REIT Industry Lagging In Technology Adoption
Over the last 20 years, the Real Estate Investment Trust (REIT) industry has seen meteoric growth. REIT market capitalizations grew from around $7 billion in
1993 to $700 billion in 2013, and surpassed $1 trillion in 2016. In addition, the average daily trading volume has nearly doubled in the last five years, increasing from $3.7 billion in 2012 to $7.2 billion in 2017.
Despite its impressive growth, the REIT industry has lagged in adopting commercial real estate technology.
There are two reasons for this that immediately come to mind:
Technology adoption is held back by the mindset that Commercial Real Estate (CRE), including REITs, is only about buildings and other physical structures. In reality, CRE is about data — the collection, analyzing and sharing of vast amounts of data. This realization is vital to being a leader in the competitive REIT world.
Many REITs have been managed using a very entrepreneurial style, instead of following a more traditional process-oriented approach. As a result, operational efficiencies have not been realized through the adoption of more modern software.
Currently, the REIT industry faces a number of challenges and complexities, including:
- Stakeholder Visibility – Knowledgeable investors are demanding greater transparency and more information to better understand risk and make decisions. Manually gathering and aggregating this data can be time-consuming, but Investment Management and reporting solutions can alleviate this burden.
- Local and Global requirements – The global growth of REITs and the need to manage portfolios of properties from different countries forces commercial real estate companies to review available REIT technology to accommodate local conditions and reporting requirements.
- Uncertain REIT Forecasts – NAREIT (National Association of Real Estate Trusts) believes that REIT forecasts are favorable for 2017; however, they do cite a risk of interest rate increases as well as an unpredictable economic environment. This uncertainty in REIT forecasts does require more formalized modeling, forecasting and planning.
- Potential Regulatory Changes – The tremendous growth of REITs and the increase in REIT conversions by investment companies has not gone unnoticed by regulatory bodies. Aside from minimal taxation changes under the PATH Act of 2015, very few new regulations have been introduced to impact REITs directly over the last couple of years. If tax laws change in the future, the general consensus is that REITs will still be treated favorably from a taxation perspective.
- Sustainability Reporting – The sustainability movement is gaining a lot of traction, and the impact is being felt in the REIT environment. Investors, environmental regulators and other interested parties are demanding green initiatives backed by data to prove their effectiveness. The need to disclose sustainability data and performance adds to the REIT’s reporting burden, but green initiatives have been paying off, and the right technology can help with monitoring and reporting.
Why REITs should invest in software
Navigating the REIT environment can be a nightmare for CRE professionals who don’t have the latest tools at their disposal. REIT management companies are beginning to realize that achieving greater operational efficiencies, cost reductions, and better risk management will be important differentiators. REIT technology and commercial real estate solutions promote the streamlining of processes through automation and centralization.
Once REIT technology has been implemented, the focus of day-to-day REIT management moves away from pure real estate accounting, financial data gathering and reporting to REIT analysis, planning, REIT forecasts, financial modeling and running “what if” scenarios.
The result is a far more proactive tone in REIT asset management, combining superior decision making with operational effectiveness. Those REITs employing up-to-date, integrated commercial real estate technology solutions are certain to have a competitive edge over their rivals.
Learn more about improving data management for Public REITs in the on-demand webinar.