the data using our interactive.

Share your views on the key themes of our Outlook by participating in the following survey:

By participating in this poll, you consent and acknowledge that your responses may be disclosed without attribution by Deloitte in future publications, and you are authorized to respond to the poll on behalf of your company.

Endnotes

Expo Real website, accessed on November 11, 2019.

QuickLook is a weekly blog from the Deloitte Center for Financial Services about technology, innovation, growth, regulation, and other challenges facing the industry. The views expressed in this blog are those of the blogger and not official statements by Deloitte or any of its affiliates or member firms.

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