Is ‘Disruptive Innovation’ Really Disrupting Commercial Real Estate?
‘Disruptive innovation’ is pervasive across many business sectors.
Yet more important than creating your own disruptive innovation in commercial real estate is to pay attention to the ways in which existing innovation methods and ideas are evolving.
In other words, you don’t need to be the person who’s going to create a new app or AI model. Sometimes it’s better to embrace and adapt what’s already available to suit your commercial real estate objectives.
What disruptive innovation is all about
Take a look at Clayton Christensen’s definition of ‘disruption innovation.’ He states it’s, “a process by which a new product or service takes root, initially in simple applications in the lower reaches of a market. It then relentlessly moves up market, eventually displacing established competitors and allowing a new population of consumers to access a product or service.”
Christensen supplements his definition by differentiating it from ‘sustaining innovation,’ which focuses on making current products or services better (ex. Uber and AirBnB).
Now, more than ever, established businesses need both sustaining innovations and disruptive innovations to become and stay competitive.
Fundamentally, disruptive innovation comes down to taking advantage of change to create new value for a business or industry.
In the case of commercial real estate, it’s about harnessing opportunities to reinvigorate the sector and provide the most advanced products and services to stakeholders.
Disruptive innovation is a constant evolution in CRE
It’s apparent that disruptive innovation is an evolving situation. New ideas and applications get better as they are put into practice and adaptations and refinements are incorporated.
Consider AI and machine learning: as applications continue to mature and we learn what works for the market, engineers are continuously tweaking the tech to reinforce its original purpose — efficiency and convenience.
Not long ago, there were no apps to help you pay rent, utility bills, or reserve a meeting room. And now, with AI as a supplement to the systems in your building, you don’t need to think about how or when to switch off the air-conditioning or lights.
Corporate real estate: primed for disruptive innovation
Design, building systems, and marketing are three core areas of corporate real estate where disruptive innovation introduced dramatic changes in the last two decades.
For instance, within design and architecture, computer-aided design (“CAD”) software replaced manual drafting, and, subsequently, building information modeling (“BIM”) disrupted CAD.
Stretching what was conceivable at the time CAD was introduced, BIM allows integrative design teams to see what a building will look like in great detail before it’s even started. The disruptive tech also allows teams to test wind and weather tolerances, project heat loss and retention, and assess energy-saving potential.
Likewise, Building Management Systems (“BMS”) in ‘smart commercial buildings’ are becoming even smarter. Whereas BMS can, for example, be programmed to turn HVAC systems on and off, the addition of sensors and AI help simplify and automate these decisions.
Controlling energy costs while keeping things simple for building occupants, reduces operating costs, lowers maintenance fees, and yields higher profit margins.
On the marketing side, 20 years ago, who could have imagined micro-drones sweeping through a property, delivering hi-def images from all angles. Drones and digital imaging have become an invaluable ‘tech-aid,’ particularly in light of COVID, to help commercial property users make buying and renting decisions remotely (and more confidently).
We’re moving fast in CRE, but what’s next?
Human-computer interactions are becoming mainstream in CRE. The ability to improve decision-making is growing quickly, and the world of big data is already here.
Many of the early effects of disruptive innovation were aimed at better design, improved control of operating costs, and enabling superior visual presentation of a property.
But lately, more attention from asset managers is on tenant retention and revenue growth. This shift in priority has positioned predictive analytics as the next big disruptor in CRE.
It’s no longer just about what we did yesterday to know about today, but about giving greater clarity to occupancy, rental, and demand factors.
Powered by machine learning, innovations in predictive analytics are helping CRE investors make decisions based on where the market is likely to lead in the coming years.
Disruption or advancement?
All industries evolve, yielding inevitable progress; however, a number of changes in CRE are not ‘disruptive’ in a negative sense.
Despite the musings of the media, things are always changing for the better. Tech inherently creates value by offering industry and consumers continual improvements in convenience and efficiency.
Perhaps it’s the pace of change and dependence on machines that make us think ‘disruption’ rather than ‘advancement.’
To keep up, and preferably lead, it’s crucial to develop your awareness of emerging technology and how to leverage the data and functionality it offers to facilitate your growth.