The Altus Group CRE Innovation Report 2016, released on Thursday, suggests that there has never been a more crucial time for the global real estate industry to invest in data solutions, as competition for assets and value creation places increasing pressure on property companies.
'The industry is at a tipping point,' says Raj Singh of Altus Group. 'While capital flows are increasing, the act of finding good assets and driving value for investors is becoming more difficult.' And as Singh explains, it’s not confined to certain geographies. 'Our study, made with CRE executives around the world, shows that this is very much a global problem,' he underlines.
Based on a survey of over 300 international comemrcial real estate (CRE) executives at firms with assets under management of at least $500 mln, representing a total worth of $3 tln, the report shows that 89% of firms have major impediments to collecting and utilising data to drive improved asset and investment management decision making. Data veracity and lack of normalisation are the most common obstacles faced by firms in the industry, followed by regulatory requirement issues and lack of tools and expertise within their organisations.
Perhaps surprisingly, data handling laws in different jurisdictions can make life difficult even in the most sophisticated markets. 'Germany for instance is recognised as being a very opaque market,' says Singh, 'due to rules about how data can be stored and where data can be stored. Whereas there are some markets like India where every single leasing deal is registered with the authorities, so it’s incredibly transparent if you're able to go and aggregate that data,' he notes.
In some European countries, that means that firms can't even use data assets that are being created in the UK, US or Canada because of rules governing the manipulation of data not held within national boundaries. Despite this, there is a lot that companies can do to improve their competitiveness in this field.
More than spread sheets
'The biggest misconception that real estate companies still have is that there aren't data solutions outside Excel for managing data and creating benchmarks. That simply isn't the case. We recommend that real estate management companies start to educate themselves on the state of the industry because there are a lot of small CRE technology firms that have entered the market in recent years, but aren’t necessarily managing to get the message out,' says Singh.
The report reveals that lack of integration of technology systems continues to plague the CRE industry, as 80% of firms surveyed said their business could eliminate or reduce data silos through better integration and standardisation. But Singh underlines that it isn't simply a technology issue.
'It is the case that specialists managing equity and bonds have historically spent a lot more on data than the real estate industry. Certainly, there is a need to invest in data management technology to normalise data, break down data silos, aggregate or verify data. But there's a lot of market data available for purchase that real estate companies simply aren’t availing themselves of. So making investments in technology would certainly help solve the problem, but it starts with recognising that the firms that start by addressing the problem head on are going to outperform the ones that don't.'
Managing the right decisions
The right personnel are the other piece in the puzzle, with internal specialists remaining crucial. 'We actually recommend in the study that companies do invest in internal resources who understand data and technology,' says Singh. ‘You can’t really outsource something that core to your strategy. Real estate professionals create value by making the right decisions, and often the right data is the difference between success and failure. You can’t outsource that. So having people inside who understand local framing and how data can be used are really core competences.'
The findings of the report also indicate that while the CRE industry still has some ways to go in creating an infrastructure that allows for greater data-driven innovation, industry leaders are embracing the transformative impact of technology. More than 75% of the firms surveyed said investing in technology and technology-enabled process improvement to support asset and portfolio decision making is a major priority for their organisation. Furthermore, 68% of CRE leaders surveyed plan to increase their investment in data and analytics over the next two years.
Singh welcomes the trend. 'Real estate companies are very used to investing in their assets to keep it up to date etc. But the same hasn’t always been true for the data assets in a company. If you’re not making that data available and understandable, then you've basically got an asset that's underperforming,' he says. 'And as the industry evolves still further, the firms who take advantage of data management and benchmarking will outperform their peers. The rest are going to fall behind.'