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The coronavirus pandemic was a turning point for technology adoption in commercial real estate. Most development companies (78%) reconsidered their technology strategies, embraced modern digital solutions, and invested in analytics programs, smart management tools, automation, and cloud-based software platforms. The last few years have seen historic progress in an industry with a reputation for being slow to evolve.
Unfortunately, as the pandemic becomes a less prominent concern and economic conditions deteriorate, Deloitte research suggests that firms risk putting digital transformation plans to the wayside to focus on core business operations. But stalling or slowing technology adoption could have severe consequences.
Reduced technology investment can derail growth plans, hamper financial objectives, and weaken a company’s competitive advantage. Technology doesn’t just drive efficiency, provide critical data insights, and help investors make better decisions. It’s the gateway to a modern real estate market.
Technology Investments to Decline in 2023
Real estate companies have steadily increased technology budgets over the last decade. However, spending in that area surged during the pandemic, with executives increasing technology spending by 11% in 2021. However, the sector’s digitalization boom is coming to an end. Deloitte reports 25% of U.S. development companies plan to cut spending in 2023, and 27% will not increase their technology investments.
The move reverses a recent trend; last year, only 7% of real estate companies planned to decrease technology spending. It’s also out of step with the broader business community, as 67% of IT professionals expect their budgets to go up in 2023.
Again, the commercial real estate industry is at risk of falling behind.
Respondents to the Deloitte survey gave economic uncertainty, inflationary pressures, increasing labor costs, and supply chain disruption as the top reasons for the reduction in technology spending. In 2023, executives are also increasingly concerned about tightening monetary policy, and 48% of American development firms expect revenues to decrease next year, and another 12% predict no change. With lower income, spending viewed as non-critical to core business operations, like technology, will be up for review.
Companies also plan to redirect their dollars to tools that support operational efficiency. Top priorities are customer relationship management, fundraising, and property operations management technologies. Additionally, 43% of companies are targeting process automation, and 35% plan to invest in market data and analytics tools.
Adoption Is Still Critical
During the early days of the pandemic, people were required to follow social distancing mandates, and simple tasks like site inspections and tours came to a halt. Technology played a vital role in maintaining day-to-day business operations in that period. Today, the benefits aren’t as noticeable - but they are just as real, particularly in an economic downturn.
Deloitte’s analysts expressed the urgency for continued digitalization, writing, “Failing to invest enough in technology could be short-sighted. Technology is not a place where the real estate industry should be cutting back on spending. Real estate firms with the flexibility and risk appetite within the current environment can get ahead by exploring how technology can unlock potential and achieve better efficiencies in the long term.”
Across the industry, experts are dissuading companies from reducing technology budgets in the next year. Jeri Frank, cofounder and CEO of Stratafolio, recently weighed in on the topic in Forbes. “I believe one of the most beneficial things you can do right now is stay up to date with recent innovations in your sector,” noting that technology adoption is the best way to stay competitive in the industry.
As economic conditions worsen, real estate development platforms are becoming increasingly vital to meeting financial objectives.
Modern software uses automation, data analytics, and machine learning to manage development timetables and budgets, resulting in more reliable and predictable project outcomes. It also provides meaningful financial benefits by reducing cost overages and spending estimates. Those tools offer advantages critical to driving value during a market contraction.
Beyond improving business operations, technology investment supports long-term ESG initiatives and helps companies meet internal benchmarks and regulatory requirements. Climate risk assessments are quickly becoming an industry-wide standard. Analytics, document management, and automation will be the key to tracking building performance and meeting environmental goals.
Where to Spend Your Tech Budget
Real estate firms typically invest their technology budget in market data insights, analytics, and smart building development. But forward-looking companies are exploring emerging solutions as part of a complete and future-proof digital infrastructure. Deloitte’s survey showed that 80% of companies are considering investing in smart contracts, tokenization, and the metaverse. Many organizations want to see how they might align with their business needs. And 50% have already allocated dollars to piloting these programs.
In the near-term, real estate firm stakeholders are the most excited about how technology can expedite development by alleviating pain points throughout the project lifecycle, like materials management and permitting. Solutions with those capabilities are tremendously beneficial because they can optimize project timelines and forecast construction costs, but there is also a social benefit. Developers can expedite the delivery of urgently needed real estate, like affordable housing, by improving and simplifying their processes.
Long-term, developers are tracking the emergence of smart cities and looking for ways to incorporate automation into the user experience.
Today, only 9% of buildings are considered smart, but analysts expect that number will grow to 15% by 2025. Addressing the paradigm shift will require owners to become familiar with connected building features - like smart locks, IoT sensors, and touchless interfaces - and decide how to incorporate these technologies into their projects.
Economic headwinds and changing market fundamentals are disrupting the industry, but now is not the time for real estate leaders to change course. Reducing technology investment today will have outsized consequences for years to come. But it isn’t all about preparing for the future. There are substantial benefits that development estate firms can realize immediately, like predictive analytics, automation, and project management software.
The real estate industry has made tremendous progress in embracing modern technology in the last few years. Let’s not punt the ball now.
Do you want to learn more about the most significant issues facing real estate firms next year? Download our Commercial Real Estate Project Manager Survey to gain key insights into the challenges and opportunities shaping the industry in 2023.
Tag(s): Real Estate Technology
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