Blockchain has great potential to improve transaction efficiency in commercial real estate by easing due diligence and administrative requirements. The technology is suited to tracking many facilities management transactions, including maintenance work approvals, lease covenants that execute automatically with certain events, and tenant improvement allowances.
A CBRE proof of concept confirms its potential benefits for leasing as well. Blockchain requires a large and functional ecosystem of participants, however—one that has yet to form. “Getting many of the owners/landlords to participate may prove difficult,” says CBRE tech expert Stuart Appley.
Blockchain is a ledger technology providing secure, traceable, verifiable recording of transactions. With a complete and tamper-proof encrypted history network-distributed among all participants, it eliminates the need for third-party or centralized administration of transactions. New records (“blocks”) are appended to the chain with a cryptographic signature (“hash”), that secures them but makes selective disclosure possible.
First introduced in 2008 as the backing system for Bitcoin, blockchain has seen numerous variations on its concept and mechanism developed over the past decade, with increasing misuse and misunderstanding.
Fundamentally, blockchain is applicable to transactions and contracts, and offers two main benefits: efficiency and security.
Financial institutions are looking to blockchain to ease trades and settlements that usually take days or weeks to close. For supply chains, blockchain enhances logistics oversight across boundaries, from suppliers to vendors. Governments use blockchain to simplify and digitize title-transfer services, including logging, searching and payment. In the housing sector, blockchain can make asset transaction histories available to potential buyers and sellers.
Blockchain prevents fraud and speeds due diligence processes across industries. IBM’s application of blockchain to the supply chains of major food companies like Tyson Foods, Unilever, Kroger and Nestle promises to improve food safety and ingredient transparency. As the platform tracks shipments from farm to table, it monitors contamination, spoilage and economic loss so the responsible parties can solve problems at their source. Consumers will be able to check detailed information before purchase, comparing quality with price.
Such consumer trust and authenticity requirements apply to many retail categories. Pharmaceuticals, luxury items, diamonds, and electronics all struggle with counterfeit goods. Blockchain technology can verify consumer goods’ origins, providing a peace of mind that is often lacking in conventional digital transactions. For merchants, blockchain’s transparency and consistency will add depth and flexibility to consumer-targeted marketing.
Most of the technological benefits of an increasingly “of-Things” internet—automation, digitization, etc.—are already familiar. Blockchain’s potential to tackle systematic issues on a large scale, as it connects the dots from start to finish, is unique.
Blockchain hasn’t really met this potential on a large scale, though—perhaps due first to its need for that large functioning network of participants. For example, a few places have tested blockchain for land-titling services—Dubai, the Republic of Georgia, and Chicago’s Cook County—but much broader collaboration would be necessary to implement this meaningfully. In the U.S., land-titling authorities are largely decentralized (at the county level), which makes it difficult to build a shared database.
Second, blockchain offers efficiency and security gains, but may otherwise run counter to a market’s needs. “We found it wasn’t solving a real problem,” said CBRE’s Appley, regarding a blockchain approach to CRE leasing. A public ledger of transaction history might sometimes go against the best interest of landlords and occupiers. Given broader trends, however, blockchain implementation in the mainstream may be inevitable, and CBRE strives to lead such changes.
Digital currencies will certainly play a role in the future of retail. Despite the Bitcoin mania, governments and businesses around the world continue to expand digital payments and to authorize digital currencies. In this digital age, consumers need secure solutions for smart transactions and the ever-growing “Internet of Things.” With security and efficiency, blockchain offers those solutions—or at least will be part of them.