Real Estate and the Challenges of Digital Transformation

Real Estate, the World’s Oldest Industry: from Uruk to the Smart Cities of the Future

With a long history stretching from the ancient Mesopotamian city of Uruk to today’s smart metropolis projects, the real estate industry is one of the oldest in the world and at the same time one of the most promising in terms of future development.

Though having a roof over your head has been a human need since time immemorial, people through the centuries have constantly reshaped how real estate is built, purchased and used based on social, technological and financial changes.

Today, these changes are amplified by a myriad of factors. In the current global scenario, for example, high inflation has severely impacted construction costs and final housing prices, and the subsequent increase in interest rates has directly affected the credit accessibility and brick-and-mortar investment choices.

In addition, new demands from consumers, investors, and institutional players who are increasingly attentive to issues around sustainable real estate development are becoming even more prominent.

At the same time, the sweeping spread of digital technologies, albeit more slowly than in other industries, is transforming the entire sector by imposing new challenges and creating new opportunities for growth and development for real estate companies.

As revealed in Credit Suisse’s Real Estate Study 2023, the Swiss real estate market is undergoing a period of significant change.

Tenants and property owners are facing rising costs, and for investors real estate has begun to lose its appeal.

This turnaround was triggered by the reversal of interest rates that put an end to the exceptional growth cycle often called the "supercycle".

The interest rate on a five-year fixed mortgage, for example, rose from 1.0% at the end of 2021 to 2.7% by the end of 2022.
Within a year, the Realmatch360 demand indices, which assess the volume of online residential property searches, decreased by 14% for owner-occupied apartments (APs) and 17% for single-family homes (CUs)

In recent years, various factors have contributed to sustaining this exceptional cycle, such as negative interest rates in 2015, an unexpectedly robust economy in 2018, and the surge in demand triggered by the coronavirus pandemic in 2020. However, interest rates are now rising again, which will pose a greater challenge to the housing market and its operators. In the coming years, we will no longer enjoy the tailwind that has made up for many errors in property design, marketing, and management.

Despite these changes, it is important to note that the Swiss real estate market is going through a process of normalization, not a full-on reversal. We could talk about a "soft landing", although analysts are expecting some price corrections over the next few years.

Switzerland has set an ambitious goal of achieving climate neutrality (net zero) of its residential building stock by 2050, eliminating greenhouse gas emissions.

As buildings account for 24% of the country’s total emissions (the third largest source of greenhouse gas emissions behind transportation and manufacturing), a turnaround seems both necessary and inevitable.

More than two-thirds of building emissions come from housing, mainly from fossil fuel heating and hot water. Reducing building emissions is therefore essential for achieving a climate-neutral Switzerland. This goal can only be reached by a massive reduction in energy consumption and a shift away from fossil fuels by stepping up the pace in the transition to sustainable heating systems.

Increasing competition The competition is growing and digitalization has become commonplace. But a major tipping point is emerging, namely that anyone who really wants to excel in this industry not only has to adopt digital tools but must also master every aspect of them. In this highly competitive environment, the ability to manage the digital realm comprehensively and competently will ultimately make the difference between success and mediocrity

Pervasive adoption of digital technologies Many real estate operators, especially smaller companies, can find it difficult to adopt new technologies due to costs and technical barriers. And yet, these implementations are necessary in order to stay competitive in the market.

Change in consumer behavior Different generations may show different approaches when it comes to investing in bricks and mortar. While millennials often seek digital-driven and sustainable solutions, older generations may prefer a more traditional approach. Industry operators need to be flexible and adapt to the preferences of specific targets to meet the needs of a diverse customer base

Ensuring data security The need to collect and manage vast amounts of personal and financial data means that real estate professionals are faced with significant challenges in ensuring data security and compliance with privacy laws

Leveraging online platforms The rise of online real estate buy-sell platforms and digital intermediaries is changing the way operators access the market. How can you leverage the situation to your advantage?

Adoption of blockchain and smart contracts Blockchain technology and smart contracts are transforming the real estate industry by simplifying transactions and improving transparency. However, their adoption requires making changes to company processes and technology infrastructures.

Introduction of virtual and augmented reality tools Virtual and augmented reality technologies are becoming increasingly important in real estate marketing, for example, by enabling potential buyers or renters to take virtual tours of properties. Real estate operators will need to be able to create immersive experiences to attract new customers.

Resistance to change and technology The "human factor" plays a key role in the adoption of new technologies. Often, people find it difficult to see that technology can be their ally, by simplifying processes and improving efficiency, rather than a threat. Accepting this perspective can pave the way for new opportunities in the industry.

Business process automation Automating business processes, such as rent management, billing, and maintenance scheduling, can improve operational efficiency, though it unavoidably requires investments in software and technology infrastructures.

Big data and predictive analytics he use of data and predictive analytics can help operators make informed decisions about buying, selling, and managing properties.

Digital tools for sustainable management Adopting sustainable solutions, such as the Internet of Things (IoT) for energy monitoring or smart building management systems, can increase the energy efficiency of properties

Maintaining a good reputation when reviews are just a click away Online reviews and customer ratings can have a significant impact on your business’s reputation. Today’s market requires care and attention in managing how your company appears online.

Communicating your CSR, mission impossible? Digital transformation plays a crucial role in effectively communicating your Corporate Social Responsibility (CSR). Digital technologies enable companies to collect, analyze and share data more efficiently, providing tangible evidence of their commitment to social responsibility. In addition, an online presence allows companies to reach a wider audience and engage them more directly through digital platforms and social media. A well-structured digital approach can thus facilitate clear communication of CSR initiatives, helping to transform the company into an agent of social and environmental change.

Concrete Example

MG Immobiliare Lugano

MG Immobiliare is a historic real estate agency in Lugano, with 30 years of activity behind it.

