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Building the Future Real Estate Predictions 2018
Building the Future |
Real Estate Predictions 2018
Welcome to the 2018 edition of
Deloitte’s predictions for the
real estate industry. Curious to see
which changes lie ahead?
Discover the Real Estate trends for
2018 that will impact your business.
Read about blockchain, co-working,
robotics, and more.Building the Future |
Real Estate Predictions 2018
Introduction
04 - 05
Wellness, work and real estate 06 - 07
The rise of co-working space and the need for smart buildings 08 - 09
Real estate decision makers of the future 10 - 11
12 - 15
16 - 19
20 - 23
24 - 27
28 - 29
30 - 33
34 - 35Building the Future |
Real Estate Predictions 2018
Have a glimpse into the
future of real estate
The Real Estate and
Construction market has
been changing over the
past few years. With all
these changes going on,
Deloitte Real Estate is
releasing the Real Estate
Predictions 2018. We hope
the predictions enhance
your understanding of the
opportunities within the
real estate industry. Have
an interesting read!
04Building the Future |
Real Estate Predictions 2018
1 Wellness, work and real estate 4 Fintechs: Complementing the real estate 7 Transforming real estate operations
A rise in the recognition and understanding ecosystem Public sector real property organizations
of the relationship between the wellbeing Fintechs have made rapid inroads into the have an opportunity to fully embrace
of the workforce and productivity is leading real estate industry. The general notion is digital disruption, transform their property
businesses and developers to explore ways often that startups are a threat to incumbent operations and portfolios, and benefit
in which the physical building can promote real estate companies as they are offering from lessons learned in the private sector.
wellness. Factors that can improve wellness innovative solutions and enhanced user Today’s traditional public sector property
range from natural light, air quality, noise, experiences at a relatively lower cost and organizations typically serve multiple clients
and office design. The introduction of new faster pace. However, traditional real estate that span across many programs of which
standards should encourage more businesses companies can leverage fintechs to drive deliver a wide-range of benefits for the local
to participate. operational efficiency, create powerful population.
tenant experiences or even diversify existing
2 The rise of co-working space and the business and generate new revenue sources. 8 The future of commercial real estate
need for smart buildings Real estate companies can consider various Social, economic, ecological, political, and
Co-working spaces continue to gain approaches to tap into the fintech space. technological disruptions will change the way
popularity and the Internet of Things is we work, live and shop. These developments
critical to competitive advantage in this field. 5 Robotic and cognitive automation part 1 will have a significant impact on today’s
Therefore cyber risk and privacy protection What is robotic and cognitive automation, established market players in the commercial
must be on top of mind of the real estate and how is it transforming the real estate real estate sector and their share of the value
investor. industry? In the first of two articles we will chain. Who will be successful and who will
share our thoughts of this technology. become obsolete in our future real estate
3 Real estate decision makers of the future world?
Corporate organization design is evolving 6 Robotic and cognitive automation part 2
with the faster pace of technology, a greater Part 2 of our look at robotic and cognitive 9 Blockchain
level of workforce agility, and the changing automation. Blockchain technology has been adopted
nature of job roles, all of which are impacting in the real estate industry over the past
the way in which we interact with the physical few years, however, the pace in which the
workplace. The need to influence property adoption is taking place is rapidly increasing
decisions comes from various parts of a and traditional roles are being fragmented.
business and ultimately the decision makers What are the lessons learnt so far?
are changing to include: CTO, CIO, CEO and
HR.
05Building the Future |
Real Estate Predictions 2018
Wellness, work and real estate
The rise in the recognition Wellness is defined in the Oxford English comfort and mind. Following years of research Technology is enabling the worker to take
Dictionary as ‘the state of being in good health, and input from the medical, scientific and control of their own internal environment.
and understanding of the especially as an actively pursued goal’. This is real estate communities, WELL certification Heating and lighting for example. It is also
relationship between the generally something that we all strive for in is aimed at influencing the health of workers enabling businesses and landlords to track
our personal lives. However, the importance of both physical and mental whilst also reducing and understand the function of their buildings.
wellbeing of the workforce maintaining wellness in the workplace has often an organizations financial liability through Engagement and education will lead to greater
and productivity is leading been neglected. A healthy workforce is a happy sick employees. The growing importance wellness in the workplace. The provision of:
workforce, which in turn could translate into and potential business prioritization of this air filtration systems; better water quality in
businesses and developers greater productivity and job satisfaction. A goal subject has now given rise to other wellness the building; improved lighting design; and
to explore ways in which that all employers should be in pursuant of. certification programs. encouraging fitness through active furnishings
and office layouts are all physical changes on
the physical building can The focus of achieving greater wellness in Employee health benefits the path towards WELL certification. Those
promote wellness. Factors the workplace is gaining momentum. This Using the office as an example of a typical firms who take new space at the design or
is more than a daily delivery of fresh fruit or workplace, workers have for a long time been construction stages will have the benefit of a
that can improve wellness having quirky and comfy breakout areas. The happy enough if the lighting and heating relatively blank canvas on which to work with a
range from natural light, workplace, or to be more precise the building, worked and they had a desk to sit at. However, developer. Yet, those with older spaces should
can itself be the driver of greater wellness. tenant expectations have been growing. not be deterred as modifications can be made
air quality, noise, and office Increased access to knowledge and data on in all buildings.
design. The introduction Certificate of wellness building performance and impact on health are
In the pursuit of sustainable development of leading to more engaged occupants. Attract and retain
of new standards should new buildings and the promotion of the green The appeal of the workplace can be a deciding
encourage more businesses agenda, a number of global standards have There is greater recognition of medical factor for an employee whether existing or
become established benchmarks for design, conditions such as ‘sick building syndrome’ new. The majority of our week is spent in the
to participate. construction and subsequent use. While these where symptoms are derived from a poor workplace, and as such it is in a business’s
certified standards do in part address the quality office environment, insufficient interest to provide a healthy and inviting
Written by Martin Laws, Chris Robinson and
health and wellbeing of potential occupiers of ventilation and noisy layouts. All have an environment. At a time when the modern
Shaun Dawson (UK)
new space, there is an increasing awareness of adverse impact on the health of staff members. worker is more transient, acutely aware of
employee wellness. Common ailments include back pain, lethargy, what they want and where they want to work,
headaches, and eye strain and stress disorders businesses looking to attract good talent
In response, the International WELL Building to name a few. Through greater focus on should see the physical space as a differentiator
Institute developed the first standard for the design, fit-out and technology, a business can and therefore invest accordingly.
physical environment, addressing a number of go a long way in which to improve health quality
factors: air, water, nourishment, light, fitness, in the workplace.
