Digitalization and innovation: opportunities and risks of the transformation in the real estate industry

When considering the speed at which digital transformation is taking place in almost every aspect of life, the progress seems to be racing ahead. At the same time, this rapid advancement presents unprecedented opportunities—not only to capitalize on potentials within respective business sectors but also to overcome many of the challenges faced by the real estate industry and beyond. The pace of development can sometimes be daunting. Therefore, it becomes crucial to familiarize oneself with potential solutions.

What does digitalization of the real estate industry mean?

In the narrower sense, digitalization simply refers to the conversion of analog data into digital format. However, when we talk about the digitalization of the real estate industry, it encompasses much more than that. It involves the digital transformation, leveraging digital possibilities, and strategically identifying and harnessing the potential that arises from digital technology. The more interconnected digital communication becomes, the more solution options arise. But these solutions also become increasingly complex, and thus, the end of this ongoing change is not foreseeable. Hence, the term “disruption” is used, as traditional products and services are being replaced and/or displaced by digital innovations.

What does digitalization mean for the real estate industry?

The digitalization of the real estate industry is leading to a fundamental change in the sector and opening up new perspectives for more efficient processes and innovative business models. It is a comprehensive change that affects all areas of the real estate industry and the entire life cycle of properties. It starts with the planning and project development phase, extends to financing, encompasses building operations including property and facility management, and has made significant advancements in rental and marketing activities. Moreover, it serves as a foundation for asset and portfolio management.

Today, no commercially used building can do without digital control of water consumption, lighting, heating, ventilation and digital access systems. The same applies to residential buildings that are becoming increasingly “smarter” with more digitally controlled processes. While office buildings are still in the planning stage, they can already be visited using a “digital twin” concept, which enables virtual tours and simulations.

In the project development and construction sector, Building Information Modeling (BIM) has become indispensable. It consolidates and streamlines the respective processes, ensuring that all necessary data is available for the operation of the property later on. Financing is now not only provided by banks but also through crowdfunding platforms on the internet. Other buzzwords in financing are blockchain and cryptocurrency. Asset and portfolio managers no longer rely solely on Excel spreadsheets. To meet the future requirements of ESG taxonomy, they will increasingly count on appropriate solutions that enable scoring by leveraging the multitude of necessary data.

Simply put, there is no area in the real estate industry where digitalization does not offer solutions for existing tasks and challenges.

What is the status quo of the real estate industry's digitalization?

Despite the recurring lament that the real estate industry lags behind in digital transformation, the latest digitalization study by ZIA and EY Real Estate paints a more nuanced picture. The survey of 220 employees from real estate-related companies and interviews with experts in the real estate industry revealed that 90 percent of the companies agree that automated processes are essential for the long-term sustainability of their businesses. Additionally, almost all respondents “acknowledge the thesis that ESG criteria can only be implemented with digital technologies and applications.”

At least 60 percent of the surveyed real estate companies are investing between one and five percent of their revenue in digitalization. However, 22 percent still allocate less than one percent of their revenue for this purpose. While 85 percent consider themselves “well-positioned” in terms of digital infrastructure, the study revealed that for 40 percent of respondents, the proportion of automated processes is no more than ten percent, and for 60 percent it is just seven percent. In short, the digital transformation of the real estate industry is making progress but still has plenty of room for improvement.

What are the benefits of digital transformation for the real estate industry?

The digital transformation offers two invaluable advantages, not only for the real estate industry but in general. Firstly, it enables the automation of repetitive tasks, including activities such as payment processing, controlling, document analysis and reporting. Secondly, it provides comparability and quick access to data, which is particularly crucial in decision-making processes.

Why should the real estate industry venture into digital transformation?

There are now two additional arguments that make digital transformation almost inevitable in the real estate industry. Firstly, the shortage of skilled workers, where the automation of processes can provide a solution, at least in certain areas. Secondly, the requirements of the ESG taxonomy cannot be met without digitalization. Another point, both in construction and project development, but also in building operations, is the necessary reduction in energy and resource consumption. And wherever customers/users/tenants are involved, digitalization helps to fulfill requirements more quickly, thereby increasing customer/user/tenant satisfaction.

What are the obstacles to digitalization in the real estate industry?

It is rarely a mental hurdle as to why the real estate industry is not exactly a pioneer of digital transformation. It is rather a healthy degree of pragmatism in deciding what can be easily implemented and promising in terms of success. The focus is on utilizing digital applications to increase productivity and reduce costs.

What are the challenges in digital transformation?

Nearly half of the companies surveyed in the ZIA/EY study identified user acceptance as a challenge. As with any major change, it is often the employees who resist. In such cases, effective leadership and proper change management are crucial to ensure that employees respond positively to the changes and innovations and actively support them.

Many consider a non-transparent data structure, poor data quality, and outdated, non-integrated software as significant issues. It is often not the lack of data that is complained about, but rather the fact that this data is stored in different systems (silo solutions) that need to be linked together, often resulting in a loss of data consistency. Central data platforms that function within the company and are accessible to other stakeholders currently face challenges due to the lack of standards.

And a major challenge, not only for the real estate industry but for digitalization in general, is data security and the defense against cyberattacks. Hence, cybersecurity must always be a part of any digital strategy.

Where do companies see the greatest opportunities in digital transformation?

The greatest opportunities are seen in areas where digitalization has already made significant progress: invoice processing, controlling, document analysis, reporting and payment management.

There is also a high assessment of the potential in marketing, maintenance planning, property valuation and tenant communication. However, where digitalization in the real estate industry needs urgent further development is in project development and construction—both in terms of resource conservation and considering rising construction costs and property prices, the use of digital technologies would be crucial.

Where is the digitalization of the real estate industry heading?

First and foremost, data and its processing and analysis will continue to grow (Big Data/Data Mining/Data Analytics). And decision-making processes will increasingly rely on this development. Already on the rise are BIM (Building Information Modeling) and the “digital twin,” as well as “Virtual Reality” or “Augmented Reality.” Another emerging trend is the increasing use of robotics and alternative transportation methods, such as drones. IoT, the Internet of Things, allows for the interconnection of physical objects, enabling them to exchange data. And only beginning to be understood are the changes associated with the advancement of artificial intelligence (AI). One thing is already clear: for a company to remain successful in the market, digitalization is essential.

Why is it worth visiting EXPO REAL?

EXPO REAL offers a wealth of knowledge and expertise on digitalization of the real estate industry, among many other trade fair topics. By attending, you will gain a valuable competitive edge as you will have firsthand access to the latest technological trends and innovations in the real estate sector.Trade fairs are known for creating unique synergies for both exhibitors and visitors. Therefore, be there when decision-makers and experts from the real estate and digital industries discuss new digital solutions for practical implementation.

Visiting EXPO REAL also allows you to establish valuable connections. Take advantage of networking opportunities with experienced professionals and entrepreneurs from various sectors of the real estate industry.