SUMMARY: DIGITALISATION OF COMMERCIAL REAL ESTATE IN DENMARK
This report provides an overview of how digitalisation is used today to move the owners’ and tenants’ daily life, relations, work and reality in a more sustainable direction.
The overall findings of the report are that the real estate sector’ journey is still in its early phase. In the real estate sector, the pressure of digitalisation has traditionally not been strong, but this is changing. Driven by investor demand, more and more - in especially larger - property companies today view sustainability in a broad sense (financial, social, environmental, and climatic) as a competitive parameter, and they see digitalisation as the central tool to becoming more sustainable.
There are, however, considerable differences across the property companies and the various industry areas that deal with properties, just as there, in many aspects, are challenges with digital competences when searching and implementing novel solutions.
The report consists of a comprehensive academic literature review, an industry questionnaire and five focused sub-analyses, each of which focus on one area in the real estate lifecycle.
The literature review indicates that several international megatrends impact the development in both digitalisation and sustainability in the commercial real estate in Denmark. It applies to e.g., the distribution of platform economy and changed needs as well as demands from the users and tenants of office buildings. However, at the same time research emphasises that the distribution of more advanced digitalisation - e.g., in the form of blockchain - has longer prospects and will require extensive adjustment of e.g., legislation and market practice. Finally, the research highlights the need for new - digital - competences from both employees and management in the commercial real estate, if the digital and sustainable development is to speed up.
Based on the literature review, the national context is explored through a questionnaire to thoroughly examine the industry approach to digitalisation among practitioners and experts in Danish commercial real estate. The survey shows how digitalisation challenges established boundaries - e.g., sub-industries and fields of work - and that digitalisation for most people is the same as an administrative system. More significantly, the survey shows how digitalisation may be a strategic priority for some actors, but not all. Digitalisation has gained a lot of ground with both frontrunners and other parts of the industry.
The overall findings of the report are that the digital journey of commercial real estate is still in its infancy.
The distribution of more advanced digitalisation has longer prospects.
Digitalisation challenges the established boundaries and to many people, it is equal to administrative systems.
Five sub-analyses
The report examines five focus areas in the real estate sector. The five areas are construction and refurbishment, facilities management (FM), property management, asset management and transactions. The digital development is mapped for each area with a focus on the established structures, frameworks, and most frequently used technologies.
Construction and refurbishment
This industry area covers new buildings and repurposing of existing properties.
During the last 20 years, several digital technologies have entered this area. Especially in relation to administration of construction projects, project design in 3D models (BIM) and data sharing standards.
The construction industry is characterised by many smaller companies and dynamic project constellations. This creates an uneven distribution of digital competences and possibilities in the industry. Meanwhile, construction is often characterised by tight economic frameworks which hinders the development of novel digital and sustainable solutions.
However, the business’ digital culture seems now to be more matured. This can be utilized by property owners to realise economic, environmental, and social sustainable potential, created in the construction stage for e.g., FM, property management and asset management at later stages. However, it requires the owner to act as a digital frontrunner by demanding the use of digital solutions that allows for cooperation between project participants.
Facilities
management (FM)
This area covers operation of properties, maintenance, and servicing users of properties.
FM is far ahead when it comes to technological development, and the challenge is not the extent of specific solutions but rather the interaction between these and the possibilities to use and integrate the specific FM solutions in property and asset management. Currently, the need for sustainable operations of buildings is driving the development in FM. The area has adopted e.g., sensors, automation and “intelligent buildings” in a broad sense with the purpose of optimizing operations.
FM is characterised by different types of regulation that both push and serve as barriers for the sustainable development - and simultaneously, the area has expressed concerns about the access to and use of individual consumption and activity data.
Finally, the challenge of mainstream adaptation of digital FM solutions may be connected and dependent on the level of competen-
During the last 20 years, digital technologies has entered the industry area for construction and conversion
FM is well developed when it comes to technological development. The challenge is the interaction, Integration and possibility of later phase application in in property and asset management.
There are a few challenges to address. This relates to infrastructure and legislation.
ces in FM, as there is no formal training in FM in Denmark, contrary to some of our neighbouring countries.
Property management
This area covers property administration and the relation between the owner and the tenant.
The digital development in this area has been on-going since the 1980s with a focus on accounting and administrative systems. However, digitalisation in a broader sense - where e.g., gathering data, new data sources, automation and communication forms play a larger role through technology - seems to have just begun.
The pressure of digitization and a focus on sustainability has traditionally not been strong in property management. However, this seems to be gradually changing due to the development in FM and asset management and partly due to the conceptual expansion of the “rental” concept. ”Space-as-a-service” has thus become the focus of some (types of) owners; this focus is not yet widespread among tenants. With some commercial tenants, the digital and sustainable property solutions offer value creation because they - directly or indirectly - contribute to the strengthening of the bottom line; the same demand for new technology is not yet seen among residential tenants.
As the development in property management have just begun, a lot of challenges need to be addressed. This applies to infrastructure and legislation, and it applies to corporate forms and corporate culture, competences, and recruitment, because the transformation is subject to varying forms of organisational anchoring and change among actors.
Asset management
This industry area covers development and optimisation of the property value.
The consideration to financial sustainability has been leading, but other parameters of sustainability are seen more frequently.
This area is characterised by a continuously increasing focus from the investors on sustainability and digitalisation. Traditionally, the consideration of the financial sustainability has been the primary focus, but other parameters of sustainability are progressively viewed as competitive parameters. This development is especially evident in office properties and how e.g., the digitization allows for the certification of properties. Digitalisation in asset management, affects the digitalisation in the other real estate areas, as it is in asset management, that investor strategies are translated into concrete initiatives.
The demand for market monitoring of e.g., rental development, new buildings, transactions, vacancy, and relocation has also driven digitalisation within asset management - and that creates increased need for (new types of) data. Meanwhile, new legislation
is driving the development in asset management in a digital and sustainable direction.
Transactions
This area covers transaction processes in connection with purchase, sale, and rental.
In this area, digitalisation today is conditional on the access to market data and the current data infrastructure, where the accessibility of data still leaves much to be desired. The development is limited by the fact that many real estate deals of investment properties often take place off-market and hence, data is not generated nor accessible.
However, there are several advanced solutions to assisting e.g., due diligence, where comprehensive documentation processes are often replaced by automation, cloud solutions, and online platforms. Also, in terms of match making between buyers and sellers and market screening, digitalisation has come a long way. In both cases, it supports the financial sustainability. Here, development is further than within the other business areas.
The same applies to the degree of specialisation, where especially the larger property companies today are increasingly involving specialists and advisers as well as creating ESG and strategy departments with the focus on developing digital solutions and business models.
The development is limited by the fact that many real estate deals of investment properties often take place off-market