On some level, real estate investors and brokers have always collected and used data to make informed decisions on purchasing properties. But the granular level of data that’s now being aggregated — along with advancements in intelligent, fully researched commercial real estate (CRE) tools to understand and analyze that data — is the next evolution in commercial real estate.
CRE brokers who can tap into today’s sophisticated data tools can differentiate themselves and their core value proposition to clients.
Not All Data Is Created Equal
As we always like to say, there is data, and then there is good data. CRE databases are going through a major shift right now in both quality and accessibility. Five or 10 years ago, data was used solely for the purpose of the transaction, to determine a property’s value. Investors looked at a commercial property’s rent rolls and how much revenue it was generating, took their best guess on what the building was worth, and either bought it or decided it wasn’t a good investment.
Today, investors can take a much deeper dive into a property’s potential return and risk by accessing the myriad of data available to them. Knowing everything about a building by using flood maps, demographics reports, traffic counts, tenants and retailers, EPA reports, and more gives a potential buyer an accurate idea of what their ROI is going to be on day one. The ability to finely measure both the physical attributes and human component of a property is a game-changer in assessing its potential because it gives investors actionable information.
For the highest level of transparency, CRE professionals should look beyond tax record data and focus on important vetted and researched data points to assist in their next decision.
Acceleration Of Data-To-Decision Time
The data matrix is changing rapidly and as a result, the transactional rates in CRE are higher than we’ve seen before. Today, properties are listed on the market for days instead of weeks, and they’re closing in two months instead of six. While five years of a strong economy has helped speed up sales, I believe access to deep data is fueling the expeditious rate of real estate transactions.
Much like the banking industry that has seen a huge acceleration in decision-making processes — from approving credit card applications to investing in capital markets — real estate investors are beginning to leverage data analytics to speed up their due diligence process. Similarly, tenants can go in and quickly compare rent rates across various markets, which allows them to make more informed decisions and get into spaces faster.
Another big change we’re seeing in the data landscape is the number of institutional data users making decisions and understanding risks revealed by data. For example, 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.
But data isn’t just being used for large-scale transactions or by behemoth financial institutions. In the past few years, we’ve seen a surge in the number of individual property owners who are tapping into databases just to understand how their property sits compared to others on the market. As data becomes widely available, we will continue to see this trend evolve in the industry.
Another emerging trend is the shift in where data is pulled from. Most CRE datasets are currently housed and siloed internally, but CRE professionals are evolving to need more comprehensive data for their markets, giving them accurate and “big picture” analytics to work with. As that happens, the industry will have a greater need to effectively and efficiently validate the data that’s being collected. Dataset analytics will continue to evolve as predictive analytics and machine learning becoming integral ways of business. Tools will continue to improve as datasets expand.
The future of the CRE industry is data. Investment in data infrastructure, networks and analytics will be the competitive advantage for CRE professionals for years to come. The more accurate, up to date and granular the data becomes, the more predictive it will be when it comes to determining whether or not to purchase an asset.