The growing role of data in real estate investment
By A Paris — Like most other economic sectors, property investment had to re-invent itself in view of the Covid-19 pandemic. As some parts of the market, like hotels and retail businesses, were hit hard, others like data centres and large warehouses flourished. As the outlook is becoming more positive given the global vaccine rollout, investment managers should re-assess the resources and support they need to succeed in this environment.
“Momentum in global office markets remains subdued, with Q1 leasing volumes down 31 percent on Q1 2020. However, there are now tentative signs of an improving outlook with leasing activity in some countries including China back above pre-pandemic levels. Retail and hospitality, the two sectors most directly impacted by social restrictions, are continuing to face challenges. The logistics sector, the standout performer throughout the pandemic, maintained its robust growth in Q1,” says Jones Lang LaSalle in its Global Real Estate Perspective for May 2021.
Despite the difficulties the industry faced as a whole, real estate opportunities remain attractive. BlackRock outlines the market “offers investors the chance to invest in attractively priced properties that aim to provide a regular income with the potential for capital growth.”
The asset manager notes real estate can provide a stable income potential for capital growth. These assets also offer a pattern of returns which differs from those of traditional equities and fixed income. In addition, BlackRock explains there are dislocation opportunities due to Covid-19, “where under-pressure financial markets have not reflected the quality of a number of properties in their price. We believe volatile financial markets and an uneven economic recovery have created an opportunity to buy attractive properties at prices that do not reflect their true value.”
In support of this belief, BlackRock is starting to invest more in sectors facing a more volatile future, such as bricks-and-mortar retail and hotels. These sectors, as also highlighted by Jones Lang LaSalle, can deliver significant returns as economies slowly start to emerge from restrictive measures.
Data alone is not enough
Although the outlook for the real estate sector is a lot more positive than it was a year ago, there is no denying things have changed.
“The depth and breadth of economic impact on the real estate sector is uncertain, just as the scale of human catastrophe from the pandemic is yet to be seen. However, behavioural changes that will lead to significant space becoming obsolete in a post-coronavirus environment seem imminent.
“Given the potential for transformative changes, real estate players will be well served to take immediate action to improve their businesses but also keep one eye on a future that could be meaningfully different,” advise Vaibhav Gujral, Robert Palter, Aditya Sanghvi, and Brian Vickery at McKinsey.
Technology is one of these key changes the real estate industry has had to embrace. For example, real estate investment managers have been exploring potential locations virtually and making deeper use of data analytics.
Access to data is relatively straightforward. According to CHAOS, the urban forecasting company, the challenge real estate professionals face is figuring out how to leverage data science for maximum impact, bridging the gap between scattered data and holistic insights.
“Data on its own is not enough. The usage of advanced analytics tools that, on top of mining timely data, provide a package of information capturing location and market state, and produce good predictions, can make a huge impact on ROI and profitability,” the company says.
In addition to encouraging real estate investment managers to build relationships with trusted third-party partners to assist, this trend is also leading to changes in the internal resources needed within the firm.
“Having the right people and processes to govern data and its transformation will determine the long-term winners in a rapidly changing environment,” writes Linda J. Isaacson, Ferguson Partners, in an article for NAREIM, the industry association dedicated to the business and organisational strategy of real estate investment management.
“As the focus shifts to building predictive and prescriptive models for data innovation… All organisations, regardless of size, should include a chief data officer (CDO) or head of analytics in their data transformation planning.
“Data literacy, an essential component of a data-driven culture, must become a core competency of leadership within the enterprise, even if the CDO role is outsourced,” Isaacson notes.
The role of the CDO is evolving across the investment management industry more broadly. A paper by Deloitte entitled The evolving role of the chief data officer in financial services: From marshal and steward to business strategist argues: “The CDO’s job description – for the most progressive organisations – has evolved from its initial focus on data asset gathering, governance, and stewardship to proactive business enablement, with many institutions even marrying the CDO and chief analytics officer (CAO) roles into a single senior-level position.
“This is especially true for organisations that aggressively seek to leverage data science and advanced analytical modelling to generate new insights into the markets and customers they serve, the products they build and price, the risks they assume or pass on, and the means by which they operate the business to benefit stakeholders. Organisations today need senior leaders to not only manage and govern the data, but also to leverage the data using emerging technologies that can generate actionable analytical insights and tangible business benefits.”
In view of this, the role of outsourcing within real estate investment management firms is bound to become more prominent. A survey by Deloitte shows how already in 2019, a large number of investment managers were re-thinking their operating models, outsourcing strategies, IT tools and investments in technological innovations. This trend will have been further accelerated by the pandemic which acted as a catalyst for an increased focus on data science and analytics. n