'Short fuse, big bang' digital change coming to real estate sector: Deloitte

The real estate industry is one of six sectors of the economy set for “short fuse, big bang” changes as a result of the digital revolution over the next few years, according to a new report by Deloitte.

The results, contained in Deloitte’s Digital Disruption white paper, will surprise many in the industry given the dominance of digital media already.

Deloitte estimates that the rental, hiring and real estate services sector is only using 52% of its digital potential and is set for another 22% of “digital disruption” over the next two to three years.

While the time frame for this change is relatively short, the disruption is relatively small compared to other "short fuse, big bang" sectors dealing with challenges from the online sphere – notably retailing and media.

Deloitte estimates that the biggest disruptions will occur in information, media and telecommunications (40%) followed by the retail trade (37%) and finance and insurance services (37%).

Source: Deloitte

Other sectors included in the “short fuse, big bang” that flow into the real estate sector are retailing and the finance sector, with retailing set to undergo a dramatic change in the next 12 months, as can be seen on Deloitte’s Digital Disruption Map, which plots the impact of the digital revolution against the time taken for it to occur.

Companies that stand to experience significant digital disruption within the next three years are said to be on a "short fuse", while companies that can expect to record a 15% to 50% change in their metrics, such as mix of revenue channels or cost structures, will experience a "big bang".

According to Deloitte, real estate, human resources, IT and finance are industries with significant administrative overheads.

But these and other administrative operations are being transformed by digital changes.

“Administration is one instance in which digital disruption moves beyond business-unit costs and offers opportunities for enterprise-level cost savings,” says Deloitte.

While Deloitte points out that in the retailing space, assets that should be reviewed are "bricks and mortar" facilities like bookstores, department stores, travel agents and DVD rental outlets, it says the impact on real estate extends well beyond retail.

“The ability to relocate labour nationally and internationally is reshaping the office market, the improved ability to telework is affecting residential markets, and changes to supply chains are driving major changes for providers of logistics and warehousing facilities.

“While some business categories will remain fairly protected – such as food court operators or health care providers, which retain a strong link to physical locations – there will be many others that find digital disruption radically changes their real estate needs and investment strategies.

“For instance, document storage companies are likely to be divesting physical space but investing in electronic storage capabilities and processes,” says Deloitte.

In the white paper, Deloitte identifies three broad strategies real estate firms and others can implement to respond to the “short fuse, big bang” disruption.  These are:

• Recalibrating cost structures – making changes in terms of people, supply chain and overheads to better control costs and compete with digitally-powered, low-cost newcomers
• Replenishing revenue streams– building new sources of revenue across segments,  geographies and business models as legacy streams dry up in the wake of digital disruption
• Reshaping corporate strategies – reconsidering assets, risk and corporate agility to position the organisation for success in the increasingly digital world.

The report was compiled using official data sources say and what Deloitte believes will happen down the track based on its in-depth experience, judgement and market knowledge.