Get the data, use the data, share the data
What does it mean for commercial real estate firms to truly adapt a data-driven culture? Some aspects may surprise you
"Data is coming at commercial real estate from everywhere," reports the National Association of Realtors' Commercial Real Estate (NAR) ALERT, which analyzes the latest market trends.
There's no question that commercial real estate is an extremely data-driven industry, as companies collect mountains of it. Data is used for transaction negotiations, long-term value and risk evaluation, development decisions, site selection, facilities management, sustainability reporting, and many more functions.
Yet, the industry still doesn't necessarily identify itself as a data business, and has been relatively slow to invest in data management and analytics software.
Surprisingly, commercial real estate's IT spending as a percentage of revenue comes in at a mere 0.8% - the lowest rank of 16 business sectors. Even food and beverage processing - at 1.3% - easily surpasses commercial real estate.
Perhaps, part of the resistance to commercial real estate technology is the "way-we've-always-done-it" business mentality and a lack of urgency to change. The industry is used to "static spreadsheets and phone calls as the primary tools for collecting, storing and analyzing data," reports NAR.
A tech disruption on the horizon
However, a technological disruption in the industry is imminent. The benefits of commercial real estate technology are clear in helping streamline decision-making processes.
In fact, 55% of commercial real estate executives say technology advancements are "revolutionizing the industry," according to the "2016 Commercial Real Estate Outlook" released by CIT. Despite this acknowledgment, many commercial real estate companies are slow to adopt technology; only 11% of respondents rated themselves as "leading edge" when it comes to technology implementation.
The tide is beginning to change. According to JLL's "Top 10 Global CRE Trends for 2016" report, 57% of industry executives globally plan to enhance their company's data-gathering capabilities over the next one to three years. More than half said the lack of effective data and analytics has hindered their companies from enhancing their strategic value.
How can your team become data–centric and gain a competitive edge?
The world is clearly changing and commercial real estate companies need to appreciate and accept the importance of data and how it can shift their business strategies. There's an abundance of data available, and effectively using it will help companies outperform their peers.
While few would argue with this premise, challenges exist in stepping outside your comfort zone and making the commitment to becoming a data-driven organization. The road to data fluency isn't necessarily easy, but it's very doable. However, just saying you're going to do it is not enough. Organizations must be prepared to adopt this new philosophy.
Three steps to transitioning to a data–driven organization:
Step one: Collect the data
Collect and analyze the data in order to try and understand your world better. Companies are generating data on a daily basis; however, few collect it as an asset. The greatest asset a company can have is the data it owns and collects, because that can tell its executives information about its past performance and what that could mean moving forward.
Step two: Use the data (and embrace it)
Many firms collect data and perhaps only look at it once or if it tells them what they thought, they're all on board. However, in many cases, it's going to tell them the opposite of what they originally thought, and are they willing to accept and embrace that?
Recognize that sometimes data will show different results than you expected. Embrace it on multiple levels and be willing to accept it and shift your mindset. This is particularly applicable in commercial real estate, which is a very people-and relationship-centric business.
For example, if an investor acquired a building in a particular market, and that market tanked and their transaction went bad, they may say they will never do another deal in that city again. That's part of the human mindset. However, a data-driven culture would not conduct business in that manner.
Humans did not evolve to be logical; we're not wired to be data-driven. Sometimes you have to go counter to the human condition and make the logical decision that the data tells you. It's more important to be logical and thoughtful in order to give your company the best possible odds to succeed.
Forward-looking companies are integrating data into their day-to-day operations and data is at the heart of their important decisions. They're tolerant of questioning - even dissent - about business decisions being made as long as the questioning is based on data. That's what it means to adopt a truly data-driven culture.
Companies need to embrace this different mindset from the start. If you simply say, "Data is important. We're going to look at it," and then hire a data scientist or a couple of IT experts, that's not sufficient. For those in executive levels, it's about embracing a different culture.
Goby is an example: Goby transitioned from a traditional, relationship-based model to a data-driven organization. We started as a consulting company, which is very people-centric. Over the years, the company has shifted into a software company that helps its clients maximize the value of their portfolios using analytics and sustainability best practices.
That's certainly what we learned at Goby when we wanted to help our clients use analytics and data to drive their business. We had to shift our mindset as traditional consultants in order to help our clients do so. It was difficult for us, because in the past, we would always solve problems simply by throwing more intelligent people at the issue - just like most commercial real estate investment firms. Instead, we had to start with the data first, listen to what it was telling us, then implement it."
For example, if a commercial real estate company is about to purchase a building, their first move is to send a group of their people to look at it. Becoming data-centric is not about removing the "people element;" it's quite the contrary, but it's about embracing data as a decision maker at the table as you add that to your culture as a means to increase your odds for success.
Or another example is an owner is accustomed to a certain number/percentage for their portfolio's net operating income (NOI). That becomes their perceived goal, because that's what the market is used to, that's what's acceptable, and that's what investors demand. They're "anchored" to that number. However, if they would allow themselves to become more data-driven and be open to changing their mindset, they will recognize that there's a lot of opportunity in the data to provide more operational efficiencies, better value and maximize the returns for their investors. They have to let those biases go and use the data to help them make decisions.
Step three: Share the data & tell your story
Using data to drive better business decisions is important, however, some companies don't take advantage and promote that. The best way is to tell the world why you're a better company because you have a data-driven culture.
Many of Goby's clients use data to tell a story and demonstrate their commitment to ESG, increased energy efficiency or operational improvements. Sustainability equals value, particularly in commercial real estate. Companies can demonstrate that they have a data-driven approach to monitoring utilities and track sustainability performance.
Whatever type of company it is, it will find nuggets to tell its "story." For a commercial real estate brokerage or investment company, the ultimate story is that they outperform their peers because they more effectively interpret and use data as an asset. They understand and are abreast of what's happening in their business. If they make a capital investment, for example, they have the data to support the business case for that investment.
If there's a high-net worth individual or institution looking to place capital with an investment manager - and they have choice between company A or B - why do they choose one over the other? If it's just the people, people change companies all the time. But if the company has underlying fundamentals of logical decision-making - that lives beyond just people. That's a better organization, a better steward of your investment. Clearly, working with data is good for a company's bottom line. Are you ready to take the leap?
This article was published in NAREIM Dialogues, Fall 2017.