The Data Transformation Isn’t Coming to CRE; It’s Already Here

The expression “data is the new oil” has become so ubiquitous in recent years that it is feeling like a cliché. There have, of course, been numerous critiques of this saying, including a very recent one in The Guardian which warns against too much of our personal data being collected, and that calling it “the new oil” obscures that we are the natural resource at play here.

Wherever you fall on the spectrum of that debate, though, there is an indisputable fact: data has transformed business in recent years, across every sector and sphere including commercial real estate (CRE).

Here are some of the ramifications of the data revolution in CRE…

1. There are so many data sources and forms to consider

   The kind of personal information that we include in customer profiles and databases is powerful stuff, but it is FAR from the only or key data worth delving into for CRE professionals. There is also market data (financial and sales), demographic data published by the governments, satellite survey data, resource mapping, competitive analysis, and the kind of behavioral insight that comes from smart devices that make up the Internet of Things (IoT). There’s both quantitative hard data and softer sentiment or qualitative data to explore.

   GlobeSt.com has a great example of data metrics like footfall, traffic patterns, and online reservations to inform retail development planning.

2. Data is valuable for insight, not on its own necessarily

   If you’re not going to hire in-house data scientists, you will need providers who can chop, change, and refine your data for you. The magic of data is not its existence, but the insights we can get from it.

   Opendoor, for example, is a data-driven company making waves in the residential space. Their recent blog shows them using data on amenities, housing inventory, and purchasing power to show not just where people are moving, but why. CRE professionals can make similar insights into their niches and market services. This is a slightly older resource (2017) but this panel discussion video does a great job of exploring how data is turning valuations on its head.

3. AI is coming for CRE

   Artificial Intelligence (AI) is powered by data. We feed data into the AI systems for them to be able to learn and ultimately act (automation) or inform (analytics). AI has had remarkable implications for industries like mining, transport, logistics, and retail, and we anticipate seeing more and more of the influence of AI in CRE and property investment products, like real estate investment trusts (REITs). Some are already betting big on what is now being called “property intelligence”.

   This DataDrivenInvestor article provides an excellent example of this in use, saying: “Predictive analytics can now be combined with other analytics and data to make more intelligent decisions when it comes to investment. One prominent example is the fact that portfolio managers can now examine consumer buying behavior to help determine the retail tenants in the area, or the potential of certain areas of a city to rise in terms of property value.”

   It can also be used to predict defaults and market dips, to show upcoming markets before they create a bubble, and other predictive functions.

4. Data-driven decisions

   As Financial Services has vividly demonstrated, one of the areas where data can have the most impact is in enabling decision-making and risk assessment. CCIM member and Catalyst CEO Ronald D Marten explored this for Forbes recently, writing “real estate investors are beginning to leverage data analytics to speed up their due diligence process”.

   He continues: “lenders are using data to project how much damage an earthquake will cause in a specific market and what the financial impact will be. For investors and institutions with large CRE portfolios, assessing risk profiles is critical.”

The power of oil lies in how it can be refined and transformed downstream, giving us products like petroleum and plastics. This is where the above-mentioned expression holds particularly true, because data also comes in raw and transformed formats, and we need to extract and process it to achieve value.

As leading CRE professionals, we cannot afford to ignore the effect an abundance of data is having on how we research regions, create customer and client information, and how we approach deal-making.