Firms managing €900b of real estate need a software upgrade, report warns

The use of out-of-date IT systems to manage property portfolios globally is a real cause for concern for investors representing $1 trl (€900 bn) of assets, a new research report shows.

The report, which is based on a survey of over 300 international CRE executives, argues that the real estate industry needs to speed up investment in technology innovation to efficiently capture and manage increasing levels of capital allocation to the sector.

‘The importance of real estate as an asset class is increasing and the way assets are managed is becoming more and more relevant,’ commented David Oates, Senior Vice President International – Argus software.

According to the CRE Innovation research report, commissioned by real estate advisory Group Altus and Argus Software, nearly one-third of the global CRE industry is still using spreadsheets as its primary tool for asset and portfolio management functions.

This means potentially $11 trl (€9.8 trl) of assets are currently managed in manual spreadsheets, with all their inherent risk of inaccuracies and human error. Investors are also concerned that information is kept in unconnected 'data silos', which often require cumbersome data aggregation from multiple sources, slowing decision-making and preventing the transparency investors need.

'The amount of capital flowing into what has become a truly globalised commercial real estate market is pushing valuations and compressing yields, making it harder to produce adequate returns for investors. There is a growing need to move quickly and effectively,’ added Oates.

While PricewaterhouseCoopers forecast that institutional portfolios will eventually stabilise with as much as 20% of their holdings deployed in real estate, the sector’s slow adoption of up-to-date IT may threaten this scenario.

Without modern data management infrastructure and systems, investors could judge the industry participants as 'behind-the-curve,' threatening their ability to attract trillions of dollars of additional institutional capital predicted to be allocated to the CRE industry in the next decade.

'With so much institutional capital up for grabs over the next decade, early movers in adopting best-in-class data management and reporting practices have a real opportunity to differentiate themselves from the technology ‘have-nots’,’ said Bob Courteau, Chief Executive Officer, Altus Group.

Commercial Real Estate is well behind the worlds of financial services and healthcare in terms of investment in IT. Taking the relative size of each industry into account, global CRE IT spend, as a percentage of revenue, is estimated at 50% less than Financial Services and the Public Sector (including Healthcare).

Another factor which will push the industry to update its data processes is regulation, noted Oates. ‘The industry is currently lacking a fully integrated system to analyse data. But regulators are starting to look at real estate transactions almost as equity or bond transactions. With the regulation of the banking industry governments have recognised that this is not only politically popular but also makes good fiscal sense. This will filter through other industries including real estate.’

On the plus side, the CRE industry has already started to acknowledge the importance of IT processing and data veracity, with the 300-plus executives interviewed believing that Big Data and Cloud-based IT have potential to transform the real estate industry.

More than two thirds of the firms surveyed say they would realize a significant impact on investment returns by improving their asset and portfolio management decision-making effectiveness. Additionally, 77% of the firms surveyed say they are prioritizing investment in technology and process improvement to support their asset and portfolio decision making.

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