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Disrupting Real Estate

Disrupting Real Estate

The days of handshake deals, gut decisions and paper trails are fading. In their place is a new age of technological disruptors and business innovations that are forcing change in every industry, both on a consumer and boardroom level.

For the most part, Canadian leaders are taking advantage of this so-called "digital revolution". In fact, according to KPMG's 2018 Canadian CEO Outlook Survey, Canadian executives across industries are more confident in their ability to manage technological transformation than their global peers, while virtually all (96 percent) profess to being very aggressive when it comes to being a disruptor in their respective markets rather than being disrupted.

Yet not all industries are as quick (or willing) to transform. Players in the commercial real estate sector, for one, are relatively reluctant to adopt the likes of data analytics, artificial intelligence (AI) and advanced automation. This is despite the fact that in KPMG's 2017 Global PropTech Survey, a majority of Canadian real estate leaders said they view these disruptive tools as an opportunity and expect digital and technological innovations to impact their business.

There is no question real estate stakeholders have both the means and motivation to innovate. Their willingness to make the necessary investments, on the other hand, is tempered by concerns for cyber security, geopolitical shifts and the industry's capacity for change.

Real potential

The real estate sector is fertile grounds for technological disruption. By leveraging data across clients and portfolios, for example, one can use data and analytics (D&A) to enhance everything from asset benchmarking, predictive maintenance, commercial property configurations, or even site selection, based on connections made between demographics, buying patterns, access to public transportation and other factors.

Other disruptors poised to change the real estate industry include:

  • Smart sensors: Equipment that can read and analyze how properties are consuming energy and use that data to optimize their efficiency.
  • Autonomous vehicles / ride sharing: With less need for parking space, some mixed-use property developers in North American are already designing parkades that can be re-purposed down the road (e.g., into retail or office space) to accommodate this growing trend.
  • Automation & AI: Advances in machine learning are giving real estate players the ability to streamline complex tasks, enhance productivity, and better understand their clients in order toenhance their experiences. 
  • Virtual / augmented reality: The ability to give potential property buyers a "virtual" tour and participate in the design of their unit before it is built is opening new channels for sales and promotions.

Slow to adopt

It is a brave new world, and yet despite the opportunities ahead of them, a bulk of real estate stakeholders are still slow to adapt. In our 2017 PropTech survey, little more than a third of respondents said they have an enterprise-wide digital strategy, while over half ranked their organization at the bottom end of the scale in regards to their technological innovation and maturity.

There are several reasons for this reluctance. For one, real estate is a very distributed asset in terms of ownership, making it difficult to introduce new technologies or processes across entire portfolios and supply chains. Additionally, with different owners comes different objectives for properties as well (e.g., family-owned, real estate investment, business property), each of which benefit from different technologies and digital advancements.

The real estate industry is also more sensitive to issues of cyber security. Much like the CEOs in KPMG's 2018 Canadian CEO Outlook study who listed cyber security as their number one threat to growth, the idea of collecting, storing and analyzing large volumes of person client data can be intimidating. This is especially true given today's organizations are beholden to ever-stricter data security and privacy rules, as well as potential regulatory changes such as the Investment Industry Regulatory Organization of Canada's (IIROC) mandatory cyber security incident reporting obligations that will be applicable to all publicly traded companies.

That is all to say that while there is a desire among the real estate sector to pursue technological disruption, there is an equal awareness of the risks therein.

Steps to action

Risks notwithstanding, there are advantages to embracing technological disruption. To use D&A both effectively and responsibly, the following steps need to be part of one's go-forward strategy:

  • Assess your current and future state: Where are you now, and where do you want to be down the road? How will you get there, and what challenges will you most likely encounter? Understanding these questions will assist in realigning business goals to the new digital ecosystem.
  • Become more agile: Fast-growing businesses have the ability to respond quickly to today's rapidly changing environment and pivot their organization to customer demand. Traditional organizations can learn from this approach.
  • Fill skill gaps: Are there people within your organization who can dedicate more time to innovation and digital strategy? If not, identify where you can find these skills to plug the gap. Be open to looking outside the real estate sector.
  • Engage your industry: Actively engage with the PropTech community. Whether this involves collaboration, procuring or even partnering with fast-growing businesses, or simply attending seminars about the topic, the key is to engage and encourage all levels of your organization to do the same.
  • Appoint an innovation leader: To succeed, innovation needs to be sponsored from the top. Having an innovation board with representatives from across the business helps with reviewing all aspects of an organization's digital strategy and ensuring its alignment with overall business goals.
  • Assess your culture: Developing a digital strategy is often as much about transforming an organization's culture as it is about implementing new technologies.

The disruptors of the day have plenty to offer real estate players; and, indeed, the appetite is there to put them to good use. Make peace with new technologies can be difficult, and the risks may be imposing, but if we have learned anything by supporting client transformations, it is that there is no standing still in this age of disruption.