8 minute read 22 Aug 2018
ey-businesswoman-tablet-Hong-Kong

How to adapt traditional business models to the changing tech landscape

By

Mark Grinis

EY Global Real Estate, Hospitality & Construction Leader

Real estate leader drawing from three decades of experience. Author. Speaker.

8 minute read 22 Aug 2018
Related topics Risk Cybersecurity

When considering risk, there are obvious cyber threats, but there is also the risk of having no plan for becoming a digital enterprise.

Real estate has not historically been a sector leading the discussions around groundbreaking technology, but at the same time, it also isn’t a sector that has been averse to employing new digital advancements. On the operational side, smart buildings have been part of an ongoing conversation with regard to operational efficiency and sustainability.

The focus of cybersecurity has traditionally been on the back office, but as building management systems (BMS) become more technologically enabled to facilitate connectivity and data collection from the various systems, cybersecurity of physical assets is becoming increasingly important.

From the customer side, the internet has changed the way all businesses interact with the public. Websites and mobile devices have created important interfaces for businesses, social media has forced accountability and analytics have been a powerful enabler for companies to make better business decisions all around.

Where are we now?

More real estate investment trusts (REITs) are now integrating technology into many aspects of their businesses to optimize both their internally focused operations as well as customer-facing operations. By way of example, companies focused on customer experiences are harnessing the power of technology, and using data and analytics to adapt to the needs of their customers on the basis of data collected in real time.

Mall owners are tapping into the wide variety of data generated by users of their space in order to measure activity and understand layout effectiveness. Elsewhere, single-family rental businesses have been able to dramatically scale their operations in no small part because of taking a technology-centric approach to their business.

For example, leasing agents have been replaced with electronic prescreening inquiries that are used to prequalify a prospective tenant. If the prequalification is successful, the prospect obtains access to unit keys in lock boxes to allow them physical access to walk a rental property.

Technology is leading to an accelerated pace across real estate markets, and competition no longer looks and acts as it did in the past.

The rewards of using technology can pose unintended risks

Technology offers plenty of opportunities, but with it comes new and different risks.

When considering risk, there are obvious cyber threats, but there is also the risk of having no plan for becoming a digital enterprise.

Technology is leading to an accelerated pace of change across real estate markets, and competition no longer looks and acts as it did in the past.

Current challenges faced by management teams across the sector include:

Competitive risk

For REITs, whether buying tools, developing their own tech-based solutions or potentially acquiring new technology capabilities, demonstrable cost benefits are needed to justify the capital spend.

Acquisitions may provide an opportunity to leverage first-mover advantage, but the rewards must be properly balanced with the potential risk.

Operational risk

Investment in technology can be costly. Not only are there direct costs attributable to the technologies themselves, but there are also organizational issues that must be considered, such as company culture, talent and training, as well as change management.

It’s also important to consider that, in most cases, there is a limited shelf life for new technologies, with most becoming obsolete within two to five years.

Becoming digital doesn’t happen quickly. But, with your internal stakeholders on board, the use of external partners and consultants when needed, and a proper strategic plan in place, the transition can be much smoother.

Overall, when considering risk, there are obvious cyber threats, but there is also the risk of having no plan for becoming a digital enterprise.

Cybersecurity risk

REITs have two focus areas when considering cybersecurity:

  • The information technology (IT) environment that consists of the corporate enterprise network and the associated business applications
  •  The operational technology (OT) environment that consists of the BMS and building functions, such as heating, ventilation and air conditioning (HVAC), safety, security, elevators, and lighting

The more specific challenge that REITs face is managing a portfolio of properties consisting of various BMS vendors and models. This is further complicated by BMS not being installed with cybersecurity in mind, but instead focusing on the availability and uptime of the systems they control.

Thinking about tomorrow

Investment in real estate and property technology (prop tech) has dramatically increased in the last five years. Technology companies are increasingly involved in the “real estate as a service” business. And, sector convergence will force the real estate industry to consider issues, such as autonomous vehicles, operating in a shared economy and the further impact of e-commerce on real estate.