06Building the Future |
Real Estate Predictions 2018
The physical space also heavily influences the Committing to a wellness program or indeed
level of job satisfaction that an employee has. aiming for wellness certification is firmly in the
Providing a healthy working environment that hands of the occupier of space. Much of the
someone wants to be a part of, a place that costs will be borne by the business, however,
they can conduct their work effectively with there is a part to be played by others. Landlords
little cause for complaints will go some way in should work with tenants to ensure changes
helping to retain staff and reduce turnover. can be made to existing buildings. Also,
developers and architects should ensure that
Investing well for the future wellness elements are included from the design
A number of buildings around the world have stage. This will also mitigate any risks to brand
gained WELL certification leading the way in reputation for not developing healthy buildings.
educating the market on how to achieve greater
wellness through the office building. Over the Standards in wellbeing will soon become
coming year several other schemes are aiming as mainstream as those standards for
to be WELL certified, including Deloitte’s own construction such as BREEAM, LEED or with
London office, One New Street Square. data connectivity like WIRED Sore. The wellness
of the worker will gain greater awareness as
Investing in a wellness program for the office more firms are educated in the benefits. It
and the workspace does not necessarily feature will therefore become an expectation from
high on a business’s priority list, at a time the occupier that a building will support their
when reducing costs is paramount. Yet, it is the wellbeing. A growing business case for devoting
high cost that is associated with absenteeism, more efforts to wellness in which to add value
turnover, recruitment and lost business that to a building is never more apparent.
can be in part reduced through ensuring
the workforce are healthy and happy in their
environment, whilst also ensuring corporate
social responsibility targets are met.
07Building the Future |
Real Estate Predictions 2018
The rise of co-working space
and the need for smart buildings
Co-working is rising and changes the way we are using office space.
Co-working spaces need to be flexible and optimized at the same time.
For best fit, the users IoT-the brain of the building- is crucial in detecting
the needs and issues that arise.
Written by Rinse Bruggeman, Desie Driever and Wilfrid Donkers (NL)
The growth of co-working and of course at times the ‘cool’ factor are
Co-working spaces have become a hot topic descriptors for co-working.
and the recent growth of their roll-out has
been phenomenal. Unlike the more traditional Not to be left on the sidelines, larger firms are
serviced-office model co-working tenants, also eyeing up the benefits of taking co-working
or members, share a range of facilities like space. While cost and flexibility are important
furniture, printing, phones, operational and drivers, access to the community would be
technical support. Members also share costs key. Connecting with start-ups and growing
such as those for the property, internet, and businesses could enable new relationships to
energy. Leasing space on a membership basis be built from an early stage. Partnerships with
can often result in lower costs than renting a the next generation of businesses could help
regular office. This collaborative and effective the smaller firms to achieve greater scale-up.
means of taking space is attractive to those While educating the larger companies better
firms wanting flexibility, such as small and fast- to spot trends and opportunities as they are
growing companies, freelancers, technology surrounded by a younger companies and
and media firms or any business that can workforce.
thrive in this version of the modern workplace.
Especially those companies geared towards
the millennial generation of worker and those
that like to work in a vibrant community with
like—minded people. Collaboration, networking
08Building the Future |
Real Estate Predictions 2018
Tech enabled space which is necessary in the competitive privacy has to be top priority. IoT should
Advances in technology has been one of co-working space market. be used to make the building user friendly
the main enablers of co-working space. An and personal data should not be able to be
advanced IT-infrastructure with fast and reliable Through analysis of data of the occupancy accessed by anyone other than the employee.
internet has been the basis for successful co- of working spaces and conference rooms, This is especially relevant in co-working spaces
working spaces. As the competition between work space optimization is possible. Sensors where multiple companies are working and
co-working providers increases, operators must registers occupancy on different times and data privacy should be key. Consequently
be savvy as to how technology can differentiate days and tracks the movements of the users. cyber risk and privacy must be at the forefront
their spaces. Embracing the use of Internet of The resulting data can for example show that with collaboration from real estate companies,
Things (IoT) is the next step. As buildings are get certain work places are often underutilized, operators and IT companies ensure security in
smarter and we start to learn how to better use creating room for improvement. the modern workplace.
space, this will be necessary for todays’ users
and needs. Also IoT will contribute to manage building Although the concept of co-working space
operating expenses. Utilities are a large part of is not new, we expect it to continue to gain
IoT in co-working spaces building operating expenses. IoT in buildings greater popularity. The success of co-working
IoT in buildings allows flexibility and possibilities can map the utilization of the building and space will be in the flexibility and space
for work space optimization, it makes it adapt the lighting, heat, air quality, cleaning optimization that the model offers. Couple this
easier for the building to fit the users’ needs and security among others for controlled with how technology, in particular IoT can bring
and signals problems and issues that arise. zones within the building. This creates energy about further workplace change and greater
What can we expect from IoT in co-working conservation and other cost reductions understanding. Enabling tenants to flex up and
spaces? Sensors in the building collect all kind through amending the use of the building. down depending on their needs and not to be
of information like occupancy, temperature, Substantial savings building operating costs will restricted by traditional lease terms will ensure
energy consumption etc. Software connects the result. co-working space will establish itself in the
information provided by the sensors, creating market.
