The top commercial real estate brokerages are making massive PropTech investments in data analytics, according to a panel of experts who spoke at CREtech’s New York Venture Conference yesterday.
Big data will become the most critical technology driver in the commercial real estate brokerage industry, according to Patrick McGrath, executive vice president and chief information officer at Savills Studley a leading commercial real estate services firm specializing in tenant representation.
McGrath shared that the firm is actively deploying sophisticated data analytics platforms as a means of future-proofing client investments.
JLL Spark is the venture investment arm of Jones Lang LaSalle, which recently committed $100 million to the Proptech sector. While the fund’s entire investment portfolio is not solely based on data analytics, JLL Spark plans to aggregate and use data analytics-based platforms to enable clients to make better portfolio decisions.
However, to achieve that goal, it’s essential to automate many of the manual processes which currently exist in the marketplace, said Andrea Jang, growth lead for JLL Spark Americas.
Meridian Capital Group, one of the nation’s leading commercial mortgage companies, envisions a similar strategy for CRE mortgage services.
“There is an enormous amount of public data about investments. We intend on uncovering nuggets of information in the data as we grow our business,” said Sandy Jacolow, chief information officer of Meridian Capital Group.
Jacolow said he sees identifying data patterns using artificial intelligence and machine learning as the most significant opportunity for business growth in the next five years.
CRE disruption through the finance lens
The dynamic changes in the commercial real estate sector can be likened to shifts in the financial services industry, according to Raj Bhatti, chief technology officer at Newmark Knight Frank, one of the world’s leading commercial real estate advisory firms.
“When you look at changes in the financial services industry we went from cash bonds to derivatives; similarly office space is becoming flex space. These are nothing more than aspects of a mature market,” said Bhatti.
The transition in the marketplace to flex space, which many firms like CBRE and others are making, creates better liquidity and tighter spreads and is good for the industry overall, explained Bhatti.
While technology is enabling co-working providers and tenant engagement platforms to create new business models, it’s important to remember that landlords continue to control the inventory, said Bhatti, who views the change as an opportunity to innovate — not inhibit — the sector as a whole.
Buy vs. build dilemma for commercial real estate brokerages
While the mandate for commercial real estate brokerages remains to make tech investments that are both strategically and operational aligned with their existing client base, the debate about whether to buy or build the technology remains open.
“I would much rather buy than build, for reasons such as time to market and project risk, but we end up building 75% of the time. One of the things that CRE tech vendors don’t appreciate is the need to fit into our business platform. So we are often compelled to buy,” said Bhatti.
While there exists a tendency among development teams to build internally, McGrath also remains skeptical of that proposition.
“I have to ask myself if can we legitimately build and compete,” said McGrath, who foresees significant advantages of buying — such as using proof-of-concepts in early stages as a means of introducing new technology to a broad network of stakeholders, to gain a more diverse perspective and better assess market viability.
“This isn’t about one service organization; it’s bigger than that. Buying creates an autonomous runway and offers freedom outside of the traditional business cycle,” McGrath added.
Breaking through the barriers to adoption
While solving existing pain points through data-driven solutions is quickly becoming the aim for many of the top commercial real estate brokerages, their adoption is a function of finding real revenue-driven solutions to existing problems.
“Adoption of tech by our clients is often driven by simple, easy to deploy solutions with a self-evident value proposition,” said Bhatti.
Despite the increasing emphasis on data, experts agree that one thing will remain the same: real estate will still be people first business.
“Technology will only empower brokerages to deliver a more sophisticated service to clients. Real estate is still a very people-oriented business,” said Jang.
“The middleman in commercial real estate is still very important,” said McGrath, who emphasized that as complexity in the marketplace increases so will the need for trust.