The pandemic created a new set of demands from employees and tenants that has inspired real estate companies to rethink their operating models – the way they “get things done,” or the intersection of process, people, systems, data, and how data flows throughout the organization – to increase efficiencies and stay agile.

Commercial real estate has come a long way in its sophistication and adoption of technology. But while deploying the right tech stack is key, the focus cannot be solely on technology at the expense of personal connection. Similarly, an operating model built around your current roster of talent is a recipe for organizational bloat. Instead, smart CRE companies recognize that value is delivered primarily through efficient processes that are supported by the right people and technology assets.

Read on to revisit the current state of the industry and discover ways to drive greater operational efficiencies through processes, people, and the technology that knits the two together.

State of real estate operating models

The high-level trends currently impacting developers, owners, and operators, in particular, include:

1. Disparate operations: Traditionally, real estate companies have expanded to new regions and asset classes in a decentralized fashion. Recognizing the inherent inefficiencies of this approach, many are taking a hard look at centralization as a way to scale more cohesively.
2. Proptech growth: For decades, the real estate industry was known for being notoriously slow to adopt technology. Today, things have changed. The proptech market is currently valued at $18.2 billion, and that number is expected to soar to $86.5 billion by 2032 as companies continue to see the ways technology can streamline operations, reduce costs, and improve occupier satisfaction.
3. Data: New technology generates new insights to be mined, managed, and monetized. Data that used to be hard to decipher or collect, such as patterns in foot traffic and energy consumption, can now be collected across multiple locations. When this data is aggregated and analyzed, it can be readily used to make smarter decisions faster – both for your company and for other companies interested in purchasing that data.
4. Remote work: In the early days of the pandemic, real estate companies that embraced a distributed, collaborative work environment were able to operate with fewer disruptions, while their more traditional peers were stuck in neutral. Today, while many employees have returned to the office, many are still working from home several days a week or even permanently. It’s clear that flex work is here to stay, and forward-thinking real estate companies are implementing technology that enables their employees and their tenants to get work done wherever they happen to work, live, or play.
5. Security and governance: The more technology a company adopts, the more it has to be concerned about privacy, security, and the government regulations surrounding the storing and sharing of data. These growing cybersecurity concerns have driven demand for tools designed to help keep files secure, as well as a focus on internal controls and governance.
6. Hiring and retention: Despite growing fears of a recession, companies are still struggling to hire and retain top talent. As companies look for ways to make people’s jobs as frictionless as possible and give them work that’s meaningful, they are weighing investments in employee incentives, as well as automation and outsourcing to elevate the value of employees’ work.
7. Supply chain challenges: The ongoing supply chain crisis continues to be a problem for the real estate industry, and not just on the construction and development side. It’s also creating challenges with back-office functions, such as estimating costs and financial forecasting. (Read our recent article for more on real estate supply chain challenges.)

Embracing the movement

As the needs and wants of building occupiers change, the operating models of developers, owners, and operators must keep pace. Here are some tips for moving forward while assessing the health and effectiveness of your real estate operations today.

1. Look for gaps in your capabilities. Take inventory of all of the capabilities needed to operate the business – from finance to asset management to leasing – and the many processes underneath each. Take note of where processes are inefficient or unclear, when things don’t seem to flow, or where you face a roadblock. Once you’ve unearthed these problems, take a few steps back to see the recurring themes. Do you see a trend where one person owns an entire process or function? Are critical data and insights stored in decentralized locations, such as individual spreadsheets? Are employees bypassing internal controls? Stepping back to see these larger themes can highlight ways to streamline and strengthen your organization, such as by investing more in employee training or collaboration tools.
2. Understand the WHY behind your technology. An ideal tech stack should keep all company stakeholders in mind, from the CEO to each employee to business partners and tenants. It should be easy to use and understand, and should deliver timely, easy-to-access analytics while removing friction for all end users.
3. Determine what insights are needed to run your business, and what is excess. The industry has moved from monolithic systems to a world of “apps.” The influx of proptech solutions has created opportunity, but the excitement of offering more data, more insights, more analytics, also has a tipping point. With so much data available, companies need to take inventory of what is available to them and the best way to utilize the information to make better business decisions.
4. Elevate employee value. Automation might be a great way to cut costs. But never forget that real estate is a people-oriented business, and certain tasks require a personal touch. With this in mind, automate with common sense, and be thoughtful about which processes should still be handled by staff. Determine what can be automated to save employee time and company resources, allowing employees the time they need to not only focus on client service, but also be more thoughtful and innovative with regard to both their own performance and company processes, to explore what can be improved and what new value can be created. Along the same lines, conduct a cost-benefit analysis for outsourcing certain back-office tasks. And keep in mind that outsourcing and automation don’t have to be all or nothing. If outsourcing certain parts of a finance manager’s job frees them up to perform more forward-looking or value-added duties, then everyone wins.
5. Keep risk considerations at the forefront of all operating model strategies. Throughout the entire process of rethinking operational models and building out a proper tech stack, risk mitigation needs to remain top of mind. Companies must develop best practices for governance and compliance to make sure that they are meeting all local and federal regulations, and they must understand the risks they expose themselves to as personal information flows through operational systems and between third-party vendors or technology platforms. Some of these risks stem from data that you aren’t able to measure or analyze – such as unanticipated drops in occupancy that might trigger rent relief due to a co-tenancy clause – or, worse, data you didn’t know you were collecting.

As you’re looking at making changes to your operating model, be sure you have a strategy in place before you embark on the journey. The costs of executing a well-thought-out strategy are far less than the costs of having to backtrack, re-implement, or rework an already live process or system.

There’s (going to be) more where this came from

Over the next few months, we’ll be rolling out additional articles on movement in the real estate industry, exploring people and experience and more. Subscribe now to make sure you don’t miss a word. Missed a previous installment? Find them all in our Movement resource center.

Contact

Paul Ricci, CPA, Partner, Technology+ National Leader

973.618.6252