A series of paradigm shifts and emerging challenges face the contemporary commercial real estate industry, which it can no longer address using outmoded strategies and legacy systems. Rising operating and labor costs are making a purely reactive approach to operations and maintenance untenable. A rapidly changing regulatory environment, in response to the climate change crisis, could make some of the more inflexible of existing business models redundant. Meanwhile, an entirely new demographic of customers adds another set of challenges, not the least of which are growing millennial expectations for more personalized, responsive and lifestyle enhancing occupant experiences.

Most assets and conveniences in a modern building – including electricity, escalators, elevators, water, sprinkler systems and fire-fighting equipment – are automated and siloed within disparate systems across large portfolios. Further complicating this scenario is these automated systems are supplied by a multitude of vendors, each with their own product specific software protocols.

Effective digital tools are the obvious candidate to unify operations of such complexity. However, existing solutions have been either too inflexible to accommodate the continuous industry changes, or too narrowly defined to integrate the entire spectrum of technology and automation embedded in a modern CRE portfolio. Building owners have depended on CMMS, as the standard approach to provide a digital operations layer to automation in recent decades, but this is a choice inherently limited in its scope and efficacy. For truly predictive and responsive automation and asset optimization, CRE needs its own revolution in data-driven operations, enabled by digital solutions created specifically for the industry, rather than repurposed solutions from other sectors and verticals.

Why the CRE industry has been slow to adopt data-driven operations

The smarter, more effective model for CRE portfolios is one that deploys AI-led cloud platforms, which allow owners and FMs to acquire, aggregate and harness operational data from multiple sources across siloed systems, to generate actionable insights, predict and resolve anomalies, and achieve optimal operational outcomes. The FM role is transforming towards tech-enabled value creation and connected services data-driven operations, allowing FMs to be proactive rather than reactive. Understanding why the industry has lagged in adopting such an approach, until now, requires FMs to take stock of some of the industry’s previously established practices and business models.

CRE is a huge industry, albeit a fragmented one involving multiple stakeholders, which has been one of the reasons that developing software and technology that is fit for purpose is challenging. The truth is that the CRE industry been slow to adopt data-driven operations in FM for a multitude of reasons:

  • The data required to manage CRE is vast and includes multi-vendor automation systems, dealing with regulations, interacting with tenants and vendors, overseeing portfolio-wide operations, and managing operating cost. Several unique workflows are required to meet these needs and until recently, no truly comprehensive solution was on offer.

  • The CRE industry was stuck in a traditionalist mindset, and for most part had been managed more by instinct and a “gut feel” style of management. Industry leaders were reluctant to change, on a ‘why fix what isn’t broken?’ premise.

  • Although the industry has incorporated some digital tools, the compiling, cleaning, storing, and leveraging of real time data is still overall sub-par.

  • The legacy software used today does not support data integration very well, so it is hard to consolidate all the information gathered. This has been the biggest drawback for CRE FM and why it has been playing catch-up to other industries.

  • Despite sizable CRE operations garnering huge volumes of data, most of it is not subjected to analysis. Even in instances where some decisions are based on data, the scope is limited and not at enterprise scale, or available to all stakeholders.

Predictive insights on facilities’ failure & condition

The most empowering impact of IoT on CRE operations, both at a single venue and portfolio wide scale, is that all its previously siloed systems and assets can now be integrated to enable true granular visibility and transparency across all the facets of an entire business. Powerful AI based analytical tools and machine learning algorithms can then render this highly specific data into accurate diagnosis and actionable insights, which in turn lead to reliable decision making. Instead of predetermined or reactive maintenance, facility and asset managers can be predictive and proactive, by being able to extract information from current performance and context from medium to long term system behavior.

Preventing a system breakdown, instantly identifying the ‘bottle-neck’ in an issue, and continuous monitoring of each individual asset, is not only cost-effective but also decisively restricts downtime and enhances tenant experiences. Such positives enhance brand perception and competitive differentiation, maximizing occupancy rates and leading to better ROI. These advantages are not lost on the CRE industry. In the ‘2020 State of CRE Operations 3.0’ report issued by Facilio Inc., 77 percent of respondents among CRE developers identified creating ‘experiential spaces with impressive uptime of facilities’ as the strategy driving their budget allocations.

Evolving consumers: Attracting millennials & GenZ

CRE facility and asset managers are realizing their customers have evolved to new preferences, priorities and behavior profiles. The contemporary consumer is accustomed to real-time services and an experience economy, hence the rise of app-based service provision, such as Airbnb, Zomato and Uber. The new generation of customers is used to seamless access and instant gratification. The consumers most invested in this technology are millennials and GenZ, who are citizens of a digital age, and this growing demographic is leaving an especially indelible mark on the CRE industry.

According to an article in Forbes, “It's not news that millennials have a huge impact on the workplace. Already accounting for 50 percent of the workforce and set to make up nearly 75 percent by 2025, they're certainly not going anywhere.” Millennials and GenZ are young and tech-savvy and will accept nothing less than a smart office experience in their professional lives. CRE owners and FMs must evolve in step with these changing customer expectations and this is yet another emerging trend that embracing data-driven operations helps address.

Differentiating ROI in a competitive market

As with any commercial activity, effective ROI is a great measure of success in real estate as well. That CRE businesses are considering, or actively migrating to, the data-driven buildings strategy is largely due to their need to capture a market share that makes their business model viable. According to Deloitte’s 2019 Commercial Real Estate Outlook, “CRE companies should reimagine tenant experience by weaving technology throughout the tenant life cycle. This can help strengthen tenant stickiness and therefore valuations… Companies could also leverage technologies such as IoT, AI, and predictive analytics to (re)develop and tailor existing or new buildings to suit changing tenant preferences and to anticipate tenant needs.”

Future-ready CRE is data-driven CRE

Moving forward, connected buildings empowered by data-driven operations (IoT, AI and ML) will be the norm and the non-negotiable standard. They are the future and it is already here. Smart buildings are the building blocks of smart cities and owners must recognize that their physical assets need to be effectively mapped into digital data, for their business to be future-ready. To this end, FMs are now being brought on board at the conception stage, even before construction begins; existing building stock is being retrofitted to be digitally compatible and a new era of cognitive technologies embraced, by CRE operations.

A growing trend that is rapidly gaining prominence in the industry is the use of enterprise scale platforms that allow facility and property managers to access real time data that and to monitor assets at portfolio level. Seamless connectivity, streamlined operations, increased productivity, and data informed decision making will differentiate the leaders from the also-rans, in commercial real estate. Far from a mere exciting innovation that can be leveraged by a privileged few to extract competitive advantage, the IoT, AI and ML based centralized software platform model looks set to emerge as a new standard operating procedure, for CRE businesses.