the ‘building’s brain’. Hereby the building can Opportunities of IoT
self-diagnose problems and communicate IoT provides lots of opportunities, but as
information. The building becomes a living described in our 2017 Real Estate Predictions,
structure, capable of recognizing the problems the rise of smart buildings brings with it new
and needs of the building community. The risks such as cyber risk. Another important
capture of data through the sensors provides thing to watch is privacy of the buildings’ users.
the operator of co-working spaces with deeper Because of all the data sensors collect,
insights into the operational effectiveness,
09Building the Future |
Real Estate Predictions 2018
Real estate decision
makers of the future
Corporate organization design has
been evolving with the faster pace of
technology, a greater level of workforce
agility, and the changing nature of job
roles, all of which are impacting the way
in which we interact with the physical
workplace. The need to influence property
decisions comes from various parts of
a business and ultimately the decision
makers are changing to include: CTO, CIO,
CEO and HR.
Written by Rob Scopes and
Shaun Dawson (UK)
10Building the Future |
Real Estate Predictions 2018
Changes in the decision making tree I may continue to rest with similar people/ The ‘Stage Set’ office
Advances in technology have been moving at functions, the input from the wider business As businesses move into the digital age,
such a pace that businesses have been slow and all levels of the workforce, as traditional views of real estate as being a
to adopt and adapt. The type of work and organisational design becomes more fluid in cumbersome expenditure and space
where we do it is significantly different than a which to accommodate the workforce and requirements being based on old principles,
decade ago. The change in the composition of workplace of the future, is key. should be challenged. The workplace should
the workforce with more women in be viewed more as a ‘stage set’ in which the
employment and a longer working life for Elevating the employee voice scenery can change depending on the needs
many has led to five generations now in the Despite a rise in remote working and the of the business. Space that ensures greater
workplace. contingent workforce, the workplace and creativity, collaboration, education and
especially the office still retains an important socializing through employee interaction will
The typical organizational model adopted by function within the culture of business. It is bring the workplace into the 21st century.
businesses is coming under pressure to one element that provides employees with a
transform and this includes the decision shared experience. However, legacy, process An inflexible workplace will more than likely
making tree, not least of all with property and hierarchy has driven the way in which the curtail a business, especially one that is
decisions. The world of work is entering workplace has evolved, if at all, over the looking to adapt. To be an agile firm is to
a new era. years. It is now the time in which a holistic embrace flexibility whether that is in the
approach towards gathering workers views decision making, the workforce or indeed the
A new business landscape on the workplace should be included. physical space.
Business agility will play a pivotal role in
building the organization of the future, with Unhappiness in the working environment For some companies a new organizational
networks of teams taking decisions rather could potentially lead to wider job design will be a culture shock. However by
than a few at the top of a hierarchy. These dissatisfaction. Organizations should use the utilising a common denominator such as the
networks respond to business needs and workplace as a means in which employees workplace could bring about a positive
teams are formed and disbanded quickly. The can redesign their work, enabling greater employee experience that will contribute to
new model will lead to a fresh approach to productivity and learning, ensuring work is an increase in ownership amongst the
leadership and should aim to promote more rewarding and more importantly increased workforce and in turn greater productivity.
inclusivity, employee engagement and integration of people and technology like
working practices. never before. In order to achieve this the role In 2018 we expect to see the transformation
Real estate is one way in which organizational of Human Resources (HR) and IT departments of the workforce to accelerate at a greater
change can be further facilitated. Real estate are becoming increasingly important in pace than previously, forcing organizations to
decisions were once the preserve of the Chief facilitating and orchestrating organizational change existing models of leadership and
Financial Officer and Property Directors, with design of the workforce and inevitably the decision making. As a result the workplace
wider executive consultation reserved for workplace. will become a key facilitator of that change.
bigger decisions, such as new office space
and/or new locations. Whilst the ultimate
decisions.
11
11Building the Future |
Real Estate Predictions 2018
Fintechs: Complementing
the real estate ecosystem
Fintechs have made rapid inroads into the real estate (RE) industry. That
is why you need to: change the mindset from defense to engagement,
examine your company strategy of working with fintechs and begin
taking steps to operationalize how you engage with them.
Written by Jim Berry and Surabhi Kejriwal (US)
Fintechs by the numbers by investments, China outpaces Germany for a
An in-depth analysis of Venture Scanner data third spot.
reveals that the number of RE fintechs globally
rose exponentially from 176 in 2008 to 1,318 How to engage with fintechs?
through the first three quarters of 2017. The general notion is often that startups are a
Startups focusing on property development threat to incumbent RE companies as they are
and management far outpace the number offering innovative solutions and enhanced
of fintechs launched to target financing user experiences at a relatively lower cost and
and investing or leasing and purchase-sale faster pace. However, traditional RE companies
transactions (see figure 1). Geographically, the can leverage fintechs to drive operational
US is a clear leader in terms of the number of efficiency, create powerful tenant experiences
fintechs, followed by India and Germany. or even diversify existing business and
generate new revenue sources. Additionally
During the 2008-2017 period, cumulative as RE companies have typically lagged
investments in RE fintechs soared from $2.4 certain technology adoptions there exists an
billion to $33.7 billion. While venture capital (VC) opportunity to leapfrog current capabilities.