Sector convergence

Sectors converge and real estate continues to be disrupted by well-known players looking more like tech companies than real estate companies. Hence, it’s a good time for REITs to reflect on their digital readiness, and the impact of technology on their business and the sector as a whole.

When discussing raw technology, the advantage belongs to tech companies as they were born through digital means while more traditional companies have had to evolve. But, there is also an advantage to understanding tradition — specifically, pain points that will always exist in real estate, with and without technology.

Technology-enabled tools

The opportunity to leverage technology across a platform will increase as an ever-expanding number of technology-enabled solutions are offered to the real estate industry, and scale is created as more real estate companies adopt them. Many of these will be generic products that can be incorporated into a business at relatively low cost and with only minor modifications.

But, businesses will also increasingly look to create products tailored to solve specific issues. This development process can be expensive, but it may offer a unique advantage to the company. For more standard products, technology providers can often retain the ownership of data produced by the tool. For many organizations, it is important to own the data they produce in order to incorporate it into a wider analytics program.

Enhanced data collection

Technology has already enabled real-time data gathering in massive volumes and facilitated the processing of that data at record speeds. Businesses can act on findings almost immediately.

Data is valuable, but data is nothing if the right parameters don’t exist to collect and compartmentalize the information available in order to make actionable decisions. Properly structured analytics help management teams better understand their stakeholders — from heat mapping in malls and occupancy of floors in office buildings at any given time to better understanding employee engagement.

Robotic process automation, artificial intelligence (AI) and, potentially, blockchain will be tools that help facilitate this platform

Considering that machines store, retrieve and acquire new data at lightning-fast speeds, and with great accuracy, management teams will be able to improve decision-making across both front- and back-office functions by employing AI and robotics.

Enhanced data analytics will deliver proactive and predictive management, which, in turn, will help keep buildings relevant

Analytics will evolve further to help businesses better understand the built environment, allowing assets to be tailored to their specific locations. The use of technology-enabled tools across a platform that seamlessly integrates technology with real estate in order to optimize the collection and delivery of data will help move organizations up the value chain from a reporting and analytics perspective, and crucially do it all in a safe environment.

Smart buildings evolving toward a more holistic view

Smart buildings discussions have already moved toward a more holistic view using data and analytics not only to optimize buildings from an operational standpoint, but also to increasingly understand the occupants. The speed of evolution will likely accelerate in an unprecedented age of rapidly advancing technology, where everyday decisions can be analyzed and optimized given the vast amounts of data that the built environment, devices and online interactions collect and transmit.

Internet of things (IoT) devices will need to be integrated with legacy BMS networks

At the core of smart buildings are the IoT devices that can collect data and transmit it to the cloud for near real-time analytics. The integration of IoT devices with legacy BMS networks will, therefore, be essential. This will drive a need for integration and expansion of the OT systems and BMS networks.

Technology may ultimately impact valuation

Implementing technology across a platform is an expensive process, particularly if products are created in order to solve the many challenges that are unique to each different real estate subsector. Balancing the cost benefits will remain a critical issue and prioritizing the areas with the greatest need remains essential.

Technology will continue to create both challenges and enormous opportunities across the real estate sector. Technology will be highly disruptive in fundamentally redefining the way tenants in all industries use real estate.

The accelerated pace of change being seen in our markets will challenge management teams to stay abreast of trends that evolve rapidly, but a flexible technology-enabled platform will position them to lead the way in an increasingly fast-moving industry. 

Summary

Understanding how to adapt traditional business models to the changing technology landscape has been a worthy exercise for companies willing to make the investment. In some cases, technology is enabling business models that were not previously viable. For those who don’t embrace these advances in technology, it may become a competitive disadvantage.

About this article

By

Mark Grinis

EY Global Real Estate, Hospitality & Construction Leader

Real estate leader drawing from three decades of experience. Author. Speaker.

Related topics Risk Cybersecurity