Between 10 and 15 years ago, we shifted as an industry from collecting data on behalf of the owner or the landlord and instead began collecting it at tenant level because the tenant had, in a sense, become the asset. It therefore meant that we needed to know everything there was to understand about that tenant.
However, this remained a function conducted at quite a high level, as real estate managers only needed to know so much. This was because most tenants still had a set lease and paid a set rent, possibly with a break option included in their contract – it was a relatively straightforward arrangement with few variables.
Now with new technology and the rapid move towards an ever more data-driven society, and by extension economy, the level of data being generated is increasing exponentially. According to IBM, 90% of the data on the internet has been created since 2016. That means we are all living through a seismic shift. It also means that rather than the value remaining focused around knowing your tenants – the company name above the door or signature on the lease – it is now about knowing your end user; the individuals in that space.
How do those end users working in an office environment operate, and by extension what services can we deliver to them? With the introduction of a raft of new technologies including sensors and smart meters in buildings, through to the signal from individual smartphones, there is a new ecosystem of data that can be collected and used to answer those vital questions.
So how much value does this hold? Well, if you look at the Amazons and the Googles of our world you could argue that a very high percentage of the data that they are actively after is being generated in a property – whether it is their own employees in an office, a tenant ordering something online or a shopper making a purchase in a shopping centre.
If the whole world becomes an ecosystem of data being generated, analysed and used, it will in some form or another have an effect on property valuations in the future. Some 20 or 30 years ago, it was mostly location that defined the value. Then it became more about the leases and how much cashflow that represented. However, in an information society – in this big data world we now inhabit – it will be much more about the data that is generated and how managers use it.
It is a big change, as the real estate industry remains based on the principle that knowing everything is essential, and therefore if a certain expertise is required to fill in any gaps in that knowledge it is acquired.
However, if you fast-forward X number of years and you have a society where all this data is available free of charge, then the whole thing becomes transparent and the need evolves. The essence of asset management is going to change as it will no longer be based on gathering data – as that will be readily available. A lot of the data crunching will be done by machines instead. The future, therefore, will be about the application of a specific plan with big data sitting at the core, which will define the role of an asset manager.
The consumer is king
The happiness of a tenant is increasingly going to be characterised by the ability to create a working environment that makes people happy and productive, playing their part in the business’s success. This is where you need to know what is happening at consumer level, so that you provide services or an environment where the end users are happy and therefore their employer, the tenant, is happy too.
Back in the day, people went to a travel agent and asked where they should go on holiday. They were advised and they made a decision based on that. Now there are very few travel agents, because we have access to a lot of information and can make the decision of where to go on holiday ourselves. This has a parallel with real estate. The potential residential tenant makes a decision based on a lot of online information that is instantly available, and that is not simply location. They will look in more detail than that at the sorts of restaurants and leisure activities they want and if the people in the block are like-minded.
It seems obvious, then, that a landlord or asset manager – even up to pan-European level overseeing different asset classes – needs to have a better understanding of the consumer as ultimately that drives the success or performance or their real estate. We are at the start of this process for sure, but the more savvy asset managers have begun to realise it is no longer about just learning your property and your market. It is now about knowing your tenants’ end users as it becomes more consumer driven.
An example of this transformation in the market is WeWork, which despite its recent troubles and change in valuation has created a community and a level of desire for its product that did not exist before in the sector. People want to be part of the WeWork community before they have even stepped into one of its offices – it has that buzz. Everything that WeWork has achieved, including the marketing that supports it, has been data driven. While you could argue at the end of the day that the business is simply providing a desk and a chair, it is thanks to how it has harnessed big data and drilled down into it that the end product that has emerged is different and very much more than the sum of its parts.
It also highlights that the weight or importance of all these elements is changing. WeWork has not been profitable but it has been successful. So what are the key things that drive success? Well, it is increasingly more than an analysis of the P&L account or a smart debt structure. These are still important things and they should not be disregarded, but there are new areas that define performance, that define value and that bring success and growth. The new element can be defined as attractiveness to a certain market demographic, to a specific end user, and it is something you cannot capture in a P&L or debt structure. However, it is and will become an ever more critical success factor in any real estate portfolio.
This means there will be a shift in risk too, which is currently based on the weighted average lease expiry. Instead, it will become more about other things such as reputation and additional services delivered. The expectation is that this will flow over from the residential sector to offices.
If I take Yardi as an example, I believe that our presence and therefore requirement for office space will not solely be based on location. The requirement is much more about providing an environment in which our staff will be and feel well and are more productive. This does not necessarily require one central office location that we rent for a seven- or 10-year period. It might be more short term; it might be more decentralised. But there definitely is much more focus on the amenities and services that our staff have access to rather than a desk to work at.
Those asset managers with the best data, which have made the most of this connected world, are without doubt already one step ahead of the pack and able to make the right decisions to position themselves for this future.
Yardi develops and supports industry-leading investment and property management software for all types and sizes of real estate companies. Established in 1984, Yardi is based in Santa Barbara, California, and services clients worldwide from offices in the UK, Europe, Australia, Asia, the Middle East and North America. For more information, visit yardi.co.uk.
PW Perspectives: winter 2019
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Big data set to define the role of an asset manager