Key operational changes driving sustainable efficiency and top-line growth in CRE

Operational transformation in CRE

Companies have always done their best to subscribe to the “work smarter, not harder” ideology – but in today’s world, advanced tools and capabilities take this imperative from a pipe dream to a reality. The commercial real estate (CRE) industry, in particular, has been primed for a tech-driven overhaul for some time. With the rapid development of artificial intelligence (AI) and machine learning (ML) technology, CRE businesses are finally seeing many of their key processes transform to usher in a new age of productivity and growth.

However, it’s not just the emerging influence of AI that has inspired change in our industry. Now, more than ever, leaders in our space are embracing operational change to better align their operations with their goals and, ultimately, create more value.

At its core, real estate is a simple business. CRE professionals find space, build real estate, lease it out to tenants, bill and collect rent, maintain property, observe and predict market trends, and help owners and operators identify opportunities to build and grow their portfolio of assets – it’s not that complicated, in theory. But CRE businesses are increasingly looking to technology and tools to employ to solidify their ability to achieve desired outcomes, which include:

• Accurately predict, analyze, and report performance

• Manage operating costs and taxes

• Effectively leverage market insights to make better investment decisions

• Lease property to quality tenants and gain market rent growth

• Optimize the management of properties and assets

• Maintain and grow the value of property assets to generate sustainable profit

• Create new revenue streams

• Connect qualified buyers with sellers, and vice versa

Today, CRE businesses must be able to answer the question: how do we solidify our ability to achieve our desired outcomes and provide value in the current environment, as well as in the future? What technology and process changes are required to unlock better accuracy and speed of service? How do we maximize our investments to improve performance across our organization?

"Property tax costs make up almost 40% of operating costs, on average, for CRE properties in the US. Companies rely on their accounting teams to track bills and make payments, and often outsource appeals of property tax assessments. However, the localized nature of property tax means accountants face countless notices, appeals, and payment deadlines, while appeal processes and delays make it difficult to track progress and results."

Sandi Prendergast

Senior Director

"High staff turnover also means excess costs through duplication of efforts as new employees “get up to speed”. When CRE owners and occupiers leverage software to manage their property tax liabilities, they can significantly reduce property tax costs and fully automate mundane tasks like bill processing, deadline, and appeal tracking." shares Sandi Prendergast, Director of Research, Tax at Altus Group.

When technology is leveraged in this way, staff are empowered to focus on activities that better leverage the use of their skill set, while eliminating the risk and costs associated with human error.

Traditionally, real estate systems were siloed by purpose and function and controlled by IT managers. As real estate technology and predictive analytics have evolved, however, it is not uncommon to see companies using the data from different in-house systems merged with external data to empower more effective decision-making. The consolidation of information has skyrocketed since 2020, and today many CRE companies are building or buying data platforms to generate greater returns.

Vlad Starobinets

Senior Director of Client Enablement (Americas)

From AI-powered workflow tools to platforms that leverage AI for baseline lease abstractions and advanced pricing tools and models using predictive algorithms, data-driven valuations, and more, the potential impact of AI-powered applications across the industry is ever-growing. In fact, McKinsey estimates that generative AI could generate $110 billion to $180 billion or more in value for the real estate industry alone.

Better technology enables better marketing, smarter buildings, and more efficient processes for things like building maintenance and repair. From a financial operations standpoint, AI also will improve timing and strategy flexibility by automatically monitoring and reacting to market trends and economic indicators, to help CRE companies achieve long-term financial objectives.

David Srour

VP, Head of Global Consulting Services, Real Estate

"AI also unlocks more accurate and unbiased property valuations and appraisals by using anonymized market data. In simple terms, the technology removes bias from manually presented data, including market trends and property characteristics. More objectivity in these processes not only informs better investment decisions but also helps to maintain fair pricing across the market," explains David Srour, VP and Head of Global Consulting Services.

The impact of digitalization on talent acquisition and management

CRE businesses today are increasingly conscious of what capabilities are kept in-house, and what functions are contracted outside of the company. This can be attributed to the emerging trend of the remote and hybrid work model, as well as the increased flexibility and transparency offered by new technologies.

In the past, most of our work had to be completed within the four walls of an office building. Today, however, collaboration is no longer limited to a physical office or region. In many ways, digital transformation strategies have removed constraints that once limited the way CRE companies’ source and hire talent, manage talent, and the way CRE professionals work. For industries commonly plagued by a high employee turnover or a shortage of key talent, this has been a defining inflection point. Digitalization allows companies to diversify their workforce and hire based on skill and talent rather than proximity while creating opportunities for enhanced productivity, new jobs, and more flexible working arrangements. Moreover, a company’s digital proficiency and appetite for innovation often helps to attract the best talent in any given sector, because disruptors and innovators want to work for disruptive companies that prioritize innovation. Leaning on legacy technologies and processes, on the other hand, often acts as a deterrent from a hiring perspective, whilst impeding operational productivity and performance.

