In 1965, Gordon Moore theorized that the number of transistors on a computer chip would double approximately every 18 months. In other words, he predicted that technology would grow exponentially by a factor of 2x forever. This law, famously known as Moore’s Law, has paralleled the true growth of technology that has driven the development of artificial intelligence and cost efficient, multi-variable sensors over the past five decades.
Nonetheless, the real estate industry has resisted the adoption of such technologies. Recent reports highlight that just 40% of CRE executives use automation technology, with 60% using spreadsheets as their primary reporting tool. This traditional process relies on intermediaries to navigate the complexities inherent in an industry revolving around an asset class that contains distinctive properties. However, as Moore’s Law predicts, technology is not slowing down, and the real estate industry must act now to upend external competition.
The real estate industry’s total contribution to GDP remains high at 6.2%. Its ascent in the added value of Real GDP, however, has barely increased for years and remains stagnant at .65% (Q1 2021). In contrast, the tech industry posted an impressive .88% surge in Real GDP in Q1 2021. As the data reveals, the tech industry is outpacing the real estate industry. So, the question remains: how can real estate stakeholders continue to increase their bottom line in lieu of the challenges involved in adopting technology? Will the real estate industry naturally embrace new technology, or will external competition force them to? These questions have opened the door for entrepreneurs focused on ‘proptech,’ or real estate technology.
In recent years, new scales of investment indicate a rapid acceleration in property technology. Investment in proptech has soared, growing 1072% between 2015 and 2019. Despite the pandemic, this trend continued in 2020, and even accelerated the adoption of such technologies.
"Despite the harsh impact on the CRE market, the COVID-19 pandemic will have a shorter recovery timeline than that of the 2008 crash... decreasing COVID-19 restrictions and government backed financing will accelerate the recovery process."
The dilemma that is generating demand for such technology centers around data. In real estate, extracting data in order to make decisions regarding a deal can require extensive research and digital structure. In response, companies such as CompStak and Reonomy have emerged to offer an all in one solution for gathering property information. The data extraction is only one facet of a deal, however. The rest of the underwriting process involves complex financial modeling, thorough market analysis, and a detailed OM or credit memo. Current software looks to minimize the labor used in this process, which often takes up to two weeks. As a result, real estate developers and investors alike can quickly process deals using less time and labor.
The COVID-19 pandemic has only accelerated the acceptance of an AI digital infrastructure. Deloitte’s US real estate leader, Jim Berry, has commented on the emerging business line, maintaining that he “expect[s] it to play a role in overall digital transformation efforts as CRE companies work to improve operational efficiency and reduce costs”. Automation technology preserves 80% of total underwriting costs while completing the process in seconds. Ultimately, companies who adopt new CRE technology will obtain a competitive advantage over those who do not, and their success hinges significantly upon the extent to which employees can succeed in a digital work environment.
While the adoption of real estate automation technology has been gradual, one thing is certain: the status quo is changing, and the tech industry is bound to accelerate within the real estate market. This technology will increase the speed and efficiency of deals, and real estate investments will experience massive growth. The industry has long awaited a paradigm shift, and AI technology is making it possible.