Key Opportunities for the Real Estate Industry to Explore in the Evolving Market Dynamics

With traditional offices undergoing rapid changes and market disruption prospects at an all-time high, real estate is one of the major industries at the cusp of rapid transformation. After grappling with the unprecedented impact of the COVID-19 outbreak, the real estate industry is coming to terms with the hybrid and work from home (WFH) models – the new normal to live, work and interact with each other. Although each country is recovering from the pandemic at a different pace, industry leaders, in general, are hopeful that consumer spending and government stimulus would lead to an uptick in commercial real estate demand.

As per Real Capital Analytics, the commercial property index grew 4.8% y-o-y in Q2’ 2021, with deal volumes increasing by 81% to US$ 243.5 billion over the same period in the US. While North America has been upbeat, deal volumes in the Asia Pacific, Europe, and MEA are gradually growing to reach the pre-pandemic levels.

It is evident that the real estate market is rebounding strongly; however, there are still some pertinent questions that need to be addressed by companies for sustained growth, such as:

  • What will be the optimal structure of the future workplace?

  • Can real estate companies offer their core services, such as leasing, brokerage and tenant management, to potential tenants digitally?

  • How are the real estate future investment portfolios affected by external factors such as climate impact, green financing, and global standard commitment?

  • How can global real estate companies offer a more localized, integrated, and personalized user experience across continents and locations?

  • How can real estate players make the best use of tech start-ups and disruptors to bolster their portfolio and asset management capabilities?

  • How are disruptors and start-ups poised to challenge the traditional stronghold of real estate companies with their offerings?

  • What are the new opportunities from this shift in market landscape? What should be the new go-to-market strategy and opportunistic posture of players?

This blog will discuss the emerging trends, key challenges, and data-driven transformation solutions for the Real Estate industry.

 

Key Trends Affecting the Real Estate Industry

  • Flexible workspace and hybrid working are the new norms – As per a global Google Workspace survey, 75% of the respondents believed that hybrid / flexible work would be a standard practice within their organizations in the coming three years. There is an oversupply of space, however, office space available for hybrid and flexible working are in short of availability. Therefore, real estate companies need to modify their modus operandi to suit the need of the hour and should start offering new age solutions such as Flex, Hybrid or on-demand workspaces. In our view, this presents both new challenges and opportunities for the real estate companies to retool and re-align their strategies and evolve to cater to the new normal.  

  • Data-driven digital transformation is the next frontier – Forrester research suggest that approximately 73% of real estate industry data is never analyzed. This indicates that real estate companies haven’t explored the digital transformation opportunities compared to other industries. The problem arises due to vast amounts of data within the real estate industry being fragmented and unsystematic. However, change in consumer behavior and technology has forced real estate agencies and brokers to embrace several new technologies to keep up with the industry’s growing demand. Tenant occupancy, usage of energy and intertwining it with facility management, ongoing maintenance needs, real-time user behavior and scores of other data can be collected on real time basis and integrated into data portals. Real estate companies can reap the benefits of data-enabled digital transformation once all these data metrics are centralized into one dashboard and clubbed with external available metrics. However, this requires companies to invest heavily in digital solutions and keep an eye on the upcoming technologies that will dominate the market soon.

  • Diversify portfolio beyond core assets such as flexible leasing models and revenue-sharing arrangements – Real estate companies are undergoing an uphill task of rebalancing their portfolios and offering flexible operating models, such as flexible leases, hybrid spaces, and revenue-sharing arrangements with landlords. JLL has found that the flexible workspace market would account for 30% of all the available inventory by 2030, driven by increased demand from large enterprises. Prior to the pandemic, traditional office lease terms generally ranged between 5–10 years. With the changing industry dynamics, real estate companies now need to realign their leasing models for as low as 1–2 years, offer low-commitment deals, and enhance turnkey convenience options, allowing businesses to expand or contract as their circumstances change.
  • Green building designs and investing in sustainable energy-efficient properties – The industry needs to constantly adjust to the new policies and regulations that the government brings in to prevent climate change. While developing infrastructure, real estate companies need to factor in carbon neutral metrics such as renewable energy sources, waste reduction, optimum resource management, EV charging infrastructure, and more to operate at the highest possible level of well-being, functionality, and cultural values. As real estate companies progress towards their net zero and global sustainability commitments, they also must worry about financing brown assets as certification such as STAR, LEAD are mandatory now even on standard assets. Energy storage, smart sensors, AI-powered windows, reconfigurable spaces, automation-driven HVAC, and sensor-based motors are a few examples that contribute to sustainability and reduce operational costs in the long term.

