Technology May Be Finally Ready to Disrupt CRE

A recent event suggested that adequate technology could seriously shake up areas of CRE.

As CNN wrote, after the National Association of Realtors and some brokerages lost a lawsuit in a Missouri court alleging the organizations kept commissions artificially high, they faced a $1.8 billion judgment. Then there is a new class-action antitrust lawsuit, as Housingwire reported.

Or consider property insurance. Maybe no lawsuits at the moment, but rapidly rising costs, with carriers even exiting some markets because climate change has made them impossible to price and manage risk.

Forget for a moment arguments about right or wrong or questions of legality or propriety. Market forces at work are bound to have profound ultimate impacts on commercial real estate.

Since 2019, median household income has been on a downslide after accounting for inflation. That’s a four-year slide in economic status and capability for most people. Combine that with the recognition of shelter costs as being maybe the single most steady and active contributor to higher inflation.

Many millions find their ability to live economically slipping between their fingers and so they want change, especially when it comes to buying or leasing a home. Long-standing business and professional practices become suddenly unacceptable when large portions of the public look around in search of someone to blame for their circumstances.

Even companies feel the sting. Property costs and rents went up sharply as did operating costs. They’re looking to cut expenses.

This is exactly where technology steps in. Vendors, looking for a market gap and business opportunity, start companies that can make use of common modern technical infrastructure in the forms of data communications and leased computing power.

A startup called Aalto, launched in 2021, announced an “online alternative to traditional agents” for the San Francisco Bay area. “Designed to streamline the home-buying process and maximize buying power for buyers, Aalto digitizes the experience, reducing operational costs and offering buyers up to 1.5% of the traditional agent commission as a rebate,” it said in a press release.

This isn’t something never seen before. As the New York Times wrote in 2021 about people buying homes online to avoid the pandemic, “The increased pressure on the market has been coupled with widespread adoption of tech tools that allow buyers to not just browse real estate but also apply for loans, finalize deals and even have documents notarized, all while social distancing from their sofas.

Technology can enable disintermediation through direct interactions and transactions, putting pressure on middlemen to argue their worth and the pay they receive. Even if acting as a middle party in transactions, the approaches can change the interplays. Digital insurance company Lemonade recently mentioned its two millionth customer — not necessarily a major a feat as it sounds, since that may be closer to transactions and not steady customers.  The self-description: “Powered by artificial intelligence and social impact, Lemonade’s full stack insurance carriers in the US and the EU replace brokers and bureaucracy with bots and machine learning, aiming for zero paperwork and instant everything.”

Everyone in CRE has to prepare themselves for disintermediation, whether to understand how to compete or even to fit into a wider market that is growing because of customer dissatisfaction.