Ander Group followed the entire digital transformation process, revolutionizing daily operations and helping to consolidate the company's image.

With the integration between CasaOne and the website, operations have become smoother and processes have become more streamlined. Visual consistency, from the website to social, and the presence of a new design system introduced functionality and order-a new way of experiencing the day-to-day in the agency.

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As we have illustrated, digital transformation is becoming increasingly important in the world of real estate, helping to shape the way consumers, real estate firms, developers, construction companies, and professional investors address the market dynamics.

This process not only affects the dynamics strictly related to boosting sales, but also directly involves optimizing internal processes, from business opportunity generation to automated property management.

Despite a strong, deep-rooted tradition and the existence of established business processes, it becomes clear that real estate companies that keep in step with the times and embrace digital technologies, implementing a real digital ecosystem rather than just individual tools, will ultimately benefit from a substantial competitive edge in the marketplace.

For example:

Research by McKinsey has shown how digital implementation can increase net operating income (NOI) by 10%, proving to be a clearly more effective lever than traditional methodologies.
It is estimated that on average customers spend over six hours manually filling in different forms during the various stages of real estate transactions. Reducing this time via digital tools or automated processes will significantly enhance the customer experience and streamline business processes.

By taking an integrated approach, real estate operators can maximize the potential of technology transformation.

Initially, you need to outline a clear and comprehensive digital strategy, making sure it is aligned with your mission and long-term goals. At this stage, business management must support digital efforts by allocating the necessary resources and fostering a culture of continuous learning and adaptation, staying abreast of emerging trends and technologies. Effective change management is crucial to foster an innovation mindset, recognizing innovation as a valuable tool for improving the quality of work and optimizing operations.

This process inevitably requires an investment in a robust and scalable IT infrastructure. Given the technical complexity of this process, outsourcing can be a wise choice to ensure its success, rather than attempting a haphazard and disorganized adoption of new technologies, which could lead to disappointing results, not to mention an inevitable waste of resources.

Selecting a strategic partner with comprehensive expertise and an extensive support network can provide end-to-end support, including change management, software development and strategic governance of all touchpoints, both digital and physical.

Concrete example

repeople

repeople is a Real Estate network with an 8-year history, formerly known as Borsa Immobiliare Ticino. To meet the needs of a community that now extends beyond the geographical boundaries of the Canton of Ticino, they recognized the importance of undergoing a rebranding that would accurately reflect and facilitate their growth. This shift was conveyed in their new name and comprehensive digital ecosystem: a fresh HubSpot website developed in three languages, complemented by a digitized database with the workflows and automations necessary to manage a thriving network.

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Enhanced user experience

Digital transformation and the implementation of a digital ecosystem can go a long way toward enhancing the customer experience by, for example, enabling buyers, tenants, and investors to virtually explore properties, complete transactions online, and receive faster and more efficient customer service, disrupting what until a few years ago was an experience characterized by strong physicality (on-site appointments, in-person tours, etc.).

Process automation

Automating business processes can not only reduce administrative costs and improve operational efficiency, but also contribute to the concentration of activities. For example, using property management software makes it possible to simplify lease management, billing, and property maintenance by concentrating all these aspects in one place by means of an integration process. Instead of using a number of separate digital platforms for different purposes, systems integration makes it possible to centralize control of your operations while achieving a better coordination and reducing human error.

Enhancement of marketing activities

An online presence, and specifically digital marketing campaigns, enable real estate companies to reach a wider and more targeted audience while increasing effectiveness in promoting their properties and services.

Personalized communication and offerings

Having a digital ecosystem makes it possible to closely monitor user behavior at every stage of their journey and at all touchpoints. Such a detailed observation can provide in-depth understanding of your audience, facilitating your ability to tailor communication and offerings in a targeted manner, and thus responding to the specific needs and tastes of each type of user.

Data analytics and forecasting The use of data analytics and business intelligence tools can help companies make more informed decisions about buying, selling, and managing properties. Big data analysis can also identify market trends and investment opportunities.

Access to global markets Digitalization enables real estate companies to operate globally. Online platforms can attract foreign investors and facilitate cross-border transactions.

Blockchain and transaction security The use of blockchain technology with the introduction of smart contracts can make real estate transactions more secure and transparent, increasing buyer and investor confidence.

Sustainability implementation Digital technologies like the Internet of Things (IoT) can be used to monitor and boost the energy efficiency of buildings, thereby contributing to sustainability and attracting buyers and investors who are specifically interested in green buildings.

Access to digital financing/crowdfunding A good online presence and a solid base on the right channels can ensure access to online financing by simplifying the real estate investment process. For example, companies can seek financing via real estate crowdfunding platforms.

Establishment of partnerships with fintech and proptech startups Digital transformation unlocks the opportunity of collaborating with fintech and proptech startups to develop innovative solutions and joint services by taking full advantage of the potential of technological innovations.

Conclusions

In conclusion, the real estate industry is undergoing a period of profound transformation. The current global landscape poses significant challenges for industry operators. However, it is essential to recognize that these challenges bring with them equally significant opportunities.

Digital transformation is the key to successfully addressing current and future market challenges. The adoption of digital technologies can improve the user experience, automate business processes, bolster marketing activities, enable more accurate data analytics and forecasting, facilitate access to global markets, ensure transaction security, and promote sustainability.

Real Estate: Challenges of Digital Transformation

Real Estate, the World’s Oldest Industry: from Uruk to the Smart Cities of the Future

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Contents

The Swiss Real Estate Market: State of the Art

Toward a Sustainable Future: Zero Emissions by 2050

When uncertainty and crisis seem to be the new normal, digital transformation can be the key to ensuring strong business performance.