Mathew, the CEO of a leading real estate development and management company with a majority market share in its region, has been staring at business with uncertainty and confusion for the last few months since the pandemic hit. With the unlevered enterprise value of real estate assets falling 25% or more,[i] owning and operating properties suddenly seems like a less valuable proposition.
When Mathew tries to lay out a future strategy, he is troubled by the lack of answers from all of his functional heads. He is wondering if the shift in property use is temporary or permanent. Should he be pausing or shutting down his development projects? Should he divest to mitigate potential losses or should he look for new revenue opportunities? Neither corporate strategy, marketing, sales nor business development have clarity on the course of action they must pursue to regain the lost momentum.
Mathew has two courses of action: Decide based on individual experience and gut-feel, which could be emotionally driven, speculative, and risky or analyze the situation leveraging new trends and data that continue to emerge and lay out appropriate short and long-term response strategies.
BlueDot, an AI-based startup, gave big data analysis-based alerts on the coronavirus in December 2019 well before the World Health Organization announced it. Had the world considered these alerts differently, we would have been better prepared to respond. Nonetheless, this example perfectly depicts the potential of big data and artificial intelligence working together to deliver insights that is beyond human knowledge.
Large real estate businesses serve a sizable and diverse client base that gives them a great opportunity to leverage numerous data points they already have to appropriately gauge market sentiments, understand evolving customer needs, and revise business strategies. As per a recent survey[ii] of 300 analytics professionals across the US, 43% of respondents stated that analytics is at the front of their activities in responding to COVID-19 related business impacts.
Considering real estate business will experience several long-term effects due to the current pandemic, which no one is certain about at this stage, this is the time to evaluate historical events, keep an eye on current trends, and predict how the future is shaping up. Let’s look at a few emerging areas where data analytics can help the real estate businesses survive, reform, and transform within the new normal.
Tapping new demand with behavioral changes
The COVID-19 experience will permanently change habits that may affect demand for various real estate assets. For example, with changing consumer behavior, there’s a direct impact on footfall traffic and retail sales as more and more people are shopping online. While demand for retail spaces may go down, the shift toward e-commerce will boost demand for warehouses and storage facilities. Likewise, while many offices may close down and the need for co-working spaces may decline, a parallel shift toward more remote workers will boost the demand for telecom towers and data center spaces to extend better internet services.
Social media is the most readily and easily available tool to perform customer sentiment and behavioral analysis and correlate the findings with the future demand for different real estate assets. Leading companies like Amazon generate 35% of their revenue from their recommendation engine. Likewise, if utilized properly, insights from behavioral data can play a huge role in helping real estate companies decide the best portfolio mix to invest in and provide the right products to serve their customers’ needs.
Focusing on tenant and end user experience
Tenant and end user expectations will reshape the consumption of real estate in the new normal. Imagine a residential tenant who struggles to work from home due to the lack of a quiet environment but also wants to avoid going to a far-off office location. What if a flexible location or workspace-as-a-service with all the necessary amenities was in the same complex or near vicinity? Or what if property and mall operators act like marketplace aggregators and provide ‘ecommerce-as-a-service’ to their retail tenants to sell their products and services online?
Insights from tenant surveys, social media, and other data sources can play a decisive role in identifying such useful and innovative service offerings, thereby enhancing the tenant and end-user experience, and creating new revenue streams for owners—a win-win situation for all.
In light of the current crisis, real estate companies not keen on exploring these possibilities in the past[iii] will now have to accelerate such efforts. Companies will have to ensure they plan appropriate strategies to enable the right technologies in their facilities, collect good, insightful data, and create personalized experiences for their tenants and end users.
Improving productivity and optimizing costs during development
With common delays in development projects due to the COVID-19 situation, there will be an additional focus on cost-cutting and productivity enhancement initiatives to save the bottom line.
Typically in real estate business, most data lies in silos due to multiple systems and multiple stakeholders involved, and almost 95.5% of all data captured goes unused in the industry[iv]. Considering the huge amount of data that is readily available, big data has a tremendous potential to harness this data and achieve significant gains from it.
For example, if real estate companies could leverage just the design and BIM part of the data, they could explore numerous ways of value engineering during various stages of planning and development. This would present a great opportunity for cost optimization as each element in the design is tied to the cost estimate and one can easily identify cost-saving opportunities evaluating changes on the fly. This could also help companies estimate their works with much more confidence and reliability, keeping their target margins intact.
As you can see, the potential of big data for real estate industry is limitless. These outcomes can contribute meaningful insights for the real estate industry to sustain, prepare, and revive itself once the crisis is over. The need of the hour for real estate companies at the crossroads is to acknowledge the substantial potential of data analytics and transform themselves into a data-driven organization.
[iv] Hill, Brian L. “Digging for the Big Data Gold in Today’s Construction Projects.” Xpera Group 2017