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The $1 Trillion Value Creation Opportunity Staring Commercial Real Estate in the Face

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As of 2011, Prudential reported that total global commercial real estate was worth $26.6 trillion. It’s projected to grow to nearly $100 trillion in 20 years. Pretty remarkable, don’t you think? What’s even more remarkable is the simple formula that will drive that value creation.

In the United States, the commercial real estate market includes about 24 billion square feet of industrial space, nearly 23 billion square feet of multi-family space (excluding single-family homes and condos that are in the rental pool), over 17 billion square feet of retail space, and over 12 billion square feet of office space.”

The Landscape of a Massive Industry

Including specialty, sports and entertainment facilities, theaters and more, over 100 billion square feet of space in the United States is devoted to commercial purposes. To put this in some perspective that is larger than 47,000 Empire State Buildings combined.

While every building is different in shape, size, location, use, and tenants, each building is remarkably consistent from an operations and construction perspective:

  • Every building is run by an owner, manager, investor or public agency responsible for daily decision-making.
  • Every building has routine maintenance and upgrades, improvements or construction projects to make sure the building is safe and suitable for occupants.
  • And every building should be leveraging the best technologies to insure that value is maximized for the owner, manager, or investor.

The third point is where the trillion dollar value creation opportunity is hiding in plain sight.

So Where is the Missing $1 Trillion?

Bear with me while we quickly revisit Real Estate 101. Improving net operating income (revenue less expenses) by reducing costs and increasing revenue correlates directly to increased asset value. Driving down expenses through operational efficiencies and increasing revenue by getting tenants into space faster has an immediate increase to NOI and asset value.

That’s the magic formula – except it’s not magic. Reduce operating expenses by 1% through increased efficiency and increase rent by 1% through faster, smarter project execution. (For those of you doing the math, that formula would actually create $2 trillion in asset value. We’re being conservative.)

Almost every other major industry has a similar formula for creating value at the enterprise level. And every other major industry has pushed past the assumed limits of success for one reason: widespread, comprehensive adoption of technology to drive massive efficiencies and dramatically minimize wasted time and resources. Here’s another example – no one at Goldman Sachs uses Excel to track trading positions any longer, that was dead years ago. In fact, Goldman Sachs now employs more engineers than Twitter, Facebook, and LinkedIn.

The common phrase said by many owners, “I’ve been doing this the same way for the last 30 years and it works just fine…” is no longer an indication of sound experience but instead a predictor of imminent value erosion.

Finding Monumental Returns in Seemingly Mundane Activities

From a technology perspective, today’s real estate industry is comparable to where Wall Street was 20 years ago or an investment bank prior to Bloomberg terminals, but it has the potential to drive enormous returns. The key is using purpose-built technology to maximize efficiency and intelligence with every action in every building.

Every lease deal, every project, every bid, every report needs to move from the analog to the digital world.

Platforms that create operational and construction efficiencies, like Procore Technologies, in combination with leasing automation platforms, like VTS or Hightower, enable owners and managers to drive meaningful asset value in important ways:

Delivering Consolidated Insights

In order to drive faster and better decision making, intelligence needs to be collected from across the property portfolio in real time. Spreadsheets strip data of its power by isolating it into digital silos. Centralized platforms aggregate and deliver information in real-time and on any device.

Facilitating Knowledge Sharing

Group communication tools insure that important information on leasing transactions, negative vendor experiences, incorrect material pricing or missing project scope details are collaboratively identified in advance of a costly mistake being made.

Tracking Projects Intelligently

Automated bid leveling and comparison tools manage the administrative work of aggregating, organizing and, to some degree, analyzing data input by vendors. Project managers are no longer relegated to data entry drudges and can spend time driving value-add activities instead.

Securing Sensitive Data

User permissions and security controls protect confidential information and records while still making them available on demand to the people who need them.

Real estate owners, operators and developers using enterprise technologies have leaner staff, better forecasting and reporting capabilities, and more projects completed on time and under budget. The result is enhanced net operating income, value creation at the asset level, and risk mitigation for future down markets.

These companies outperform their peers, attract the best tenants, and maximize value for their investors far more effectively than those without tech first approaches.

Over the next 20 years, the commercial industry will undergo the largest technological revolution in its history and that will lead to the creation of at least a trillion dollars of new value, a mere 1% of asset value in 20 years. The owners, operators, and developers who prioritize investment in technology platforms will deliver superior returns to their investors over time and will be rewarded handsomely.


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