In this new landscape, companies must do a regular audit of their processes to determine what functions should be kept in-house and remain unchanged, and what tasks or roles can be more effectively outsourced or intelligently automated. At the same time, companies must evaluate their organization value chain to reduce non-value-add activities and, in turn, make room for value-creation activities.

When new-age technology is combined with human talent, incredible things can happen – and the CRE industry now finds itself at a tipping point for AI adoption and process evolution. While the widespread adoption of new-age technology, such as AI, often brings with it concerns relating to job security, it’s important to recognize that these tools exist to enhance the efforts of human workers, not replace them entirely. The tasks disrupted by AI-powered tools are those which can benefit most from automation. The human workers which once owned those tasks will, in turn, be empowered to take ownership of more value-add, high-priority activities, such as client relationship management, within their role that cannot be so easily automated by technology.

In this way, investment in technology is an investment in the people who will be using it – emerging technology helps to prop up talent and automate non-value-add activities while improving the day-to-day employee experience. Moreover, digitalization provides unique upskilling opportunities to help employees meet the evolving needs of their organization, and develop their career in an increasingly digital world.

Redefining business capabilities to align with market challenges and opportunities

Over the last year, the CRE industry has faced a uniquely challenging environment; high-interest rates, high construction and labor costs, and perceived economic instability has slowed down transaction activity and inspired no shortage of negative news for the industry at large. In response, CRE companies have had to establish operational resiliency to insulate their business within the current landscape whilst also preparing for the other side of this downturn. After all, a business that is agile and adaptable in a challenging market will be uniquely positioned to capitalize once the market bounces back.

If organizational resilience is defined as, “an organization's ability to anticipate issues ahead of time and develop a plan for handling identified problems”, organizational effectiveness – including productivity, cost management, and overarching strategy – emerges as a top priority. To this effect, KPMG’s ‘Seven levers to business value creation’ report indicates that, compared to 2019 and 2020, CEOs are better prepared to weather short-term challenges by boosting productivity (50%), managing costs (43%) and reconsidering digital transformation strategies (40%). The McKinsey Global Institute also estimates that for the United States alone, the difference between high and low productivity growth would amount to nearly $50 trillion in wealth by 2030.

An operational model is made up of four main components: business capabilities, information and technology, organizational design, and performance management. Any company that is hoping to optimize processes must first look at their capabilities and consider the following questions:

1. What is your company’s purpose? How does your company generate value?

2. Is the company strategy understood and championed across the entire organization?

3. Are the capabilities you’re looking to deliver supported by the right processes and format?

4. Do you have the right people doing the right work, with the right tools? Are you developing key talent to reduce employee turnover?

5. Are there opportunities to reduce costs while enhancing business capabilities?

6. Do you have the right technology in place to empower staff to deliver on those capabilities?

7. Are there opportunities for enhanced efficiency through strategic automation?

8. How are performance KPIs and metrics tracked?

9. Is your company’s performance consistently aligned with its purpose?

10. Are there opportunities to raise the quality of service to better align with customer needs?

Operational excellence isn’t a stagnant goal post. Leaders in any industry understand that sustainable success requires frequent recalibration and, as a result, routinely analyze and adjust how their business provides value. A company that routinely compares its current operating model to its strategic goals using these questions will ensure their business maintains agility and performance in any market.

The CRE landscape is always changing – and companies must change with it, or risk being left behind.

Fostering a culture of innovation

The best way to foster innovation is to cultivate a culture of innovation. People within a company must come together to gain a better understanding of not only what’s possible, but precisely how it can be achieved within their organization – and the role they play in that process. Each division or manager within a company shouldn’t be pursuing innovation in a silo and implementing their own processes; individual solutions don’t contribute to agility or enterprise-wide innovation. Instead, companies need to start at the top – looking at the four components of their operating model – and ensure everyone understands the company mission and the corresponding strategy.

The pursuit of innovation and agility should be a shared, cohesive mandate and responsibility, and it must ultimately help to deliver enterprise value. It’s not about changing every process – it’s about changing the processes that no longer align with business objectives in a sustainable, efficient manner. It’s not about adopting every new piece of innovative technology available; it’s about selecting the right technology for the right mission, with a clear roadmap and vision. It’s not about selecting any technology vendor – it’s about seeking out vendors with a track record that illustrates their understanding of what the industry needs today – and more importantly, what it will need tomorrow.

Ultimately, change is not the enemy – it’s a business imperative. To resist change is to resist organizational growth, and companies that aren’t growing and adapting to the market are compromising their ability to remain competitive and deliver on their brand promise(s).

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