  • Integration of PropTech solutions – Tech start-ups are entering categories such as doorbells, sensors, intercoms, property management apps, and access control. We believe that early adoption of these functionalities could be cumbersome as they aren’t integrated, but the scenario would change soon. The industry is witnessing score of PropTech M&A deals as traditional players like C&W and Newmark have infused millions of dollars in Wework and Knotel to expand their technology portfolios. Another real estate behemoth, CBRE is developing enterprise grade tech solutions named CBRE Hana and CBRE Host. Real estate companies need to increasingly scout for these technologies either by acquiring them off the shelf or developing them in-house. The points mentioned above will help companies develop a tech stack that is unique, integrated, standardized, and offers personalized experience to tenants and landlords.

Read our solutions portfolio deck for the Real Estate industry

 

Key Challenges Faced by the Real Estate Industry

Technology solutions such as 3D floor plans, virtual visitor facilitation, building management apps, sales data analytics, tenant usage data, etc., are generating huge volumes of data – but in silos. With such a magnitude of data existing, lets discuss some of the challenges that real industry is grappling with and the strategies they can pursue to deal with them.

  • Lack of Emphasis on Technological Transformation – Most real estate companies lack the vision and framework to make data-and-technology-driven decisions. According to a consulting real estate firm survey, most people leading digital transformation in real estate companies (65%) are not necessarily from the technology background. A significant number (40%) are from real estate, construction, or finance backgrounds. Companies need to adopt a unique approach to their business segments (construction, buying and selling real estate, brokerage, advisory, etc.) and have the right workforce to steer it.
  • Real Estate Data Integration:  

    • Data disparity and fragmentation – Real estate companies are looking to tap the potential of data within and outside their ecosystem. The industry gathers data from internal processes, such as facility management and sales analytics, and relies on external data, such as rental and inflation from federal authorities, and industry data from market aggregators. In an ideal world, every real estate company wants all this data to be connected and cleaned to generate insights faster. However, companies find it challenging to gather and analyze data. Outdated spreadsheets for data repositories, limited data skills of employees, lack of standardization, complex privacy regulations, and lack of a comprehensive data strategy are some of the major hurdles that need to be addressed to harness the true potential of integrated data.
    • Limited third-party data – Real estate companies generally are short of options regarding the availability of third-party datasets. The real estate data market is very fragmented and most of these companies rely on either their in-house team or local brokers and consultants to gather information. There are only a handful of companies, such as Co-star, Argus, and Real Capital Analytics, which offer comprehensive information and analytics solutions for most commercial real estate aspects. These companies have certain limitations regarding geographies covered, data metrics availability, and inclusion of right properties. The industry needs third-party dataset companies to understand data gaps and meet their requirements.

 

How Evalueserve Can Help the Real Estate Industry Pursue Data Integration and Transformation

There are numerous advantages of utilizing data integration: clear insights, improved customer experiences, improved business proficiency, and many more. Evalueserve can help the clients to assess the data requirements and their integrations prospects by following ways:

  • Identify customized third-party data sources available in the market as per the niche business segment of the client

  • Gathering and synthesizing and standardizing unique datasets for different geographies from multiple sources and analyzing them to form a meaningful hypothesis

  • Assess and screen available data software tools that match client’s goal and budget

  • Support the client on buy-or-partner decisions aimed at building customized tech stacks

  • Conduct surveys and interviews with experts to fill data gaps

  • Carry out focused research to help design hypothesis for complex and untested business problems

In a nutshell, Evalueserve can help clients design and implement their data transformation and integration journey, enabling them to bridge the gap between their current and expected data integration capabilities.

Read our solutions portfolio deck for the Real Estate industry

 

Conclusion

The real estate industry is not effectively collecting and processing data from each activity. This is creating roadblocks in implementing advanced data capabilities such as big data, AI, bots, and ML. The industry will reach its destination, but it would require significant time and effort by real estate companies and the industry. Every real estate company need to understand their unique operational data and what is required to integrate all these data points. Partnering with the right navigator can help real estate companies design a holistic strategy that defines and assimilates their data capabilities.

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Sandeep Kumar Agrawal
Senior Research Lead Posts

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