Blockchain in commercial real estate
The future is here!
The new technology on the “block”
The commercial real estate (CRE) industry appears to take pride in keeping several aspects of its operations secret, such as comparable lease rental rates, property prices, and valuations, to create a possible competitive advantage. However, secrets are hard to keep—and may not even be desired—in today’s hyperconnected and digitized world. In response to greater demand for transparency, technology advancements and the disintermediation by startups are gradually making some of this information public.1 As a result, property-related information is increasingly available in digital and paper form. However, a significant portion of the digitized information is hosted on disparate systems, which results in a lack of transparency and efficiency, and a higher incidence of inaccuracies that creates a greater potential for fraud.
Blockchain technology—a digitized, distributed ledger that immutably records and shares information—could enable the CRE industry to address these inefficiencies and inaccuracies. According to a 2015 World Economic Forum survey of 800 executives and information and communications technology sector experts, 57.9 percent of the respondents believe that 10 percent of the global GDP information will be stored on blockchain technology by 2025.
Until recently, blockchain was known more as the technology powering Bitcoin. However, industry players now realize that blockchain-based smart contracts can play a much larger role in CRE, potentially transforming core CRE operations such as property transactions (purchase, sale, financing, leasing, and management). Over time, blockchain adoption can have a broader impact, as it can be linked to public utility services such as smart parking, waste, water, and energy billing, and also enable data-driven city management. In this report we will dive deeper into the value proposition of blockchain technology and its applicability to property leasing and management processes.
But is CRE ready for blockchain technology?
As CRE companies invest in a multitude of technologies to meet their varied business requirements, it may be worthwhile to first understand the benefits of blockchain technology that are highlighted in Figure 1.
Companies should then assess whether and where blockchain can be useful, as the technology has its own unique characteristics and perhaps may not address each inefficiency in current processes. The technology should meet certain prerequisites for blockchain to be relevant (see prerequisites in Figure 2 on the following page). Once companies identify a process that is ready for blockchain technology, they should evaluate costs and benefits. While doing so, they will potentially benefit from assessing the extent of overhauling existing systems and interoperability with the various technology systems used by different stakeholders of CRE transactions
Why BlockChain Important in Real Estate?
As set forth in Figure 2, we believe that among the core CRE processes, leasing is ripe for blockchain adoption, as
it can take advantage of its inherent benefits and meets the prerequisites for using the technology.