Budgeting season is a notoriously stressful time of year for commercial real estate professionals. Things are changing though, and the way real estate companies are run is evolving as technology becomes an integral part of the business.
The budget often reflects the priorities and objectives of a real estate business. To what extent are these innovations changing the process itself and what makes it in? We sent a survey to over 4,000 commercial real estate professionals to find out. The responses came in from a mix of job functions and property types.
To add context to the survey results, Aaron Block, Co-Founder and Managing Director at MetaProp and Michael Beckerman, Founder and CEO of CREtech, two good friends of Enertiv, were kind enough to provide their expert opinion on how to interpret the findings.
Summary of Key Findings
- 80% responded that technology has made budgeting season easier.
- Of those who felt budgeting season has gotten more difficult, 100% included “budgeting for technology itself” as a reason.
- 44% are passing the costs of technology through to tenants.
- Only 16% report having discretionary technology budgets
A Better Budgeting Season
In our survey, a surprisingly high 80% of commercial real estate professionals reported that technology has made budgeting season easier.
When asked why, there was near unanimous agreement (88%) that it is now easier to find information necessary to put budgets together. In addition to making information more accessible, over half of professionals said that technology has aided with more accurate forecasting (74%) and more internal data points to pull from (62%).
Somewhat surprisingly, less than half attributed an easier budgeting season to better industry benchmarking. Write-in responses included faster communication and more fungible data as examples of technology improving the budgeting process.
Key Takeaway
The effects of technology on commercial real estate are real, but we’re still in the early innings.
“I wonder how much ‘new’ tech is included in those responses. As we write in ‘PropTech 101,’ Tier One innovators have to make room for tech and open innovation. It’s less a matter of budgets and more a matter of executive sponsorship and culture change.”
- Aaron Block, Co-Founder and Managing Director at MetaProp
Budgeting has gotten easier because information is easier to find. This is likely the direct consequence of more documents, spreadsheets, and processes becoming digitized and collaborative.
At the same time, despite the importance of benchmarking to create a “zero based” budget, less than half of CRE professionals said that technology has resulted in better benchmarking. This indicates that most professionals do not have access to aggregated industry at more granular levels unlocked by technology, such as equipment-level benchmarking. It will be interesting to see how this number changes over time.
When Technology Makes Budgeting Harder
While many professionals said that technology is making budget season easier, some said the opposite – that technology has made things more difficult.
There were two main reasons for this: budgeting for technology itself and too much data without corresponding levels of analysis.
Key Takeaway
As discussed in our recent white paper, How to Get Smart Building Technology into Your 2020 Budget, there are as many pricing models for technology as there are potential solutions to adopt. As such, technology companies will need to continue to evolve to better fit into the budget centers of commercial real estate companies (Sidenote: Enertiv has recently launched a subscription-only pricing model to avoid the need for CapEx approval. Contact us to learn more).
The second takeaway is that when deploying technology, commercial real estate companies need keep an eye out for solutions that deliver insights, not just raw data. However, differentiating technologies is often easier said than done. To learn how to do this effectively, Deloitte Consultant, Kevin Shtofman’s recent video on How to Identify Tech with Exponential Value Potential does a great job of walking through the steps.
“I think these stats offer a great insight into how important having a clear value proposition is. CRE professionals are asking technology companies every day, “what’s the ROI?” If they can indeed point to insights that lead to cost-savings and increased efficiencies, then they have a real chance at gaining traction in the marketplace.”
- Michael Beckerman, Founder and CEO of CREtech
Paying for Technology
Whereas there was broad agreement on the benefits and challenges of technology, the ways in which technology was paid for was varied.
44% of professionals reported that technology costs were being passed through to tenants and either an operating expense (30%) or a capital expenditure (14%).
On the flip side, 38% reported that investments in technology were being borne by the landlord as an operating expense (30%) or a capital expenditure (8%).
To round it out, 16% of companies have created discretionary technology budgets.
Key Takeaway
The variety in how technology is being paid for likely reflects the range of objectives for solutions as well as the financing structures of real estate companies.
As Jon Meisel emphasized in his recent video, How to Reap the Benefits of Today’s Investment by 2021, most leases allow for passing costs of technologies that can document savings onto tenants. His intuition at the time was that not every landlord was taking advantage of this, which may be backed up by the data.
At the same time, it may have just as much to do with the types of solutions that are being adopted.
“Cost saving operating technologies are great because they can frequently be passed along to tenants. However, the PropTech innovation wave encompasses not just cost savings but also new business models/revenue lines. Large real estate industry players should also look out for benefit from operating company tech improvements (not just technologies that impact an individual asset).”
- Aaron Block, Co-Founder and Managing Director of MetaProp
Conclusion
This survey focused on budgeting season, a critical time of year for commercial real estate portfolios, but the results likely reflect technology’s influence on every aspect of the business.
We’ve reached a clear inflection point from just a few years ago, when it was common knowledge that commercial real estate was behind other industries in terms of technology adoption.
This momentum is clearly building toward a near future of radical change for the industry. To that point, the decisions made during the next few budgeting seasons will likely have profound implications on whether companies are positioned to benefit from this surging growth in technology’s influence or not.
There’s still time to get technology into your 2020 budget. Schedule a demo to see why Enertiv Platform should be included.
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