Innovation in the real estate industry: more than digitalization and PropTech

May 27, 2019

Today, if you deal with the issue of innovation in the real estate industry, you will soon realize that the debate boils down to two topics: digitalization and property technology start-ups. This reduction is regrettable as other aspects, such as business model innovations and social innovations, are neglected. The question of how traditional companies become innovative is consequently not given the required attention.

However, regardless of this, it is good and urgently necessary that technology enthusiasts at approximately 7,000 companies across the globe are boosting our traditional industry, making us think about changes and getting things moving. Following proposals by its innovation advisory board, the German real estate industry association ZIA has also reacted by setting up a digitalization committee. This group systematically deals with questions of digital transformation and has identified three essential fields of action: handling of data, further development of business models and—probably the most challenging field—developing the mindset among staff.

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First point: How can we improve the handling of digital data?

Data are often referred to as the oil in the digital economy. But how are they found, extracted, refined, distributed and used with a financial yield in the real estate industry? Which data points does information have to provide? How can these files be stored and prepared without having to make compromises in terms of security or compatibility? There are still some major hurdles to be overcome: instead of making important data available to all players, and creating standards and interfaces, the mentality often prevails that hoarding data and using it exclusively will achieve better financial returns. Not just that, the idea, the business case, of how the data can actually gain value is often still lacking.

Second point: How can digital business models be developed?

This leads us to the second point: how and in which segments along the complex value chain in the real estate industry can digital business models be developed? In this case, both the continued development of existing models and the set-up of completely new ones come into question. Digital business models are characterized in particular by scalability and a virtual performance promise, which limits their development in the real estate sector. In the end, it is often individual buildings in a specific location that fulfil at least part of the performance promise. One increasingly important point is the question of customer orientation. The industry is in the process of discovering the customer behind the tenant. Digital technologies are creating and supporting this trend as they allow us to identify individual needs and satisfy them in a commercially meaningful way.

Third point: How do we get from the traditional way of thinking to the digital mindset?

Despite the rapid development of modern technologies, the success or failure of digital innovation depends on people. Employees should be willing and able to use new technologies and accept changes to processes as positive developments. The fact that so many companies are finding it hard to further develop their business models is chiefly related to the traditional way of thinking. Changing this is indeed the greatest challenge for innovation in the real estate industry and digital transformation. A healthy “digital mindset” includes an innovative culture that allows the principle of trial and error—as well as agility, adaptability and so-called DevOps, i.e. the continuous development of existing products in ongoing operations.

Conclusion: Unleashing innovative power in the real estate industry

The traditional companies in the real estate industry should not just deal with the purely technical obstacles, but also the structural and cultural obstacles that hinder their own innovative power. Perhaps the current market situation, the perseverance of well-practiced market mechanisms and the existing resources are still giving them an advantage over the young PropTech companies and other competitors, who do not have to carry the burden of tradition. This advantage will, however, be put into proportion in the coming years due to further technological developments. Current demand trends clearly indicate changing user requirements that call for much more dynamism, flexibility and individuality.

Dr. Thomas Herr

EMEA Head of Digital Innovation