Innovation: The One Thing You Need To Succeed in Commercial Real Estate
Anyone can purchase commercial real estate as long as they have enough investment capital and financing.
But, if you want to be successful in building a portfolio that naturally scales, you have to do things differently than the competition.
You must constantly evolve, optimize, and innovate in your processes and offerings.
As the needs and desires of investors, tenants, and users continually shift according to the growth of their businesses, the only way to succeed in commercial real estate is to stay ahead of the curve.
Evolution drives innovation
Commercial real estate has operated the same way for decades (and longer).
Investors acquire and develop buildings, find tenants, set and collect rents, cope with operating expenses, and seek to maximize their net operating income (NOI).
The cycle continues with stable income as the lifeblood of operators.
But over time, especially with continuing advances in technology and the appearance of disruptors on the real estate scene, strategies began to reform.
Commercial real estate operators had to adapt to the changing industry and find innovative ways to provide advantage-yielding value.
For example, the oft-repeated mantra of ‘location, location, location’ typically resulted in two assumptions:
First, if you had the ‘best’ location in town, the tenants would inevitably come.
And, second, having a great location made many commercial real estate sponsors complacent: “We’ve got the most desirable location, so let’s dictate the rental and leasing terms.”
Yet this ideology began to change as many commercial real estate firms started to innovate — or adapt innovations — and create more efficient processes for acquisitions, financing, development, and management.
Positive feedback loop
Ever heard the cliche that ‘Energy begets energy’ in the context of fitness?
The equivalent in entrepreneurial life is: ‘Innovation spurs innovation.’
We see this in sustainable design and construction. The evolution of Computer-Aided Design (CAD) to Building Information Modeling (BIM) allowed designers and engineers to proactively (pre-construction):
- Look at the long-term effects of weather on efficiency and durability.
- Select optimal materials to deal with specific environmental conditions.
- Study carbon emissions during the building construction phase and throughout the lifecycle of the property.
This, in turn, allowed architects and engineers to develop new design strategies, craft more efficient materials, and advance green building tech — yielding benefits in terms of efficiency, comfort, and health that both landlords and their tenants enjoy.
Back-end innovation
Innovation also occurs on the ‘back-end.’
This is where entrepreneurs leverage the primary innovations introduced to the industry to improve their processes and offerings on a client or user level.
In a CRE context, developers incorporate enhanced amenities and facilities for tenants — environmental controls, natural views and lighting, ideation/creative zones, fitness areas, communal recreation, food service, and more — to support users’ productivity.
While not strictly technological, these strategies are innovative in the sense that building and workspace design shifted in focus to the needs of the user.
Additionally, the experience for property managers is unified and uplifted by improvements and integration in the processes of leasing space, booking and staging viewings, signing leases, collecting rents, and paying invoices.
Transitioning from being location-centric, many commercial real estate projects have become a ‘destination’ where people want to work and live.
In practice
Cortland, a developer based in Atlanta, is an excellent example of how innovation is transforming the industry via a shift in focus.
In 2015, Cortland had around 5,000 units. Now, they have more than 60,000 — more than 10-fold growth.
Their value prop is built on putting residents’ needs front and center.
By offering a superior living environment, the brand has become synonymous with providing something ‘extra’ — and an affordable, high-end lifestyle to which residents aspire.
But most of all, Cortland is a model of how innovation can transform your commercial real estate business without significant changes in the fundamentals of building construction and management.
Keep moving forward
Innovating and adapting is the only way to set yourself apart and challenge the status quo.
Accomplish this by studying and considering your tenants’ and stakeholders’ priorities.
When you find new ways to deliver value and run lean, you’ll be a game-changer in the commercial real estate industry.