The tech giants of the world – the likes of Google, Facebook and Amazon – are putting all their efforts into gathering, analysing and monetising data about our everyday lives.
I find it fascinating that so much of the data they use is generated inside a property, whether it Is the residential property where I live, the office where I work or the shopping centre where I shop. And yet we in the real estate industry are happy to sit back and observe these companies make money from that data, without questioning how we ourselves can better use it.
We focus far too much attention on wondering whether data is relevant. This, I believe, is the wrong way of thinking. We need to capture as much data as possible in our properties – because, providing we can learn to properly analyse that data, it will allow us to make infinitely better decisions about our portfolios.
I understand why property companies are reluctant to embrace the power of data. After all, the essence of traditional real estate is based on the scarcity of information. If you’re a UK investor wanting to invest in Amsterdam, for example, you look for a local expert. If I’m that local expert, and I know something you don’t, you must pay me for it. I’m making money, and if I give you the right advice, you’re making money too. Everyone is happy and the model works.
But when innovators come in and disrupt that model, and recognise my local knowledge is just data that could be in a database, we risk being overtaken. Equally, as an investment manager, looking at the same 50 data points in an Excel spreadsheet to make investment decisions might produce good results, but when a competitor starts using 5,000 data points, they are going to make better decisions.
It doesn’t take much imagination to think about the kinds of data that could be captured within our buildings. Take a shopping centre as an example. What kind of transportation do customers use to get there? Where are they from, and how long did it take them to arrive? What shops do they visit? What shops do they buy from? What do they buy? How do they pay? You could think of 100 more questions like this. Are they relevant? I don’t know, but they could be – and we won’t know until we start taking them seriously.
I’m not saying we should worry about the behaviour of every individual. An asset manager isn’t interested that I bought a ham sandwich at 12.42 and paid by debit card. But they are interested in trends, and the more data they have at their disposal, the better decisions they can make.
Owners and landlords can gather some of that data directly via smart sensors and cameras. But we need to gather more, and for that we need to better exchange data, particularly with our tenants. A retailer in a shopping centre will know how a customer acts in their store, for example, and that could be useful to know. I’m not advocating all data become public, but it is simply a fact that the data exists and is apparently interesting – otherwise Amazon wouldn’t have acquired Whole Foods to get access to it.
Creating value for operators
Exchanging data is also of mutual interest to landlords and tenants. Having access to more information allows an owner to offer better services to the end user, but they can also fine-tune their offering to tenants. Owners can no longer simply be interested in collecting rent: real estate is increasingly driven by operators, and the more we can create value for them, the better position we will be in.
As an example of a decision that could be driven by data, you just need to look at the way some restaurants are turning into coworking spaces during the day. A restaurant is typically busy between 6pm and 11pm, and for the rest of the day it is underutilised. But it still has great facilities – the latest coffee machine, a skilled kitchen and a modern space for meetings. The fact we are seeing this space used for coworking is a real eye-opener for me, because it is the kind of decision that would seem so obvious if we had all the data available, and yet it currently seems innovative.
Clearly, there is a gap between raw data and us, as property professionals, making decisions that directly affect our assets. Turning thousands of data points into useful actions is a challenge and will require a change in the kind of people we hire.
We focus far too much attention on wondering whether data is relevant. This, I believe, is the wrong way of thinking. We need to capture as much data as possible in our properties
I firmly believe that data scientists have a huge part to play in the future of real estate. At a recent awards ceremony that Yardi sponsored, there were 100 people in the room and a 26-year-old got up on stage and told all the appraisers: “You’re completely out of date. Give me some data and I’ll create a model that can do better appraisals in two hours.” All the 50-year-old appraisers laughed him off stage, but I think that in a couple of years he will be proved right.
Property companies also need to invest in computing power to better analyse data they gather. I hear all the time that real estate is already investing a lot in technology, but that’s just not true. Companies are certainly investing more than they did in the 1980s, but if you compare it with other industries, such as the financial sector, real estate is investing significantly less by whatever metric you use.
The stakes are high in the property industry, which makes a change in mindset even more urgent. Billions and billions flow through our systems. We work in a data-rich industry with a lot of capital, and investing in technology to be ahead of the curve is well within the reach of many companies. Will they step up? Will new players leapfrog them? Or will a company like Google enter the market and completely disrupt it? I can’t say, but if you create a competitive advantage by knowing more than your competitor, not in your head but in your systems and databases, you have the upper hand.
I like to make the comparison to Star Trek. If I go to my doctor and I’m not feeling well, they might take three data points: my blood pressure, my temperature and the redness of my throat. My doctor might conclude I have the flu, and tell me to rest in bed. In Star Trek, you have sensors that go anywhere on your body and measure not three data points, but 3,000.
Perhaps, based on that data, the doctor will still tell me I have a cold. But perhaps I have something else, and that extra data might allow us to make a more precise diagnosis. Ultimately, companies must begin gathering, processing and analysing more data if they wish to remain relevant – the health of their portfolios depends on it.
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 serves clients worldwide from offices in Australia, Asia, the Middle East, Europe and North America. For more information visit yardi.com/uk.
PW Perspectives: the structural changes affecting the industry
- Currently reading
Property companies must embrace the power of data