skyscrapers reflecting blue sky and white clouds
By Stuart Bern

CRE investors must strive for balance between current and future priorities

The commercial real estate (CRE) market continues to experience its set of challenges, but sentiment is beginning to turn in certain pockets. CRE investors are being challenged to control costs and focus on performance metrics, while balancing the need to drive intentional digital transformation to not risk finding themselves at a future disadvantage. While certain investors are riding the digital wave, some investors still do not have the appropriate strategies, operational data and technology, and resource planning to thrive in the current market conditions. This has led to a varied degree of overall readiness for innovation adoption, leading to both enthusiasm and apprehension for driving transformation initiatives from the C-suite.

Digital wave opportunities

Investors are targeting technology that will support value creation and risk management.

  • Data-driven decision-making: Improving both asset performance and gaining insights into how to manage the overall organization more effectively has been moving from a “human” approach to a “data” approach in recent years. The ability to be predictive, including improving asset selection, while managing current risks and complexities effectively through pattern recognition is on the rise. Having a strong foundation of clean, readily available, and easily managed data is the enabler to unlock untapped data.
  • Investing in smart technology: Investing in smart technology can contribute to improved returns, reduced risk, and increased investor attractiveness. For investors seeking to attract top tenants, the return on investment (ROI) is apparent. According to a JLL survey, 91% of occupiers are willing to pay a premium for tech-enabled space. For ESG-conscious investors, there are additional benefits of being able to estimate climate risk impact in portfolio strategy and valuations. Reducing our carbon footprint and strengthening an organization’s overall brand and reputation while driving cost savings are all part of the equation for an investment in smart building technology.
  • Identify low-hanging cost savings: As the complexities and size of organizations grow, an increase in operating expenses follow. Overspending and duplication arise and should be evaluated to identify any immediate cost savings across the enterprise. This is also the first step to winning over internal stakeholders about the value of innovation if it gathers momentum.
  • Leveraging AI for value-add: JLL research revealed that 44% of large-sized enterprises have actively deployed AI, and 59% are making AI investments. AI capabilities can help drive greater efficiencies across an organization, including process automation and predictive analytics as well as data processing and analysis. Investors have been targeting specific processes whereby AI can improve staff productivity on investment tasks, such as structuring summaries of lengthy document review. Investors should also focus on areas across the value-chain that drive revenue optimization, including market analysis and investment decisions, to maximize ROI and see more immediate impact.

Digital adoption challenges

  • Increased complexity: The number of proptech solutions available on the market today are ever growing. In addition to the vetting process, ensuring that there is a sound strategy in place for both integration and implementation is critical prior to rollout.
  • Investment costs: An upfront investment in both capital and personnel is required to properly transform an organization to become tech-enabled. Being able to articulate and make a strong business case for the investment against competing priorities is key. This includes having a plan in place for the proper staff to support the technology and an enhanced technology stack that is aligned with the business vision needs.
  • Cybersecurity concerns: The introduction of new technology focused on infrastructure (i.e., smart building technology) has led to an increase in vulnerability to cyberattacks. Newly proposed regulations could further complicate the infrastructure landscape.

Key takeaways for navigation

To remain competitive, leaders will need to continually drive differentiated change and thereby empower their teams to increase asset value by designing optimal technologies. With myriad ways to invest and allocate capital across the organization, beginning to build a sound strategy today will allow leaders and their organizations to get ahead of the curve and competition.

  • Assess current internal capabilities: Understanding current internal capabilities allows for organizations to gain a better sense of the technology landscape. If approached properly, it also can lead to meaningful changes in processes. This will unlock new organizational value and serve as a powerful decision-making tool for the C-suite to leverage throughout a transformation effort. In addition, as new investments become available, CIOs and CTOs will then be better equipped to match technology to future business needs. Lastly, duplicative systems and inefficiencies may become more apparent, leading to immediate cost savings for the broader team.
  • Get your organization AI-ready: While investors can benefit from AI in a multitude of expanding use cases—including streamlined due diligence, predictive maintenance, risk monitoring, and enhanced reporting—it comes with an upfront investment of ensuring internal alignment from key business leaders, having proper data governance policies in place, and investing in a modern tech stack to enable data use across the organization. They must keep up-to-date on the latest ways to de-risk cybersecurity to protect their teams and data. In addition, investors should focus on the areas across the value chain where the largest impact can be felt, and drive change.
  • Stay abreast of regulatory changes: Shifting investment guidelines and governmental regulations in addition to net carbon regulations for sustainability are forcing investors to manage their portfolios with more agility. Investing in the proper research and resources to ensure compliance measures will allow for a more seamless transition.

CRE investors must research, evaluate, and enhance internal strategies while ensuring that the organization is attracting the best partners and talent to prepare for the digital wave.