remains the dominant funding source, there is
substantial capital flow from non-VC investors
as well, including REITs, established RE services
companies and investors, private equity firms,
and high net worth individuals. Geographically,
while the US and India are the top two countries
12Building the Future |
Real Estate Predictions 2018
RE Fintechs: By the number
Fintechs founded by year
Total (1998- 2017): 1,318
Annual funding ($Bn)
250
739 2017
390 44 2016
200
189
Number of companies
2015
27 48 2014
150 22
18 2013
51
45 2012
100 74
2011 Total ( 1998-2 017): $33.7Bn
11
6 140
27 2010 $10.3Bn
50 5 27 104
2 15 87 9
12 62 19
2009 $22.3Bn
34 37 45
26 20 4 2008 $1.1Bn
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 024 68 $Bn
Property Development managemant Leasing and Purchase - sale Transactions Financing and Investing
Funding by investment t ype ($Bn) Geographic growth pattern
$Bn 100.0
8
USA
6 USA
10.0
4 China
Funding ($Bn)
India
USA
1.0
2 India
0 100 200 300 400 500
Germany
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0.1 UK
China
Venture Private Equity Secondary Market
Undisclosed Debt Financing Others 0.0
Source: Venture Scanner data, Deloitte Center for Financial Services analysis. All data is as on September 18, 2017.
figure 1: Real Estate Fintechs: By the numbers 13Building the Future |
Real Estate Predictions 2018
Companies can consider various strong value proposition. In some instances, on investment or acquisition? What is your
approaches to tap into the fintech space. companies may want to create value for the current collaboration strategy and
We’ve listed a few for your consideration: startup by sharing their expertise, relationships engagement model?
or even contributing to the startup’s business • Begin taking steps to operationalize how you
Launch or participate in corporate by being customers for its products or services. engage with fintechs.
accelerators: Independent or corporate For instance, in 2016, a group of large mall What is your ability to match the fintechs’
accelerators would allow RE companies to owners invested in Deliv, a startup offering pace of development, from contracting
capture relevant ideas and solutions at an early same-day delivery to shoppers. to development of proofs of concepts
stage. This may be an effective and a relatively and pilots, to demonstrating results?
economical way of capitalizing on the new Acquire: Companies with deeper pockets For a more in-depth understanding about
ideas developed by the startups. For instance, and understanding of startups could make fintechs, please read our reports: Fintech by
European retail and office RE owner, Unibail- strategic acquisitions to reduce future the numbers Incumbents, startups,
Rodamco, has a startup accelerator program competition and also increase their capabilities investors adapt to maturing
called UR Link. Through UR Link, the company and reach in terms of clients and markets. As ecosystem and 2018 Real Estate Outlook
provides financing, coaching and mentoring, an example, in December 2015, JLL acquired Optimize opportunities in an
and collaborative workspace to startups and Corrigo Incorporated, a provider of cloud- ever-changing environment.
co-develops prototypes for its large portfolio, based facility management solutions, in an
with an aim to digitize its shopping centers and attempt to improve transparency, enhance References
improve user convenience. productivity, and leverage advanced analytics. 1. For the purposes of this report, we have
Venture Scanner data suggests that within the defined “fintech” as the ecosystem of
Use fintechs’ services: RE owners, RE fintech space, acquisitions in the property (perhaps initially) small technology-based
developers, and investors can use the fintech development and management space has startup firms that either provide RE services
platforms for a variety of services—including grown significantly over the last four years. Total to the marketplace or primarily serve the RE
activities related to leasing, acquisition and acquisitions swelled from 2 in 2012, to 35 in industry.
disposition, managing the underwriting 2016 and 19 in the first three quarters of 2017. 2. UR Link website http://www.ur-link.fr/.
process, and accessing detailed financial 3. Ibid.
models for property financing. As an example, How to evaluate your journey with 4. Assess+RE website https://www.assessre.
Assess+RE provides cloud-based services such Fintechs? com/index.html, accessed on August 4,
as property-level valuation models and related In summary, we would recommend reflecting 2017.
financial analysis. on a few questions, which will perhaps help you 5. Venture Scanner.
evaluate your journey with fintechs: 6. “JLL to Acquire Technology Pioneer Corrigo,”
Invest: Companies that have a fair • Change the mindset, from defense to JLL News Release, December 2, 2015.
understanding of the startup business, engagement. Do you still regard fintechs as
substantial funds, and the appropriate Examine your company strategy of working
risk appetite can invest in fintechs with a with fintechs today. Has there been a priority
14Building the Future |
Real Estate Predictions 2018
“Traditional real estate companies
should embrace fintechs in order to
drive operational efficiency”.
15Building the Future |
Real Estate Predictions 2018
Reduce the productivity gap with
robotic and cognitive automation (R&CA)
The continuous technology Understanding the potential of R&CA RE players are also challenged to perform Streamlining record management:
technology in-depth analysis and unlock the insights, as the Optical character recognition with cognitive
advancement is creating and Consider the current situation. Most RE data is not structured in the desired format. technologies can enable lease records, invoices,
enabling more structured companies use manual to semi-automated Consequently, the high level of human and other essential documents that are usually
and unstructured data and processes in some of their key functions such involvement required increases the probability recorded manually or scanned to be converted
as finance, property management, and portfolio of fraud and error. into formats suitable for reporting and analysis.
analyses, respectively. The management. For instance, many companies
real estate (RE) sector has the continue to use spreadsheets for collating and Benefits of R&CA technology Enhancing compliance and risk
analyzing data in areas such as cost aggregation With the use of R&CA technologies, data can be monitoring: RE companies can automate
opportunity to leverage one and analysis, lease management, invoice assembled with substantially less effort and many of their routine risk and compliance
such technology, R&CA, to development, accounts payables, property reduced risk of error. This would allow monitoring activities using RPA. As examples,
valuation, and forecasting. This tends to result professionals to better analyze data outputs at tracking invoices for compliance with
potentially drive operational in sub-optimal utilization of data and an enhanced speed, and make more informed contractual terms or periodic review of lease
efficiency, augment employees since different departments often decisions, all at a relatively low cost. Use of contracts to avoid any potential risks of tenant
work in silos. robotic process automation (RPA) can automate defaults of any contractual obligation can be
productivity, and gain insights manual, repetitive, and often rules-based easily automated.
from its large swathes of data. Several documents-such as lease agreements, processes and tasks. Layering of cognitive
deeds, brokerage contracts, vendor payables automation or machine learning capabilities Improving stakeholder experience:
Written by Jim Berry and Surabhi Kejriwal (US) and credit applications, property management such as natural language processing, natural Reduction in errors and frauds and faster
agreements, and property tax assessments- language generation, machine learning, and turnaround would result in better experience
are still maintained in a physical or digital cognitive analytics would enable predictive for internal and external stakeholders.
format (scanned or spreadsheet). decision making.
