Why Commercial Real Estate Is Ripe For Disruption In 2015

As we round out 2014 with a slew of predictions about entrepreneurial innovation in the year to come, there’s one industry that’s virtually always  overlooked in these discussions– commercial real estate.  Nevertheless, mark my words. This industry is on the brink of disruption.   Though one of the oldest industries in the United States, commercial real estate has lagged behind other industries in terms of innovation, particularly when it comes to adopting and advancing technology  In fact, it has been argued that the commercial real estate market is in the same place that the financial services industry was 20 years ago.   Thus, there’s a huge opportunity for tech innovators to enter the market to transform everything from how a transaction is done to the manner and method that critical information is accessed.

The sheer size of the commercial real estate industry is another reason why commercial real estate is a hotbed of entrepreneurship.  Roughly the size of the U.S. stock market (an estimated $15 trillion), the CRE market continues to move through the recovery phase of the economic and real estate cycles, putting it in a strong position to grow as the economy continues to stabilize.  But to continue this forward progression, increased investment and innovation in technology is paramount.

Where are the specific areas we should expect to see the greatest change?

1.  Better transactions- At the end of the day, commercial real estate is about closing deals—the smoother the process the better.  Fortunately there are a host of technology and CRE companies working to provide brokers with tools to make these transactions easier to track, monitor and execute.  One major player is CompStak, a real estate data company that has quickly found traction by crowdsourcing commercial lease comp information, data that was not previously published or made publicly available.  This open exchange of information has significantly facilitated the often-complicated real estate transactional process.  Another example is Tenant Rex, which standardizes lease comp data to provide brokers with market insights and trends to help them improve their leasing negotiations.  Companies will eliminate information “arbitrage” ; they will enable choices based on complete interpretation of data rather than an assembly of small anecdotes.

2.  Improved process management- When it comes to commercial real estate development, finding the right vendors and keeping the project on track can be real challenges.  The antiquated and time-consuming RFP process calls out for an easier, more streamlined solution.  That is why companies like Honest Buildings, are generating so much buzz.  Honest Buildings increases efficiencies by connecting real estate developers and owners with vetted architects, contractors and other vendors.  Rather than rely solely on word of mouth, businesses can now choose based on past performance, availability, broad reviews, and of course price.  More options and better insight will pave the way to better decisions.

3.  Information aggregation and sharing- Perhaps the area where there’s the greatest likelihood of disruption involves information and data – which in many ways are the backbone of the industry where listings and deals are constantly changing.  Having timely access to information can significantly help all parties involved—from the broker to the client.  CoStar has cornered a big chunk of the CRE information market, further enhanced by its acquisition of LoopNet, one of the most heavily trafficked commercial real estate online marketplaces.  CompStak has also played a role here by aggregating and sharing real estate information that is otherwise hard to locate, difficult to compile or unavailable.  And Hightower, has helped improve commercial leasing workflow by providing landlords and their brokers with information that will allow them to collaborate on deals in real time.

Among all of these changes is a common thread—the need for continued transparency.  Not that this is a new trend.  We have seen this change in the financial services industry where financial market information had been in the domain of the private sector, but is now widely available and transparent.  We have seen this in the automobile industry where information that was private to dealers has become more accessible to customers (think autotrader.com, cars.com and truecar.com).  And of course we’ve seen companies like Trulia TRLA -6.25% and Zillow Z -5.85% disrupt residential real estate. These, and many other industries, have realized that sharing fundamental information needed for decision-making, whether it be to buy a property, invest in a company or lease an automobile, should be shared freely and openly to help the end user make a more informed, educated decision.

As the commercial real estate market continues to grow and evolve, it will be interesting to watch how continued transparency and investment in technology impacts the industry and changes how business is conducted.  With commercial real estate poised to bridge the technology gap and with technology companies ready to produce innovative solutions to today’s CRE challenges, I predict that 2015 will finally be a year of real, measurable change for the industry.