Commercial Real Estate: The Amazon Effect - Is Construction Next?

Amazon seems to be everywhere, from groceries to books to clothes and shoes. Its two-day shipping means customers turn to Amazon for nearly everything they could ever need delivered straight to their homes. 

They now offer free in-home consulting on how to create a smart home. So that begs the question, will Amazon take on the challenge of entering the construction market? 

Smart Homes Signal an Opportunity 

Amazon has always taken bold risks, like entering the most difficult of markets such as grocery and retail with Whole Foods, and there are even rumors they are entering healthcare, banking and more. 

The construction industry has long been ripe for digitalization and if some of Amazon's early moves offer any clues, the company will influence how that transformation unfolds.

Additionally, we know there is a housing shortage in America, so perhaps Amazon can innovate this housing challenge, and do so with the construction of smart homes.

Amazon has not disclosed any plans to jump into the construction trades just yet, but some of its actions have signaled its intended direction. 

Commercial Real Estate: A New Digital Experience

Amazon smart devices, such as the Alexa virtual assistant, its Smart Home store, its Ring home security system and its Key smart home-entry system, seem to be steppingstones toward offering more integrated, building-type services for property owners.

Experts don’t expect Amazon to start its own architect firm or trades divisions. 

Instead, the company will likely use the power and size of its platform to combine elements within a building project to create a new digital experience for property buyers and owners.

Based on its existing consumer-focused approach, Amazon could deliver a seamless, comprehensive home buying experience. 

The Construction Industry is Starving for a Change

Construction businesses have little appetite for risk, and profit margins tend to be limited, which has led them to fall behind most other industries in terms of technology adoption.

Large capital projects typically take 20% longer to finish and are up to 80% over budget compared to initial plans. 

Research and development spending in construction is drastically lower than it is in other areas: less than 1% compared to 3.5% in the automotive industry and 4.5% in aerospace.

Construction is the biggest industry in the world, and yet, even outside of crises, it performs poorly.

That being said, many experts agree that disruption in the construction industry is not only occurring but is actually accelerating.

Recently there has finally been a use of digital tools, such as job site management platforms and construction design technologies. 

There is also more investment in innovation, and a growing number of digital-native workers are entering the field as older workers retire.

The question then becomes: Who will drive the transformation?

The Industry Needs Amazon’s Foresight

The construction industry must overcome numerous obstacles in this changing landscape. 

If it wants to succeed in this digital era, it must create a better customer experience for both commercial and residential customers.

It also needs to predict expected outcomes more accurately and create more visibility into the process and the impact of changes to the process.

Not only that, but it needs to control costs and properly streamline the supply chain.

Overall, the smartest strategy is how to anticipate customer expectations as they're emerging, whether those expectations are for more information, more transparency, more personalized service, or faster service.

In contrast, Amazon tends to have an advantage when it comes to anticipating customer needs. Its core competency involves building platforms that bring people together, and then creating ecosystems around them.

Amazon, the Home Maker

Instead of trusting its products to be put into other builders’ homes, Amazon could take control of the entire process. 

It fits with Amazon’s business patterns and their ideas are always clever, and its investments are strategic. 

The company has always been inventive in how it is part of its customers’ lives, and we shouldn’t put it past them to become a construction company that develops homes in both urban and suburban areas to help meet customers’ needs, expand its reach, and make more money.

Who knows, soon we might be going to Amazon for everything from groceries to houses.

Real Estate Matrix is one of the Southeast’s premier commercial valuation firms and has participated in the valuation of billions of dollars in real property assets.

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