Optimizing costs: RPA can decrease costs
This dependence on physical or digital formats Why implement R&CA? drastically and may even end up being cheaper
often leads to process inefficiencies. For Increasing speed and accuracy: RPA can than offshoring. It can enable 24/7 processing
example, substantial time is often spent accomplish mundane and cumbersome tasks, without breaks and holidays.
reading, manipulating, or abstracting paper or such as extraction and digitization of data from
digital documents for relevant information. lease contracts or invoices, faster and more
accurately than people can.
16Building the Future |
Real Estate Predictions 2018
17
17Building the Future |
Real Estate Predictions 2018
How can you implement R&CA? comes with the promise to improve routine
RE companies should consider evaluating tasks radically by making them faster, cheaper,
processes and tasks that can be automated and more accurate. However, it would be
and the technology implementation approach. important for companies to evaluate and
implement data access, protection, and privacy
Evaluate current processes and tasks: RE measures based on the amount of tenants’ and
companies should assess their current employees’ personally identifiable information
processes and tasks eligible for RPA and/ (PII) processed using these technologies.
or cognitive automation. Tasks having large Finally, companies have to break existing silos
volumes of data and repetitive in nature with among people and processes to realize the full
scalability through additional human effort benefit of the technology. For a more in-depth
are likely candidates for RPA implementation understanding about R&CA, please read our
(see figure 2). Roles requiring perceptual report: 2018 Real Estate Outlook Optimize
human skills, such as handwriting recognition opportunities in an ever-changing environment.
or facial identification, and other cognitive
abilities, like planning and reasoning, could References
also be considered. RE companies could even 1. Richard Horton, “The robots are coming,”
consider using R&CA technology for initial Deloitte.
development of future cash flow projections, 2. David Schatsky, Craig Muraskin, Kaushik
tax computations, payables processing, and Iyengar, “Robotic process automation:
payroll applications. A path to the cognitive enterprise,”
Deloitte Insights, September 14, 2016.
Assess the implementation approach: RE 3. David Wright, Dupe Witherick,
companies would need to evaluate the Marina Gordeeva, “The robots are ready.
technology implementation approach that Are you?: Untapped advantage in
they wish to pursue. They could either consider your digital workforce,” Deloitte, 2017.
partnering with R&CA technology vendors
or establish a dedicated R&CA center of
excellence. The approach would largely depend
on the current technological maturity of the
RE firm, their budgets and estimated return
on investment, and the sense of urgency to
automate existing tasks.
Bottomline, like any new technology, R&CA
18Building the Future |
Real Estate Predictions 2018
Expected cost savings through RPA implementation
Prohability of key occupations being Expected cost savings through RPA
affected by automation implementation
9%
Property, real estate, Bookkeeping, 20%
81% and community 98% accounting, and
association managers auditing clerks
RPA technology is expected
27% to help organizations achieve
significantly higher savings and
Appraisers ans Procurement productivity gains
90% 98%
assessors of real estate clerks
45%
Budget Title examiners,
94% analysts 99% abstractors,
and searchers
Savings anticipated by organizations
Less than 10% 20-40%
10-20% 40% +
Note: The numbers mentioned above are based on
the research paper “The Future of Employment: How
Susceptible Are Jobs to Computerization”
Source: Frey, C. B., & Osborne, M. A. (2017). The future
Source: Deloitte Global Shared Services Survey, 2017.
of Employment: How Susceptible Are Jobs to Computerization ?
Technological Forecasting and Social Change, 114, 254-280.
http://doi.org/10.1016/j.techfore.2016.08.019 Source: Deloitte Global Shared Services Survey, 2017.
Figure 2: Expected automation of key real estate occupations and cost savings through robotic process automation implementation
Figure 2: Expected automation of key real estate occupations and cost savings through robotic process automation implementation
19Building the Future |
Real Estate Predictions 2018
Robotics for real
estate services
Digitalization is changing
the real estate sector. What
if buildings will eventually
become smarter than our
processes? RE companies
are more and more starting
to apply this Robotic Process
Automation (RPA) in their
daily business and boost the
efficiency of their workforce.
Nonetheless, looking at the
sector specific processes
and the administrative
effort which is related to the
management of properties,
we find ourselves only at the
beginning of this trend.
