Change happens. It is inevitable. With nearly $13 billion invested in prop-tech tech start-ups in 2017 alone, it is clear that big change in real estate is afoot.
If you are lucky, you get a warning — you feel the ground shake and notice the ripples in the water glass like the scene in Jurassic Park. But big change sometimes sneaks up on you. When you feel an impending shift, the trick is to identify the difference between incremental opportunity and existential threat.
I had a front-row seat to the epic transformation of retail brought about by e-commerce. As a founder and CEO of an internet technology firm, we built some of the first large-scale websites for retailers like Nike and Best Buy. Back then, even the most sophisticated retail companies asked, “Should we go online?” By now, the internet has so deeply and irreversibly transformed all aspects of retail that it’s almost impossible to imagine when few understood it or how to enlist its power.
The smartest players took a test-and-learn approach and quickly figured out that people liked shopping online, that they were OK with risk and that they didn’t mind buying online and returning items that weren’t just right. We moved past the notion that the online channel was niche. The winners got in early and spent time and money changing the way they did business — not just how their shoppers bought, but how they managed inventory, supply chain and manufacturing. Twenty years later, we know that an “always open” store and an integrated multichannel buying experience are table stakes. Online shopping is not limited to early adopters, but something that just about everyone does daily.
Other sectors experienced the same change. Consider the effect Google Maps had on helping us figure out where to go and how to get there. In the face of an easy, accurate and real-time option, paper maps to plan trips and morning news programs to negotiate traffic became irrelevant almost overnight. But it didn’t stop there. Soon, ride-share applications and home delivery services launched to leverage the framework of Google Maps, disrupting everything in their path.
The Internet Of Buildings
Real estate, construction and industries that serve the built world are next. Internet technology and connected data will make buildings safer, greener and better for occupants. Buildings will be more efficient and profitable for owners. This transformation will be massive and irreversible. The first step is to understand that buildings are not just bricks and mortar, but they, like stores, are data too. Once the data is collected, connected and made usable, buildings get better.
I believe there will be an “internet of buildings,” an accessible network of information that allows stakeholders to quickly access information about buildings anytime, anywhere. Capturing and analyzing the data of buildings will fundamentally change how buildings are built, managed and occupied. Vast libraries of paper building plans will become vintage artwork like antique globes and paper street maps. The idea of a contractor unrolling reams of plans to share with an electrician will be like movies before sound and color. A REIT that can’t evaluate its portfolio of buildings in an intuitive web interface will be punished in the markets. Architects, project managers and facilities managers will see the time spent on unnecessary building visits as ludicrous. Fire and police departments that can’t pull up accurate building information in transit will be unheard of.
The first move any smart building owner, investor, broker, tenant and government agency should make is to have buildings scanned and digitized so the data can begin to be used. Investors are betting huge sums on the change happening now and are backing countless companies that, like ours, will supply the required technology and services. The time and money required to digitize buildings is finally less than washing the windows of a high rise or fixing a problem caused by miscommunication or poor planning. It is now not only possible, but actually cost-effective to have accurate, easy-to-use digital representations of buildings.
The internet is now 25 years old. IoT may more accurately be described as the “internet of everything … except buildings.” Building owners, brokers, tenants and service providers use the internet to access information about everything except the inside of buildings. Google Maps stops at the curb. But if seeing and understanding building information is so important, why hasn’t it happened? There are three main reasons:
1. Creating new technology costs money. The cost is going down, but doing nothing is still cheaper. A “wait and see” approach is tempting, particularly in a strong real estate market.
2. The real estate ecosystem is generally ambivalent about open information sharing. There tends to be an “everything comes out in the wash” mindset about unpleasant yet fairly predictable surprises. To be competitive, contractors may submit bids that they know are too low and make it up with change orders. Actual square footage is still surprisingly hard to obtain. Owners know that contractors will generate change orders, and tenants know reported square footage is suspect. Introducing openness to an opaque but often balanced ecosystem is a cultural shift.
3. Until the very recent past, digitizing buildings was time-consuming and expensive. A typical office building would take weeks to translate into a 3D model and cost hundreds of thousands of dollars. Few players could justify the investment, even with clear and measurable upside.
Like putting a business online in 1995, these are defensible reasons to wait or to move slowly — why not let the other guys go first and see what happens? But as I witnessed firsthand in the retail transformation, the “wait and see” approach is not always a wise strategy.
The built world is facing its e-commerce moment. Some feel the rumble of change and see ripples in the water. The winners will be those who see that buildings are data before they are looking into the jaws of dinosaurs. They will act to capture and use data to understand, influence and improve buildings. They will make real and accurate information about buildings available and accessible. This transformation will be real, and it will be irreversible.