The 5 trends shaping the future of commercial real estate A HIGHTOWER WHITE PAPER

Transcription

1 The 5 trends shaping the future of commercial real estate A HIGHTOWER WHITE PAPER

2 There is a paradox in commercial real estate and it s holding the industry back from achieving its full potential. The paradox is this: we are an industry that is highly data driven, mobile, and collaborative and yet we are supported by siloed and antiquated software, static spreadsheets, and manual processes that keep us chained to our desks and operating with limited visibility. The tools didn t always miss the mark, but over the past twenty years, a rise in competition and an institutionalization of the real estate asset class have transformed CRE. As a result, modern owners and brokers have an unprecedented focus on portfolio visibility, data analytics, and workflow optimization. This shift has triggered a thirst for new CRE-specific technology. Technology has already revolutionized other industries namely through better access to data and analytics, mobile applications, and user experiences that are dramatically easier than legacy systems and many are now demanding the same opportunities for CRE. The following pages discuss the five major trends of this revolution, and how the burgeoning field of CRE technology is just getting started. Technology has already revolutionized other industries with better data and insights. 2

3 #1 Institutionalization of the asset class One of the most significant trends in CRE has been the continued institutionalization of the asset class. Thirty years ago, real estate was rarely included in institutional portfolios. Traditionally, real estate represented less than 2% of a portfolio and the majority of commercial real estate was owned by regional mom-and-pop shops. Today is a very different world. With the rise of REIT structures, the CMBS market, and massively consolidated CRE investors, commercial real estate now represents nearly 10% of institutional investment portfolios. That figure is expected to rise at an accelerating pace as investors increasingly look to CRE for yield. In 2016 alone an additional $511B of new investment capital is expected to flow into commercial real estate, according to NAIOP. The portfolios of institutional investors are shifting to accommodate more commercial real estate. The business of managing real estate is growing more challenging because of institutionalization. Modern real estate portfolios are more complicated than ever and are likely to have properties that span markets, asset classes, and investment strategies. With static spreadsheets and phone calls as the primary tools for staying on top of activity, the current methods are now breaking down, making it increasingly difficult to maintain visibility into the performance of these portfolios. Additionally, modern investors and their growing portfolios are subject to more, new regulation and reporting requirements. The demand for visibility into investments and yield by both the SEC and LPs has increased the cadence and depth of portfolio reporting to an unprecedented level. Not only do CRE professionals need to report more often, but compiling those reports is more complicated than ever before, often costing the organization hundreds of hours every quarter. 3

4 #2 Rising competition on all fronts Let s face it, as money flows into the asset class, driving pricing to historic levels, competition for deals and yield has risen on all fronts. Competition for deals The most significant rise in competition has been on deals. Because there are billions of more dollars coming into the market, but not many more buildings, there are more dollars and investors chasing each deal. The importance of deep pockets or a clear specialization has become vital to success in today s environment. Competition for capital Many GPs are feeling the pressure of competition on both the deal side and the fundraising side. As more capital flows into CRE, more investors are trying to raise funds with the hope that rising tides lift all boats. LPs are placing greater emphasis on strong track records, better tools, and clear visibility. Competition for talent The industry is beginning to realize that they are in a war for talent. The next generation of CRE leaders expect a different work environment with mobility, modern tools, and data at their fingertips. The companies that lag behind are finding it increasingly difficult to recruit top CRE talent and are suffering from a growing talent gap. This next generation of talent is demanding change in its employers, encouraging new ways of working and new technologies to drive the business forward. Competition has grown fiercer as more players enter the industry. 4

5 #3 Need for better data access With the institutionalization of the asset class, there has been a shift in expectations around data and analytics for the industry. Although commercial real estate has always been intensely data driven, it is still one of the most opaque industries in terms of data access and transparency. As the need for visibility and reporting increases access to, and analysis of, our most important data is becoming more important than ever before. Our most important data is becoming more important than ever before. Yet, there is a disparity between the importance of data and the accessibility of that data. In a world where big data is a household term, commercial real estate has yet to advance beyond the Excel spreadsheet where the majority of the industry s data still lies. Many commercial owners and brokerages now realize that, if they can harness portfolio and market data, they ll gain a distinct competitive advantage by making better decisions, reducing portfolio risk, and operating more efficiently. They ve realized that this data mine is untapped and are investing in modern technology platforms to take advantage of it CRE is still using Excel sheets and static files. 5

6 #4 Better mobile technology One of the biggest sources of frustration (and opportunity) for the modern owner and broker is the fact that CRE is a fundamentally mobile industry without mobile tools to support it. The mobile technology industry has evolved dramatically over the past ten years, and yet CRE has been left behind. CRE professionals typically spend a large amount of time away from their desks for leasing, acquisitions, or property management and must do so without access to the tools, documents, and data they rely on to get their jobs done. The result is an industry that is tethered to our desks, creating inefficiencies and frustration. CRE is a mobile industry without the mobile tools to support it. This is going to change. Professionals are beginning to ask why there is not dedicated mobile technology to support the CRE industry when other industries have enjoyed similar support for years. You only have to look to the residential real estate industry to see mobile tools for brokers, owners and buyers that would be the envy of any CRE professional. Why not commercial real estate? The world is changing and mobile technologies dedicated to the CRE professional are now being developed that will completely untether you from your desktop, enable new scenarios for collaboration, and let you get your job done from anywhere. CRE professionals are beginning to ask why there is not dedicated mobile technology to support their industry. 6

7 #5 The consumerization of technology The last trend that has encouraged a desire for new tools in the CRE industry is the consumerization of technology. As technology becomes accessible to all, there is a greater expectation of elegance and ease-of-use in all apps now. Whether built for a consumer or a business, there is little patience today for clunky software that takes months to integrate and learn. Sensible software whether to hail a taxi or to manage your leasing business is becoming the rule, not the exception. This fundamental shift in expectations will force incumbent CRE technologies to rethink their dated platforms as a new wave of CRE technologies are introduced that are as easy to use as they are powerful. What s next Technology investor Marc Andreesen presciently wrote that, software is eating the world, meaning that software will evolve from being an industry to being a force powering all industries. Examples of this phenomenon are easy to come by: Zillow is remaking residential real estate; AirBnB is fundamentally changing the hospitality industry; and Uber is transforming urban transportation. Commercial real estate will not escape this force. As unprecedented amounts of capital flows into the CRE technology industry, a new wave of technology companies are poised to dramatically improve the ways in which we analyze, manage and transact commercial real estate, creating a competitive advantage for investors and brokerage who are early to adopt the next wave. Zillow, Airbnb, and Uber have all transformed industries overnight with powerful technologies. 7

8 Hightower helps owners gain a competitive edge AN END-TO-END SOLUTION Increase visibility Centralized deal management Complete asset intelligence Portfolio-wide insights Powerful alerts and notifications Improve productivity Automated leasing activity reports Streamlined deal management Mobile access and proactive alerts Reach more tenants Automated listing syndication Actionable marketing insights Shareable, responsive marketing materials Learn more about leasing management at 8