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The commercial real estate (CRE) sector has a reputation of being slow to adopt new technologies. However, it is undergoing a significant change.
Digital transformation is already being used by industries across the board to drive customer experience, boost sustainability, create an inclusive workplace, and more. In CRE, it promises to revolutionize the way properties are managed, transactions are conducted, and value is derived.
Indeed, according to a 2020 report by Ernst and Young, 69% of commercial real estate leaders consider technology as a strategic agenda a high priority. The benefits of digital transformation, from Artificial Intelligence (AI) to cloud adoption, are clear. For example, as per a 2024 McKinsey article, real estate companies gained over 10% or more in net operating income through the use of generative AI.
However, digitalization comes with challenges that CRE stakeholders must navigate. In this article, we explore the key challenges of digital transformation in commercial real estate so leaders can be better equipped to overcome them.
One of the most significant hurdles in commercial real estate digital transformation is the prevalence of legacy systems and outdated infrastructure. Many CRE firms rely on old software and manual processes for property management, leasing, and financial operations.
For instance, according to Deloitte’s 2024 commercial real estate outlook, 61% of global real estate owners and investors are still dependent on legacy technology infrastructures.
61% of global real estate owners and investors are still dependent on legacy technology infrastructures.
Such legacy systems are often incompatible with new technologies, making integration difficult and expensive. Transitioning from these outdated systems requires significant investment in time, money, and training, which can be a deterrent for many firms.
Furthermore, despite their reliability, legacy systems can morph into a comfort zone for your team. The familiarity and perceived disruption of adopting new technologies can lead to resistance to change.
Such resistance might manifest in various ways, including apprehension about learning new processes and concerns about potential downtime during the transition.
Safeguarding sensitive client data is fundamental to maintaining trust in successful business-client relationships. However, ensuring the security of this data can be a challenge, especially in the digital age, where data breaches pose a constant threat.
Vast amounts of data are generated in CRE, from tenant information to building maintenance records and financial transactions. Managing this data effectively can be difficult.
Furthermore, the consequences of a breach can be far-reaching, impacting clients’ trust and potentially leading to legal repercussions.
CRE firms must ensure that data is collected, stored, and analyzed efficiently to drive informed decision-making. Implementing effective cybersecurity measures and adhering to data protection regulations is crucial.
When it comes to digitalization, the expenses associated with acquiring new technologies, training staff, and maintaining digital systems can be a concern, especially for smaller companies with more limited budgets.
CRE companies naturally want reassurance that these investments will yield a clear return over time. Additionally, the ROI for digital transformation can be difficult to quantify, making it challenging for stakeholders to justify upfront expenses.
It’s essential to recognize that the returns on such investments may take time to materialize. While the benefits of digitalization are substantial, they may not always be immediate.
To mitigate implementation costs, CRE firms should carefully evaluate their digital strategies and prioritize investments that offer the greatest potential for long-term benefits.
When it comes to digital transformation in commercial real estate, adopting and integrating different digital tools can be complex.
The CRE ecosystem includes various stakeholders, each using different technologies and platforms. Integrating these disparate systems to create a cohesive digital ecosystem can be challenging.
Effective digital transformation will need seamless communication and data sharing between property management software, financial systems, building automation systems, and other digital tools.
Achieving this level of integration often requires custom solutions and collaboration between technology providers and CRE firms.
The successful implementation of digital transformation depends heavily on having skilled talent.
However, there is a notable shortage of professionals with the necessary skills in technology, data analytics, and digital strategy within the CRE sector. Attracting and retaining top talent in these areas is crucial, but can be challenging due to competition from other industries that are also undergoing digitization.
CRE firms must invest in upskilling their existing workforce and offering attractive opportunities for technologically-savvy professionals. They also have the option of outsourcing skilled labor to aid in the digitization process.
The CRE industry is heavily regulated, and digital transformation initiatives must comply with various local, national, and international regulations. Note that evolving regulations are shaping not only data management, but also the implementation of sustainability practices.
Evolving regulations are shaping not only data management, but also the implementation of sustainability practices.
Complying with regulations not only helps to avoid penalties, but also highlights a commitment to ethical and sustainable business practices, which consumers increasingly value.
However, navigating regulations can be complex, especially when implementing new technologies that may not have established guidelines. Therefore, it is crucial to address this challenge with a well-defined strategy.
Digital transformation efforts often require collaborating with multiple vendors and technology partners. Managing these relationships can be daunting.
CRE firms must navigate a crowded marketplace and identify vendors that align with their business objectives and values.
This selection process requires a meticulous approach, and conducting due diligence, including performing background checks, requesting references, and conducting interviews, can simplify the process.
By gathering this information, one can gain valuable insights into the vendors’ track record and capabilities.
Additionally, effective vendor management will involve clear communication, regular performance evaluations, and a collaborative approach to problem-solving.
Effective digital transformation is swiftly becoming a bedrock for success in commercial real estate.
CRE firms need to rethink their value chains and take data-driven, analytical approaches to navigate the shifting landscape. Companies that treat the challenges of digitalization as opportunities will be better positioned as industry leaders.
Silverskills can implement commercial real estate digital transformation, making your company more resilient, innovative, and efficient. Contact us now for our digital transformation solutions.
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