8 October 2020

"A lack of urgency would have serious consequences."

A lack of urgency would have serious consequences.

The EU is settingtougher climate reduction targets and is planning on including the building sector. Once again it’s showing how decarbonization is one of real estate’s most pressing future challenges. Time, as our CEO Jens Müller knows, is of the essence.

EY interviewed German real estate companies on their digitalization processes in the last months for the current ZIA Study. Along with most recent statistics the study also highlights industry experts that have already been driving digitalisation processes.

One of the interviewed experts on digitalisation was our CEO Jens Müller. You can download the study here (German only). This is the second part of our blog series highlighting key points from this interview for our English readers.

On all of these issues [surrounding digitalization processes discussed here], where do you see Germany in an international comparison?

In Asian markets, such as China and Hong Kong, we have really seen a greater affinity for digitalization. This is largely due to population age structures, which play into the hands of companies and have given them a valuable head start.

In my opinion, we are on par with the Anglo-American economies. The U.S. market in particular continues to reap the rewards of its more positive approach to start-ups and venture capital. But this applies to all sectors, not just the real estate industry.

"Digitalization is unavoidable"

Speaking of industries: How does the real estate industry compare with other sectors?

The real estate industry faces a unique challenge: it has to take a product that is, in the truest sense of the word, physical and transfer it into the digital world. This presents far greater challenges than in the telecommunications industry, for example, whose products are already digital at their core.

Nevertheless, this step is unavoidable. If we needed a reminder, the coronavirus crisis has revealed just how vulnerable physical processes can be. What we really need to do is bring digital and physical – in this case, real estate-specific – knowledge together in order to shape the process transition.

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But time is of the essence. A lack of urgency would have serious consequences, a fact demonstrated by Germany’s automotive industry. The country’s showcase industry for decades has been far too lax in its approach to digitalization and innovation and has thereby jeopardized its own success.

"Without digitalization, the real estate industry can never be sustainable."

Innovation is clearly a major issue, but sustainability will also play a key role in the future. How does sustainability mesh with digitalisation?

Without digitalization the real estate industry can never be sustainable. There is simply no way to accurately model CO2 scenarios, for example, in Excel – not when we are talking about entire property portfolios and timescales through to 2050.

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And yet, we need to be able to model a wide variety of scenarios if we are to stand any chance of getting to grips with decarbonization and a raft of other challenges.

The coronavirus crisis has provided a small foretaste of what is to come. The alarm bells have definitely been sounded. As far as of sustainability is concerned, the first image that springs to mind is of a frog in a pot of water being slowly brought to the boil – with the inevitable results of failing to react quickly enough.

The building sector has the potential to cut emissions by more than 50 per cent.

In comparison, the transport sector could deliver savings of almost 20 per cent.

But, without digitalization and the most relevant data points, this is a potential we will never be able to exploit. Incidentally, these data points not only support long-term modelling, they can also be used for short-term (risk) analyses and ad-hoc valuations.

Effective risk management, more agile business strategy, more sound future investment and improved sustainability are all enabled through driving digitalization.

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