How can the real estate sector triumph in 2018?
Uncertainty and change ahead
Real estate (RE) companies are operating in a complex digital ecosystem today—one that is characterized by four prominent themes.
December 6, 2017
A blog post by Surabhi Kejriwal, Real Estate research leader, Deloitte Support Services India Pvt. Ltd.
The first theme is that of technological change, which is occurring at a faster pace than productivity across all industries. The second is the huge amount of structured and unstructured data that is being generated through the use of a variety of technologies, especially sensors. The third is the likely dramatic reduction in the shelf life of skills and redefinition of job roles, with the rise in automation, use of artificial intelligence, and cognitive computing. The last one is the continuous increase in expectations of personalization, flexibility, and adaptability, as human beings leverage technology for unique experiences in every aspect of their lives. In this environment of constant change, it is important for RE companies to be aware of, prepare for, and respond to new developments.
In late July, we conducted an in-depth brainstorming session with many of our leading RE practitioners to evaluate different ways in which the sector can triumph the ongoing change and uncertainty. Following an engaging discussion, we identified four themes, which can perhaps allow RE companies to create more value over the next 12-18 months.
Investors and markets are impacting real estate investment trusts (REITs) valuations
Many traditional REITs are trading well below their net asset values. Unlike in past years, REIT valuations today are increasingly impacted by investor activism and media attention. This is compounded by the current dilemma faced by many REITs of highlighting intrinsic value compared with perceived value. To unleash this value, companies should consider different approaches to bolster shareholder enthusiasm. This would require critical assessment of existing corporate governance and communication strategies, the current state of operations, growth opportunities, and strategic alternatives, which may lead to mergers and acquisitions or company structuring considerations.
Fintech startups are increasing at a rapid pace
The number of technology startups is increasing at a rapid pace. Globally, the number of RE tech startups rose from 176 in 2008 to 1,274 in 2017.1 The general notion is often that startups are a threat to incumbent RE companies. And this may be true, as with the help of technology, these startups are indeed offering innovative solutions and enhanced user experiences at a relatively lower cost, faster pace, and with a user-friendly environment.
Alternately, there are many ways in which traditional RE companies can benefit from the solutions offered by RE fintech firms. The platforms these firms provide can expand and diversify the lender base and enable more individuals and institutions to gain exposure to real estate. This is especially useful for US-based companies, which face a challenging financing environment, where traditional lenders such as banks are tightening lending standards and commercial mortgage-backed securities issuances remain well below their historical highs due to the implementation of the new regulations following the 2008 financial crisis.
As such, traditional RE companies can potentially benefit from collaborating with the fintech startups. However, they would need to reassess their engagement approach with the fintech startups, as the latter have a significantly different style of operations.
Slow adoption to robotic and cognitive automation (R&CA) technology
RE companies have been rather slow to adopt technology effectively and this reflects in the many operational inefficiencies that plague the industry today. For example, many RE companies continue to use spreadsheets for recording, collating, and analyzing data for cost aggregation, lease administration, invoices, accounts payables, property valuation, and forecasting. The high level of human intervention increases the probability of fraud and error.
R&CA technology can be a game changer in this evolving environment. A combination of robotic process and cognitive automation, R&CA can help RE companies reduce errors and increase operational efficiency by replicating human actions and judgment at tremendous speed, scale, and quality, all at a relatively lower cost. RE owners have an opportunity to embrace automation to drive operational efficiency and productivity. Over time, companies may consider using R&CA to create more value through improved decision making rather than just cost efficiencies.
A combination of robotic process and cognitive automation, R&CA can help RE companies reduce errors and increase operational efficiency by replicating human actions and judgment at tremendous speed, scale, and quality, all at a relatively lower cost.
Talent concerns for real estate and construction (RE&C) companies
Real estate and construction (RE&C) companies are facing multiple talent concerns: an ever-increasing shortage of skilled workers, a relatively larger proportion of baby boomers in the workforce approaching retirement with significantly fewer Gen Xers in the population to replace them, and the industry as a whole being seen as an unappealing proposition for millennials. The MIT Sloan Management Review and Deloitte Digital’s 2017 global study of digital business revealed that only 10 percent of the global RE&C respondents agreed or strongly agreed that their organization has sufficient talent today to support their digital business strategy.2
A big reason for this is the traditional approaches taken by companies—not only in their talent attracting and retaining strategies but also when it comes to running the organization. Many RE&C companies would have to consider rewiring existing behaviors and remodeling key aspects of their human resources function—recruitment, the employee experience, organizational design, and leader development.
In summary, as the business ecosystem evolves with the fast-paced
RE companies will
likely have to be agile, innovative, and collaborative to continue to stay ahead of their competitors in the race for positive financial impact. The choice is clear: keep pace with the changes in the environment around us or slowly become irrelevant.
1 Analysis based on startups established in or after 1998; Venture Scanner database, data as of September 18, 2017.
2 G.C. Kane, D. Palmer, A.N. Phillips, D. Kiron, and N. Buckley, “Achieving Digital Maturity” MIT Sloan Management Review and Deloitte University Press, July 2017.
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.