Prime Numbers: Are you ready for data to disrupt commercial real estate?
If our planet’s ability to digitally share, study, and collect valuable information went from zero to Internet in two decades, then what will 2030 look like?
To catch an informed glimpse, Accenture Strategy surveyed more than 1,000 CEOs in “Agenda 2030: A Window of Opportunity.” This U.N. Global Compact study, reached a clear conclusion: “The glare of the spotlight influences [companies] to improve productivity, cut costs, secure trust with local stakeholders, and build customer loyalty”. Whether that glare comes by way of the media, watchdog groups or increasingly sophisticated consumer activists, it’s not a welcome sight. Yet growth and innovation driven by the intelligent use of harvested data can turn it into a positive light every business can bask in.
Eighty-six percent of global CEOs believe “transformative action will be underpinned by a new approach to identifying common metrics that allow companies to measure, track and communicate impact on sustainable development goals.” What’s more, the report emphasizes that the same strategy that creates societal value drives shareholder value as well.
To the point: Sustainability equals value, especially in commercial real estate. A data-driven approach to monitoring electricity and water usage, tracking sustainability performance or showing the cost savings improvements that will yield over time can achieve two things:
1. In the near term, it can positively impact NOI, as these numbers play a crucial role in building valuation during a sale.
2. An owner or investor, well-versed in value, can spot inefficiencies or opportunities while in the acquisition process.
And once that’s achieved, so comes another tangible benefit: data equals value, too.
That data will play a dominant part in future cost savings is beyond question at this point, especially if you take a look at industry momentum. The conclusions in the Accenture study are echoed in a 2016 report by GRESB. Here’s what they shared: Technical building assessments to provide more detailed information on energy efficiency opportunities rose to 83 percent of GRESB participants, up from 61 percent the previous year. That’s a jump of more than a third “There is strong evidence,” GRESB notes, “that thoughtfully designed and operated buildings can provide practical solutions to the most challenging issues, while creating value for shareholders.”
Those words alone should provide a springboard into a data-driven culture—and paramount reasons that compel us to gather the data our buildings generate.
But if you collect energy data just to report it, for example, are you missing the mark? If it’s little to no risk to capture the data, and if you’re already reporting, can you turn it up a notch?
When GRESB and Accenture Strategy use the exact same words – “shareholder value” – it’s not just about saving money, but making it as well. Yet it’s also the question of spending money: If GRESB’s 83 percent isn’t 100 percent, no doubt it’s due in part to the resistance involved when the return on investment for data-gathering technology seems to be a one-trick pony. Yes, energy efficiency initiatives can save building owners substantial sums of money. But that’s far from the end of the line – in fact, it’s quite the opposite.
A compelling argument exists within a new report by Enel X (formerly EnerNOC) and PwC, with a title alone that speaks volumes: Transformational Energy Strategy: From Cost Management to Value Creation.” Goby ranks among the advisory council members that contributed to this report.
“Energy is typically delegated down to facility-level managers, where it is disconnected from broader corporate strategy,” says Tim Healy, Chairman and CEO of Enel X. “We’re at the beginning of a new era where an effective energy strategy is essential to remaining competitive in the marketplace.” Nor do you have to look far for examples of how some companies have turned data mining into gold mining.
Over the last three years, the stock of Amazon.com (NASDAQ: AMZN) has soared 175 percent, a performance built in large part on data analytics. EKN Research reports that 80 percent of e-commerce giants say that they lag behind Amazon in analytics maturity.
Amazon CEO Jeff Bezos has turned that advantage into a revenue stream worth $2 billion per year. Big money equals big data. But remarkably, Amazon is just getting started reaping the rewards.
On Christmas Eve 2013, the company patented an algorithm-based system that will eventually ship products before customers even place an order. The forecasting model uses data from prior Amazon activity to extrapolate what the customer needs and when they need it. This will allow Amazon, like the hockey legend Wayne Gretzky, to skate not to where the puck is, but where it will be. And like the Great Gretzky, they will score again and again.
Amazon’s forward-thinking use of data offers a profound lesson—and an urgent one—to the real estate sector. Too often, even the brightest minds in development and sales don’t skate to where the proverbial puck is: We go to where it was.
For all the firepower applied to the buying and selling of buildings and land, or tallying square footage and subdivided space, the commercial property model that calculates value in tangible physical assets — and nothing else — goes back hundreds of years to an era of quill pens and parchment.
Are we leaning backward as opposed to forward? According to Piper Jaffrey’s Real Estate Technology Overview for 2016, commercial real estate’s IT spending as a percentage of revenue comes in at an anemic 0.8 percent — the lowest rank of 16 business sectors.
Remarkably, even food and beverage processing (1.3 percent) beats out CRE by a healthy margin, though many in and outside real estate might find that inconceivable.
LinkedIn established itself as a digital business pioneer by employing as many as 150 data scientists, a figure cited by Venture Beat. How many real estate companies have even one? Think long and hard about being the first: The ones that have a data scientist or two on board, or a platform that manages the data for them, will have a distinct advantage.
Today, data science and analysis allows us to collect the data a property generates and create a storehouse of great worth with permanence and purpose—in categories ranging from energy usage to the number of well-heeled pedestrians that walk past the exterior security system.
To that latter category, consider this trio of hypothetical questions: What are the general demographics of the people who dine in or near the building? Which people possess key cards? What do those cameras tell you about foot traffic? Unless building management is evaluating security, these inquiries may seem irrelevant. But in fact, these data points can prove the building sits in an increasingly desirable environment. For example: What if you could count the number of artsy, bohemian males and females that pass by and through the entrances?
This data set — a “hipster quotient,” if you will — indicates how the block is becoming a magnet for trendy dining, arts, and nightlife – and a locale where property values are set to climb.
Knowing what is happening in your building represents a very valuable asset. And in the deal making of the 21st Century, that data will only continue to grow in richness, sophistication and complexity. Even when every square inch of space is rented, and every tenant amenity taken into account, data creates a value stream that never runs dry.
No one wants to leave value on the table when a commercial property is sold; nor does anyone desire to ignore leverage that allows for the lowest purchase price possible when buying. But the peerless advantages that come from gathering and monetizing this data, and making it a part of sales negotiations, separate the smart, savvy and successful from the rest of the pack. Imagine that you can do this.
Or to be more direct: You can do this.
The methods and tools exist to make it all possible, though as with everything else in the high-tech sphere, changes are coming at breakneck speed. While it’s a ground-floor time to get acclimated to this new paradigm, those who delay because “we’ve always done it this way” will find themselves running up the stairs in vain to catch the elevator.
Consider, then, the exciting alternative. Predictive data and analytics—perceived as buzzwords and futuristic tech — can make real bottom-line differences if you utilize it correctly. Properly harvested with the right technology, the ones and zeros in our midst will allow us to add a long string of digits to property portfolios.
Are you ready to embrace the possibilities—and the certainties—that already multiply energy savings into financial energy and competitive advantage?
If so, we invite you to get started. It is now time to look up and move up together: The elevator, energy-efficient, of course, is waiting.
This article was published in NAREIM Dialogues, November 2016.