Unclear Financial Returns Hinder Technology Adoption

Nearly half of real estate companies that have adopted three or more proptech tools are hesitant to invest further in the sector due to a lack of return on investment.

Some 45% of these companies identified “lack of clear return on investment” as a barrier to further implementation, while 41% said they had “low technology readiness”.

Among companies that only adopted one or two proptech tools, these numbers were lower, at 37% and 29% respectively.

The figures come from a survey of European property companies by Yardi and the European Real Estate Association (EPRA). Respondents included investors across a full range of commercial real estate assets, half of which had a market capitalization of at least €1 billion.

Key points to remember

1. Having an internal strategy is vital

Nearly two-thirds of companies with an internal digital strategy say they have experienced a “high impact on business performance” over the past five years. This compared to half of those who outsourced their strategy. Nearly a quarter (23%) of companies that outsource their plans rated the impact of technology at five out of 10 or worse.

2. Organizations don’t have a “power user”

More than a third (35.3%) of companies outsource their digital strategy or are still planning it. Quoting Bastian Zarske Bueno, Head of Group Business and Innovation at Swiss Prime Site, the report states: “Many organizations still lack a power user for technology. In other words, someone who can take control…and get the most out of the systems. Without someone like that, businesses risk running into technical barriers and misuse of data.

The largest companies are the best prepared, 91% of those with a market capitalization of €5 billion or more use an internal team to manage their strategy.

3. Most want proptech – but sparingly

While the vast majority (90.6%) of companies use at least one technology tool in their portfolio, two-fifths stick to three or fewer. About a quarter have used more, while another quarter have opted for in-house solutions to the problems they face.

4. Proptech tools are still limited in their function…

One of the biggest barriers to adopting new tools is the “limited functional scope of proptech solutions”. Companies, concerned with meeting return on investment expectations and preferring to opt for fewer technological tools, are more likely to favor platforms that meet multiple needs.

Meanwhile, one in five companies are unlikely to consider proptech as they prefer to work with established players in the market.

5. …but the real obstacle is competing priorities

“The main obstacle is that 45.9% of companies do not consider technology adoption to be a top priority over other business initiatives,” the report states. Only 2.4% of respondents expect to spend 7% or more of their company’s annual budget on proptech. The majority are either unsure (37.6%) or will spend between 0 and 3% (40%).

Richard Gerritsen, Principal at Yardi, said: “Organizations are succumbing to the idea that they are not ready to move to the other side of technological innovation. It’s an underlying problem that we need to change. More European real estate organizations need to ask themselves: “What is my cost if I don’t invest?”