Written by Hendrik Aholt
and Volker Wörmann (DE)
20Building the Future |
Real Estate Predictions 2018
Comparing the Real Estate industry with perform more complex “value-add”-tasks, RPA with cognitive or artificial intelligence
other sectors, RE companies are not known as human error or even the potential for fraud is Therefore, another driver is the enhancement
innovation leaders or early-adaptors in terms a relevant business risk. of RPA with cognitive or even artificial
of technology. For some companies, Robotic intelligence (CI/AI). This connection enlarges
Process Automation (RPA) might still sound RPA helps with the execution of such the area of application from simple “following
like a technology of the far future and others transactions. Furthermore it can support the rules” to judgment-based processes
might confuse it with an R2D2-like physical automatic extraction of data from various and predictive decisions called cognitive
machine. But due to the ongoing extension systems, structure and format those automation. Today, an RPA-enhanced process
and obvious business potential, RE companies information and distribute those reports will just stop and inform the respective
are more and more starting to apply this automatically resp. makes them available employee that something unexpected
technology in their daily business and boost for download. This can be done for entire happened. Enhanced by CI/AI, use cases
the efficiency of their workforce. Nonetheless, portfolios, administrative units or single will be possible, which include decision
looking at the sector specific processes and facilities and can be considered as an easy preparation, structured suggestion and
the administrative effort which is related example for the application of RPA. Especially prioritization of alternatives or even direct
to the management of properties, we find for the real estate sector, there are far more decision making in the future. Involving
ourselves only at the beginning of this trend. areas of application that are currently not multi-dimensional data sets that may span
utilized, though. The general potential is across time horizons and geographies and
To start with a short explanation – the idea illustrated in figure 3. include terabytes of unstructured data, those
behind RPA is simple: RPA, which is basically a decisions maybe more accurate than any
software, automates manual, repetitive and Key drivers of RPA in the future human being could ever make them.
rule-based processes and tasks. It is linked As stated above, RPA already helps to reduce
with end-user software like ERP-systems, manual effort with data intensive activities The potential of RPA in real estate
MS-Excel, internet pages or email programs following trained processes. The future Although the potential for this technology is
and then carries out manual labor-intensive importance of this function correlates with already high, we expect a strong development
tasks automatically exactly as programmed the increasing digitization of the real estate within the field of process automation during
in its RPA-source code. sector and the growing number of smart the next years in the real estate sector. In
buildings. Already today, many companies addition, investments in CI/AI are high and the
What’s in it for real estate companies? are struggling to make use of the masses of smarter the technology gets, the more use
The obvious and already most tackled unstructured data produced by buildings cases will emerge. Therefore it is no question, if
area of application is the back-office, e.g. and integrated technology. In addition, the the technology will become more relevant in
the accounting department. Tasks in this high number of different data formats causes the future, it is rather, which companies will use
department are often showing a relatively difficulties that increases the effort or even it first to get a decisive advantage over their
high share of repetitive and structured prevents its usage of the data. RPA will be an competitors by benefiting from efficiency gains,
processes. To keep track of all invoices, important factor for converting this data into cost and risk reductions in the short term or –
payments, renewals and credit applications is relevant information, but it cannot interpret combined with CI/AI – even a real competitive
a lot of work that is currently often performed the data by itself. differentiator in the long term.
with a significant amount of manual effort.
Despite the lost time for the employees to
21Building the Future |
Real Estate Predictions 2018
Project Development Asset Property Facility
Management Managment Managment
Planning and Maintenance,
Logistics
Design Analysis Commercialization
testing, inspections
Execution and Contract
Accounting and Business continuity,
construction Administration Administration
Reporting planning
Monitoring and Space allocation
Billing Life Cycle
controlling systems Letting
Management and changes
Location Strategy Transaction and Valuation
Research of sites Site Analysis Decision - making Due Diligence Valuation Decision - making
Execution and Actual sales
Due Diligence (Risk) Analysis
construction process
Support Functions
Accounting,
Audit and Data Mining and -
HR IT Controlling & Legal Legal
Compliance analysis
Reporting
Opportunities for Automation Low medium high
figure 3: General potential of implementing RPA
22Building the Future |
Real Estate Predictions 2018
“Which companies will use RPA first
to get a decisive advantage over their
competitors?”
23Building the Future |
Real Estate Predictions 2018
Transforming
real estate
operations
This article outlines the
opportunity for public sector
real estate organizations
to fully embrace digital
disruption, transform their
property operations &
portfolios, and benefit from
the learnings of the private
sector.
Written by Sheila Botting (CA) and
Francisco J. Acoba (US)
24Building the Future |
Real Estate Predictions 2018
Many private sector organizations have Transformation of the existing real estate • Space “ownership” costs, entitlements, and
transformed their corporate real estate operating models inefficiencies
operating models over the last decade, and Public Sector Real Estate Service Delivery • Highly complex governance, budget, and
this transformation provides tremendous Operations have a unique opportunity to approvals processes
opportunity and “lessons learned” for public transform and deliver effective and efficient • Limited budgets for technology/operations/
sector real estate operations around the globe. services to benefit their client organizations. capital and asset management
Specifically, many organizations are moving The public sector is collectively the world’s • Limited real property expertise to lead and
away from highly fragmented, inefficient largest service provider. Any deliver solutions across multiple property
operating models, and are turning toward asset classes
center-led, high performance operating models favorable amelioration in public services will • Fragmented outsourcing arrangements that
to deliver a wide range of services for their favorably impact millions of people, which calls fail to deliver true cost and efficiency benefits
diverse organizational real estate requirements. for a radical transformation of the existing • Traditional use of space, often with outdated
real estate operating models. The need to workplace environments that fail to inspire
Digital disruption is affecting virtually all centralize operations, reduce the cost of back- innovation and new ways of thinking
sectors of the economy and real estate office processes, and minimize inefficiencies is • Wasted opportunities, typically available
The global economy has been experiencing the standard expectation across businesses through a location, holistic strategic
synchronized, broad based and strengthening today, which has benefitted private sector perspectives and team
economic expansion. Digital disruption is tremendously. The public sector can learn and
affecting virtually every sector, including all implement many of the lessons learned from The real estate and construction market has
property types that influence demand and this experience. been changing over the past few years. In this
supply for office, retail, industrial, institutional, regard, Deloitte Real Estate conducted research
land and specialized property asset classes. Decentralized operating models result in with our many global clients and the CoreNet
As a result, property operations and platforms tremendous inefficiencies Global professional industry association to
need to fully embrace digital disruption, and The existing public sector decentralized real analyse market trends.
specifically impacts on property in order estate operating model presents a wide range
to help their business to remain relevant of inefficiencies that affect their respective
and modern within the dynamic economy. client organizations including:
Unfortunately, Deloitte’s “Future of Work” • Higher costs due to the need for more
research has identified that public policy tends resources to deliver services
to lag behind technological advancements. As • Inefficiencies and duplication across multiple
such, organizations should consider exploring teams
high performance real estate operating models • A larger footprint to serve the multiple
to potentially help organizations embrace programs
technological change.
