February 11, 2019
Technological change is disrupting the business of commercial real estate, transforming the industry in multiple ways that create new opportunities and bring new risks.
The increasing flexibility provided by mobile and internet technologies is changing the way that people, businesses, and organizations use real estate. Because people can produce much of their work and consume many of their services online, it is no longer always necessary to visit the store to shop, or go to the office to work. The old real estate mantra of “location, location, location” is being replaced by a new dictum: “access, access, access”, notes Nigel Hughes, Managing Director at Ankura, who has extensive expertise in commercial real estate. The challenge for real estate companies is to provide that access in a convenient, attractive, and efficient space, that positions their buildings as the places that people want to be while they’re online.
Technology is also changing how buildings are designed, constructed, and managed. Internet of Things technology, such as smart sensors, is creating data-heavy infrastructure that informs and controls how buildings are managed and how occupants use the space. Sophisticated management and optimization of this data is becoming the key to superior real estate performance. Further, mobile applications allow managers to provide a growing range of information, services, and products to customers, visitors, and other building users, opening new sources of revenue for building owners.
There are three critical areas that should be top of mind for commercial real estate executives as they consider how to respond to the opportunities and threats created by digital disruption. First, how to optimize the vast amount of data that they have; second, how to realign their key business processes and controls with the new digital technologies; and third, how to ensure resilience in cybersecurity.
Defining Strategies to Optimize Real Estate Data
In today’s technology-centric and data-driven environment, the key to maximizing real estate performance increasingly lies in the ability to identify, analyze, and glean valuable insights from the data and information collected from building systems, sensors, occupants, and visitors.
Data optimization requires the application of data science and advanced analytics, says Rebecca Patterson, Managing Director at Ankura, whose expertise lies in complex data management and data governance. A successful approach focuses on understanding the interaction between systems, business processes, and tenant behavior. This means identifying, acquiring, and centralizing relevant (but often disparate) data and information across the organization and properties, efficiently analyzing the data to quickly identify valuable opportunities and risks, and developing consumable outputs to inform critical decision making or improve the tenant experience.
Digital Realignment of Key Business Processes
The latest wave of digital technologies are not the bolt-on upgrades to real estate management systems of previous eras. Instead, many of these technologies encompass a disruption of the conventional real estate business model, providing tenants and customers with flexibility in pricing and alternative modes of delivering spaces and services.
The challenge for many real estate investment managers is to adopt flexibility and responsiveness in service and pricing, while maintaining a level of diligence and control required by their investment partners, adds Nigel. Our discussions with real estate executives suggest a transformational change in structure and operations, including the need to evaluate and implement changes to their organizational systems, realign the roles and responsibilities of key department managers, and re-work company procedures to complement new technologies and tools.
Cybersecurity Strategies to Establish Resilience in Data Privacy and Security
Safeguarding value in the digital future requires a strong focus on cybersecurity. The prominence of data in the commercial real estate value equation means that digital security is no longer merely a subsector of the IT department, but instead requires prominence as an acute area of risk management.
According to Scott Corzine, Senior Managing Director at Ankura who is an expert in risk, compliance, and cybersecurity, the threat of a successful cyber compromise has arguably evolved from possible to plausible to probable. Not only have information technology and operating environments evolved, but also the means, motivations, and skills of threat actors — especially nation-state actors in the current geopolitical environment — have rapidly matured to a state of tradecraft that is sophisticated, patient, and perversely effective. To be prepared, organizations should plan and budget for cybersecurity based on the value of their assets, the opportunity cost of breach-related operational downtime, and their inherent risk appetite. From the risk-adjusted perspective that compromise may now be essentially inevitable, prudent companies should establish resilience as their ultimate objective.
Addressing the Challenges of Digital Disruption
The disruption to commercial real estate caused by the latest wave of new technologies is still in its early stages. Real estate owners and investors must act now to take advantage of the opportunities and mitigate the risks that this disruption will bring in the coming years. Successful enterprises will embrace the need to optimize their data, transform their organizations and key business processes, and elevate their focus on cybersecurity.