Commercial Real Estate
Commercial real estate (CRE) can be a lucrative segment of the broader real estate industry, but the returns that can be earned are closely linked to the level of risk involved. In addition to being subject to the macroeconomic trends, CRE is impacted by the changes in demands for types and sizes of properties, as well as the whims of local zoning boards.
Given this sometimes volatile mix, it’s not surprising that CRE professionals have learned to approach all opportunities, transactions and strategies with a large dose of Murphy’s Law. Proponents of new technology run into this mindset and walk away confused. It can seem to anyone looking in from the outside that CRE professionals are stuck in their ways and unwilling to try new things.
Virtual and Augmented Reality
Virtual (VR) and Augmented Reality (AR) are great examples of this dynamic. It is easy to see how a CRE broker could show a property to a prospect over the internet and use these tools to “build out” the space to the prospect’s specifications. This approach saves travel time and avoids depending on imagination to see how functional a space can become. In addition, any changes the prospect would like to see can be made on the spot.
These are obvious benefits that proponents think should get any CRE broker’s mouth watering. This is also true for other technological advances such as automated construction robots and Artificial Intelligence (AI). The cost savings of the first and the marketing efficiency of the second are said to be so significant that CRE professionals should be lining up to buy.
Potential Drawbacks of Technology
Apparently, proponents of these technologies know the CRE business better than those involved in it on a day-in, day-out way to make a living. The fact is that these technologies have some significant drawbacks. Technology rarely delivers the full benefits it promises at the price that is quoted. CRE brokers and developers are right in adapting them slowly. To understand these drawbacks it is necessary to get into the details of the CRE business.
The first component to examine is the CRE target market. This individual probably has a smartphone that would support an AR app. However, they also know that there is no substitute for actually visiting a site before committing to a lease. There are simply too many factors that need to be considered regarding location to depend on a software presentation. They are also already adept at visualizing how a space can be utilized for their purposes.
Opportunity Cost
Proponents of new technology tout the benefits, but are slow to count the costs. CRE professionals do both. While it is easy to describe how a new technology works, getting it to work that way usually means hiring someone to do the job. 50% of CRE professionals report that the inability to find people with the right technical skills hampers their use of new technology.
Learning to do the job themselves does not make it free. While many apps are user friendly, there is still a commitment of time spent learning. Economists call this an opportunity cost because the time devoted to this activity is not spent on other productive tasks. In addition, changing any presentation on the fly in a meeting with a client is a fraught proposition. The potential for mishap outweighs the benefits.
CRE brokers, developers and other professionals are not slow to adapt to new technology as some would think. They simply understand the needs of their business better than those outside the industry and move cautiously to adapt proven strategies that provide benefits that outweigh the costs. Proponents of technology can look to the rate of acceptance as a meaningful way to see if their ideas are worthwhile to business.