25Building the Future |
Real Estate Predictions 2018
Directions toward a centralized high Direct/Center-led Model 77%
performance real estate service delivery
model
Three key findings indicated by recent CoreNet
Indirect/Advisory Model 18%
Global / Deloitte Consulting research are listed
below:
1. CRE organizations continue to deploy 5%
direct/center-led operating models
Many corporate real estate organizations have
recently redesigned or are planning to redesign
their operating models and organizational figure 4: CRE organizations continue to deploy direct/center-led operating models
structures. As shown in figure 4, research
participants indicate that they are shifting
towards center-led operating models in order
to drive strategic alignment, cost reduction,
economies of scale, standardization, and
continuous improvement.
Direct/Center-led Model 21% 49% 17% 6% 6%
2. Decentralized operating models drive
lower levels of satisfaction from CRE
organizations Indirect/Advisory Model 36% 36% 18% 9%
As shown in figure 4, 77% of survey
respondents have deployed a direct/center-led
operating model. Furthermore, as shown in 67% 33%
figure 5, research indicates that the direct/
center-led operating model is associated with
the highest level of satisfaction (70% very
satisfied or satisfied), compared to other more
distributed operating models.
figure 5: decentralized operating models drive lower levels of satisfaction from CRE organizations
26Building the Future |
Real Estate Predictions 2018
3. CRE organizations are increasingly portion (5%) of CRE organizations serve as a
serving in the role of strategic partner traditional ‘Task Manager’ that largely responds
Corporate real estate is moving up the value to requests and is task oriented
chain and, in many case, earning a “seat at For the public sector, moving beyond a Task
the table” with senior leadership. That said, Manager role toward a strategic partner
CRE organizations that aspire to be a strategic or visionary role represents a tremendous 21%
partner are often challenged to do so based opportunity and enables evolution towards a
on the current positioning of the CRE function. high performance delivery platform. 29%
The industry-wide War for Talent and important
Advisor
role that CRE can play in creating innovative Summary
and high performance workplace environments Real estate and real property organizations 5% Strategic Partner
provides an opportunity for the CRE function that are structured in a decentralized manner
to inspire the enterprise and improve its often leverage generalists across property Task Manager
positioning. types and requirements. These organizations Visionary
may or may not possess deep functional skills
As shown in figure 6, CoreNet Global / Deloitte and may need to source these capabilities
Consulting research indicates that most from 3rd party service providers. In contrast,
organizations have evolved their CRE functions organizations that have deployed direct/center-
to incorporate the concept of strategic led operating models tend to internally host 45%
partnering: the functional skills required to drive a wide
range of real estate activities, from strategy
Nearly half of the survey respondents indicate to planning to asset management to change figure 6: CRE organizations are increasingly serving in the role of strategic partner
that their CRE organization serves as a management.
‘Strategic Partner’ in supporting customer
demands by designing and delivering end-to- Corporate real estate operating models
end strategies and solutions continue to evolve with advancements in
technology and newly emerging workplace
The balance of the CRE organizations serve as expectations. Never before has it been as
an ‘Advisor’ (corporate real estate is proactive critical for the CRE organization to “step-up” its
in interacting with customers and primarily game and deliver best-in-class services across
focused on transactions and projects) or as a a wide range of property types and occupier
‘Visionary’ (corporate real estate focuses on groups. Organizations should consider the
unlocking enterprise value and a key business benefits of the direct/center-led operating
partner leading to leverage real estate as a model to drive change and deliver within an
value protector and creator) ever changing environment.
Across research participants, only a small
27Building the Future |
Real Estate Predictions 2018
The future of commercial
real estate
For this RE prediction, experts of Deloitte Real Estate Consulting teamed up with the
colleagues from the Deloitte Center for the long view. Using the innovative approach
of Scenario Thining paired with Data Analytics, the following prediction shows what
we believe will be the most likely scenario for the future of the commercial real estate
industry:
The current development of technologies in an era of digitization and automation, will
lead to a massive disruption of the industry. Today’s job profiles will change as well
in their demands as in the way the work is executed. Low-skilled, blue-collar workers
without digital expertise will become obsolete to a significant extent. White collar-jobs
will be more data-driven and often be performed remotely, changing the demand for
office spaces, their fit-out and their infrastructure. Increasing gaps in the incomes of
the educated working class and unskilled workers are likely to emerge. Due to that, new
social concepts like unconditional basic income will be evaluated and implemented. This
development will reshape the commercial real estate landscape fundamentally, changing
the market players and their share of the real estate value chain.
Written by Jörg von Ditfurth (DE) and Hendrik Aholt (DE)
How we work How we shop
The total amount of office square meters is The overall demand for retail real estate assets
likely to reduce, due to the tendency to work will further decline due to online shopping or
remotely, but people will still go to the office even 3D-printing at home. Just-in-time logistics
from time to time. The office spaces will be are standard; deliveries by drones are safe
mainly downtown in fully modernized or newly and fast. Logistics centers are located at the
built high-tech buildings, which are highly periphery of the city, releasing space for other
efficient and dedicated for to interaction and uses in the city center. Luxury high street miles
teamwork. It is where colleagues or business will probably still be existing, thanks to their
partners will meet to develop ideas and make leisure “see-and-be-seen”-function, but smaller
direct social contacts. Public Transport and retail shops in decentralized regions will see
autonomous cars will reduce time effort to increased pressure. Shopping malls will need to
reach offices. develop more event-driven concepts that meet
the demand of new customers, to experience
rather than to shop.
