5 Trends That Will Shape Commercial Real Estate Technology in 2022

For the last decade, acceptance and adoption have been the prevailing trends around commercial real estate technology—and thanks to the pandemic, the industry has finally and completely embraced the digital world. 

With the industry on board, commercial real estate technology and proptech are leveling up. This year will see a maturing real estate technology sector expanding, innovating and addressing industry concerns. Here are the five trends to watch in 2022. 

Integration of Blockchain Technology

Blockchain technology has the potential to truly revolutionize the commercial real estate sector—and integration of the technology is increasing rapidly. 

First, what is a blockchain? While commonly linked to cryptocurrencies, blockchain technology is separate from the financial assets they support. It is essentially a digital and decentralized database. Information is stored in blocks, which are then linked together forming a chain and the information is stored and distributed across computer nodes. As a result, the chain—and the information it holds—is secured and incorruptible.  

The application of blockchain technology is limitless, really across industries. In a survey conducted by Deloitte, nearly 60% of executives and experts in the information and technology sector believe that 10% of the global GDP will be stored on the blockchain by 2025, illustrating the pace of adoption. 

The blockchain creates an environment where financial assets, like cryptocurrencies, can be traded easily and securely—and it could do the same for real estate. There have already been examples of residential assets trading on the blockchain, and Deloitte believes that blockchain technology can create better transparency and efficiency for commercial real estate as well, particularly during the property search, underwriting process, title registry, contract signing and the final execution of a sale. 

Experts at European technology firm Altar.io go one step further, imagining a future where the blockchain could support human-less and transparent transactions through the use of smart contracts. Information about property ownership, including the deed, mortgage, taxes and even utility bills, can be stored and traded easily on the blockchain, in essence transforming a real estate asset into a security. 

Construction Payment Automation

According to Crunchbase, construction management technologies will likely attract the most investment dollars in the real estate technology space this year. There are a lot of construction technology solutions emerging to disrupt the industry, but payment automation programs are the standout this year. 

Also known as embedded payments (it’s the way that you pay for goods on Uber, Amazon or through a mobile banking app), payment automation will eliminate the time-consuming process of cutting checks, help better manage and track payments and reduce manual entry errors, all of which not only amplify efficiency but also reduce administrative expenses. The technology will also help track documents, like lien waivers from subcontractors and payment applications from suppliers. As with any embedded payment system, payments can be made from any mobile device or location, meaning that payments can be completed seamlessly in-between meetings or around a job site. 

Automated payments can also leverage the smart contract and blockchain technologies referenced above to create an automated payment system, further eliminating accounts payable tasks. Using BIM and reality capture data, the system can generate an on-chain—meaning recorded to the blockchain—payments and transfer lien rights. Research from Stanford looked closely at the potential for this technology. Two commercial projects have already made successful automated payments to seven subcontractors, and researchers found that the “results show promise.”

Cybersecurity

Commercial real estate players are among the best at assessing risk, and cybersecurity has been pinpointed as a major concern. As a result, companies are not only investing in real estate technologies this year but also increasing budgets for cyber risk management. Proptech companies are also increasing cybersecurity measures to address these concerns. Many experts have acknowledged that both real estate and technology companies need to work together to mitigate risks. 

For real estate companies, cyber risk mitigation includes developing strong practices and conducting security audits to ensure compliance as well as having a transparent disclosure for users. For technology companies, cyber risks can be mitigated through strong back-end technology that protects against a breach and an acute understanding of how clients will use data.

Historically, the industry has done a poor job of investing in cybersecurity, and there is little data exploring the industry’s exposure, particularly following the surge in technology adoption over the last two years. 

Back in 2018, KPMG conducted a survey on the topic, and found that 30% of real estate companies had experienced a cyber attack and only 50% of companies had invested in risk mitigation. Today, companies are doing a better job to address cybersecurity, and this year awareness and investment in security measures will continue to increase.

Maturing Business Models

In the last decade, the number of companies offering technology-based solutions for the “built world” has increased 300%. In that time, the technology sector has evolved from a sea of start-ups to mature and profitable companies that support some of the largest owners and investors in the industry. And, now those companies are going public. 

Last year, a record number of SPACs emerged to target proptech companies, ultimately resulting in several IPO launches. FifthWall launched the first proptech SPAC with a $345 million IPO, and companies like CBRE and Soft Bank followed, forming their own proptech SPACs. Access control and building software provider Latch went public through a Tishman Speyer Properties-owned SPAC and construction management software purveyor Procore launched a $645 million IPO. This year, smart building technology company Brivo is set to launch an IPO valued at $880 million via a Crown PropTech Acquisitions SPAC. 

Increased M&A activity is another sign of the maturing market. There were 125 commercial real estate-related mergers last year, the highest number in more than five years. That activity is expected to at least keep pace this year, with consolidations focused in construction, spatial analytics and sustainability tools.

Deeper Integration of Data and Analytics

It’s no secret that data and analytics have become the backbone of the industry—and investment in data and analytics tools has accounted for the vast majority of technology adoption in commercial real estate. 

By the end of 2020, 92% of real estate owners in an EY survey said that “data analytics is the single most important vertical that real estate owners want technology to address,” but only 35% had adopted the technology. In 2021, more companies increased investment in data tools, and integration will continue to accelerate in 2022. 

In the wake of the pandemic, data has become the secret sauce to recovery and future success. Owners are leveraging location and foot traffic data to better understand how people are moving around, socializing and using physical spaces following nearly two-years of social distancing. Retail and entertainment stand to benefit the most, but a recent article in the New York Times suggests that these data sets are reshaping the entire real estate business. Kevin Campos, who runs the retail technology fund at Fifth Wall, told The Times that with data, “you truly understand the demographics that come to a location, actual foot traffic, the value of co-tenants and their traffic, a far richer understanding of a location. It’s a more informed conversation between a landlord and a potential tenant.” 

Developers are also benefitting from construction management data and analytics tools to help drive down rapidly rising construction costs. Some experts estimate that construction costs have increased 30% in the last year, and with inflationary pressure rising, data and analytics tools have become the primary way that developers can manage costs and drive efficiency. 

Technology is continuing to shape the commercial real estate industry, and these five trends show the market is entering a new phase in its evolution.