Why Software Will Eat Commercial Real Estate
In 2011 Marc Andreessen penned the now-famous Wall Street Journal Article “Why Software is Eating the World”. If you’re not familiar with Andreessen, he was an early online technology pioneer, runs a top Silicon Valley venture capital firm, was an early investor in Facebook, Twitter, and LinkedIn, and serves on the board of directors of many large software companies. In the famous thesis, he cites several large industries (retail, entertainment, music, marketing, telecom, recruiting, etc.) that have been disrupted by software-centric companies. To pull a line from the piece which you should go back and read in context, “Companies in every industry need to assume that a software revolution is coming.”
Why talk about this in the context of commercial real estate? Real estate is, quite literally, the world.
The traditional value chain of real estate is being squeezed by software from two angles:
- From the outside: Software-based disruption is shifting society’s use of physical space, and hence the investment dynamics of real estate.
- From the inside: Software has enabled more efficient ways to measure, manage, and transact.
From the outside
Nobody in traditional real estate envisioned the rise of Ecommerce, AirBnB, or coworking, but they are here to stay, and they have huge implications on real estate operationally, and as an investment. As secular technology continues to quicken its pace of innovation and society’s needs and desires shift, commercial real estate will need to keep up with it. Savvy investors need to have foresight, and service providers need to stay in areas that are relevant.
Nobody knows for sure what the future will bring, but you can count on more change. Just how big will the implications of self-driving cars be on commercial real estate? What new technology is around the corner that we’re not thinking about yet, but will have fundamental impact on the way that society thinks about physical space and buildings?
[Pst: I covered some of these catalysts in more detail, by asset class, in a previous blog post about here.]
From the inside
Imagine a real estate company in 2017 that refused to use computers to manage their business. Analysis, leasing, accounting… how far would that company get? How far behind their competitors would they be? Imagine the overhead!
That’s how far behind a company will fall behind the rest of the industry if they don’t adopt new purpose-built real estate technologies over the next few years. Entrepreneurs and, increasingly, larger real estate services companies recognize that as established as the world of commercial real estate world is, there’s a ton of efficiency that can be squeezed from it through building better tools, connecting sources of data and workflow to drive better analytics, and ultimately power better decision-making.
So, if more efficiency, better workflow, lower overhead, and superior data are firmly the advantage of technology-driven companies, and if those ingredients will lead to superior companies, let’s ask the question:
How many years until we think of software companies first when we think of commercial real estate?
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