28Building the Future |
Real Estate Predictions 2018
Who will earn money with real estate Cashback for real estate investors The governments will make sure to benefit
assets in the future? Currently, the direct cashback for real estate from those new developments through new
In the following chart, we forecasted the investors arises from the rental income. In the tax models (new digitization- or “robot taxes”).
distribution of the future rental income future, a second source of value will become This additional income will be needed to fund
between the market participants, compared more and more relevant. The worth of the the increased costs for the mitigation of social
with an estimated status quo. As a basis, we collected user data, which is likely to become problems due to increased unemployment.
have set today’s market rental level as 100. a component of rental repayments to the The banks of the future will be able to take
investors. The “classic rent” as we know today advantage of the high degree of debt financing
As a basis, we have set today’s market rental will decrease, but taken the value added of the for property projects to fund expensive building
level as 100 (see figure 7). collected data into account, the total value that technology. However, crowdfunding platforms
can be generated from the assets will increase. and FinTechs become strong competitors,
The overall price movement will be moderate, leading to a lower share of the value chain for
since digitization increases productivity the banks.
Real Estate Value Chain and efficiency and lowers the demand for
commercial real estate in general, leading to an The impact of tech companies
oversupply of space. Tech companies, today an almost irrelevant
Status quo market participant, could be the greatest
Regarding the individual market players in beneficiaries. Current tech giants or dedicated
Future the real estate sector, real estate brokers will startups will find their way into the real estate
become less relevant due to higher market sector, which becomes more attractive the
02 0 40 60 80 100 120
transparency and more automated, direct more data it generates. Those companies will
rental negotiations between owners and establish data-driven business models that
Broker State Bank lessees. In general, real estate transactions add value for the tenants, while simultaneously
Infrastructure Provider Facility Management Technology Companies will often be based on technologies like collecting user data. Supported by the high
blockchain, reducing the need for all kinds of tech environment, combined with their
Owner
intermediaries. comprehensive experience in digital business
models, these tech companies will conquer the
construction and facility services sector, gaining
figure 7: Real Estate Value Chain
a large share of the value chain in the real
estate sector, if current players cannot explore
and utilize this data-gold by themselves…
29Building the Future | Real Estate Predictions 2018 A call for realism in blockchain expectations The real estate community is increasingly aware of the significant potential that blockchain holds for its industry. Numerous successful trials and several Initial Coin Offerings (ICO’s) have been announced and the surge in new applications, working examples of the technology and new business models has only just begun. Written by Jan-Willem Santing (NL) Although the property market is thriving and there is a temptation for major players to focus on the more immediate quick wins, we are seeing a definitive breakthrough of PropTech innovations in the market. Blockchain is on the agenda of the CEO of almost every real estate company. But blockchain is not necessarily the solution for every item on the agenda. 30
Building the Future |
Real Estate Predictions 2018
Thanks to innovative technologies such as by the RICS2 gives insights as to how Of course, some of these solutions aren’t
blockchain, data driven real estate building-related data, including physical, mature at this stage or don’t comply with the
management is in “acceleration” mode and performance and financial information, is existing rules and legislation, as with many
with this, the role of real estate professionals currently being captured and managed by key new developments. It’s going to take effort,
is facing radical changes. Two factors that sector representatives. The main conclusion time, vivid examples, perseverance and the
must not be underestimated are: the current is: ‘While the report lists an encouraging creative minds of the innovators amongst the
quality of data held by real estate companies number of good practice examples and public pack in the upcoming years to progress this.
and the incentives of the current and private initiatives, the overriding message
“powerhouses” to limit data sharing. The of the survey findings is that the Federated Real Estate Data network (FRED)
transparency issue is a long-standing, fragmentation and silo-thinking that the For the real estate industry we envisage a
pre-blockchain obstacle in the real estate sector is known for also translates into the federated real estate data network, FRED.
sector, and remains a tough nut to crack. The way it handles its data. The report concludes FRED represents a federated, distributed
attitude of leading agents in the market that in terms of effective data capture and network for exchanging real estate
towards this point has to change and it is subsequent management of that data, the information between administrative systems
inevitable that at some stage they are going sector still has some way to go’. (FRED members). FRED members would all
to have to share confidential data with other manage their own information and
players in the life cycle as digitisation Promising use cases communicate directly with each other via an
continues. Parties who are not willing to share Blockchain is still in its early days for the real Application Programming Interface (API) that
their confidential data, in a secure and estate industry. The limited scalability of allows them to exchange structured
trustworthy way, may see economic blockchain, lack of standardised and easy to information/data.
disadvantages from such behaviour in the exchange data are challenges that need to be
future. tackled in order to make mainstream
adoption possible. Despite this observation,
Privacy, data ownership, exchange of data we’ve seen several promising uses of
based on international agreed standards and blockchain around the globe:
improvements in the quality of data are going
to be the major issues in 2018 and the years - Digitised purchasing of real estate via Bitcoin
ahead. International efforts, such as the - Tenants paying sums due under their leases
research, started by IREDEC, late 2017, 1 is a (rent, service charge, insurance, etc.) in
necessary and important step for the Bitcoin
adoption of blockchain in the real estate - Peer2Peer asset trading
industry. The purpose of the IREDEC is to - Transfer of ownership
identify a core data set for different real - Crowd ownership and or finance of
estate processes and perform a complete real estate
mapping exercise between existing standards - Rental contracts via blockchain
to ensure alignment for the agreed upon data - Real estate data exchange platform
set. Another important research, conducted - Self-executing smart buildings
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