Data silos, outdated spreadsheets and other poor information technology management practices threaten commercial real estate, according to a new report from Altus Group, a technology consultancy.
In a report last week, the Toronto-based firm detailed the myriad obstacles facing commercial real estate groups, which have lagged behind their counterparts in other financial sectors in terms of technology adoption and efficiency. The industry has invested billions to safeguard and upgrade its physical assets, but it has spent comparatively little on internal infrastructure. This lack of investment leads to inefficiencies and, for investors, less transparency on where and how quickly their money is spent.
Jeff Hayward, vice president of marketing at Altus offshoot ARGUS Software, told PERE that managers with decades of experience using particular methods, such as spreadsheets, can be slow to adopt new technology. These managers and firms rely on intuition and experience, not the latest software.
“There’s been a reluctance to acknowledge that technology can speed up cycle times,” he said.
As a result, outdated spreadsheets and other unintegrated data management processes hinder efficient decision-making and impede efforts to benchmark performance for want of reliable data. For example, some spreadsheets might input records in square meters and some in square feet – a small inefficiency that adds up quickly. Almost a third of the industry uses primarily spreadsheets for asset and portfolio management, according to the report’s survey of 320 firms. Even the largest firms, Hayward said, have pockets of inefficiency, but the problem is often more pronounced with smaller players.
Few firms have the infrastructure necessary to support efficient processes, Altus wrote in the report, because information technology spending in the industry is minimal, making up just 3 percent of commercial real estate’s revenue, compared with 5.7 percent for financial services.
“This is not a NASA control center here – that’s what so surprising,” Hayward said. “The industry is so far behind.”
Commercial real estate has had no trouble pouring capital into cost-saving building technology, investing in automated HVAC and lighting systems, LEED certifications, green roofs and more, spending $59.3 billion on automation systems and $6.3 billion on smart building technology in 2014, according to Altus. By contrast, the same industry will spend $1.2 billion on IT systems, according to the report.
Executives want to change these numbers, with more than three quarters of surveyed firms reporting a focus on technology investment, Altus said. Firms recognize the potential for more efficient predictions, since about a third of valuation and cash-flow analysis is still done on error-prone spreadsheets. Upgraded technology also facilitates better standardized reporting in an era of increased transparency.
Private equity investors “want to have clear sightlines and visibility on the performance of their investments, whether it’s real estate funds or whether it’s just the manager of the money being able to do benchmarking,” Hayward said.
In order to standardize data that employees, shareholders, and business partners need, commercial real estate firms must avoid “data silos” perpetuated by single-use software. A 2014 Deloitte report on the future of technology noted that such silos create obstacles for property companies: “Until very recently, data commonly resided in multiple, disparate systems – inside and beyond the firewall, which made it difficult to conduct meaningful analysis.”
To stay competitive against established players and startups armed with the latest technology, the report recommends internal analysis and subsequent infrastructure investment to avoid the competitive, compliance, and regulatory risks that come with outdated technology.