Finding Commercial RE’s Big Data

It’s time for commercial real estate managers and investors to dig under sales and better understand what actually drives value, says NAREIM CEO Gunnar Branson.

Big data makes big promises to transform society as we know it by allowing companies, institutions, and governments to tailor their services to precisely what is needed.

The focus of big data can vary widely, from individualized medical treatments and predictive policing to a sudden consumer preference for turtlenecks over V-necks on shirts, with big data leading a revolution in almost all sectors of all economies around the world—except, perhaps, in commercial real estate.

While there is undoubtedly plenty of data in real estate investment management, NAREIM chief executive Gunnar Branson contends that the industry has not yet explored at an appropriately granular level to get ahead of the curve when it comes to understanding future demand and supply.

“It’s been a frustration of mine for a long time,” says Branson. “Most analysis in our industry is essentially a sales and lease data discussion. We’ve yet to really go a level below that and discover the data that is based on what people are doing in and around the space we build, finance, and manage.”

The trouble with sales and leasing data, he adds, is that it’s a lagging indicator of change, cultivated from the eventual outcome of many other behaviors and trends in the market.

In order for real estate investment managers to stay ahead of the curve, Branson advises looking for data that is created by real-time behaviors such as GPS information from millions of people’s cell phones as they go about their day-to-day lives; user data from bike-share programs, such as New York’s Citi Bike or Chicago’s Divvy; car-share companies like Uber; and even consumer-research information gathered by groups such as Nielsen.

“These massive data sets can show where people are, where they are going, and when they are going there and what they are buying,” says Branson. “Patterns from that data can reveal where a retail property or residential building or office should be, or where a property might be losing density of human activity. Change in behaviors can be observed in real time long before comparable sales or leasing data could possibly reveal anything.

“Big data can help us to see what things could and even should be,” he adds.

Ultimately, Branson says, these data patterns get to the heart of the real estate business. “Real estate isn’t buildings. It’s the monetization of the density of people.”

So how can real estate be made more dense? “The way to do that is to create rich, rewarding, healthy, exciting environments where a lot of people come to work, live, and play, and which therefore creates stronger cash flow,” says Branson.

And once managers more accurately understand what people want, they can better anticipate change and more precisely and profitably “build, buy, lease, or sell any given asset.”

Unfortunately for most GPs, real estate investment management data can be difficult to mine for big-data-style trends. “There are a lot of data points we look at in real estate, but it’s not really big data,” Branson says. “It’s not granular enough. It covers too much space and too much behavior in one number, and very little of it is readily accessible or reliable.”

The NAREIM chief executive cites the retail company WithMe, which opened its first mobile, fully interactive pop-up store in downtown Chicago for two weeks in October, as an example of the changing needs of shoppers and why more real estate investment managers need more granular data to better understand the continually changing use and definition of real estate.

Like a luxury version of a food truck, this real estate was able to provide a temporary pop-up home to two global retailers in an open plaza on Michigan Avenue. Branson says that TOMS Shoes and Raven & Lily used the pop-up store to showcase their online and in-store shopping environment. The store had interactive mirror displays that allowed customers to make purchases or request alternative products without leaving their changing room, and shelves that moved towards shoppers to suggest inventory related to products they had already selected or looked at.

And like a food truck, the pop-up store is able to move where potential buyers congregate. WithMe, Branson says, illustrates not only the challenge for tenants of long-term leases in real estate, but also the industry’s understanding of what real estate is in today’s markets.

“Is real estate a contract?” he asks. “A way that our industry helps to support and therefore monetize whatever activities people pursue, whether they are working, playing, or living their lives? If we are going to continue thriving as an industry, as people and businesses change behaviors, we have to do a better job of understanding what they are doing in real time.”