Impact of data analytics on CRE

Author Ivan Smiljanic Read bio
Tags: commercial real estate data analytics
Date: October 26, 2020

Data Analytics is just another modern term that causes eye-rolling. 

We believe it’s actually not that complicated and that the future of smart decision-making for commercial real estate investors and managers is in using data analytics.

The commercial real estate market is way behind other financial sectors in terms of embracing it. Learn why now is the perfect time to change that.

Embracing Data Analytics and Artificial Intelligence 

A good business is the one that can react and adapt to changes on the market, and with doing that mitigating risks. 

Adoption Data Analytics and AI into the existing process can be very useful and valuable during slower business times, such as this one we’re experiencing. Commercial real estate data has significantly improved over the course of past years with the results being easier to track buildings across several markets. Technology can use this data to increase efficiency by recognizing patterns and opportunities and predicting possible scenarios.

Advanced data analytics can help CRE managers and investors understand and identify the sources of risk better, from asset level to regulatory, so they can act appropriately. For a diverse commercial real estate portfolio, this can potentially improve assessing risk and returns across various property types, regulators, and geographies. 

CRE investors and managers can use data analytics to help solve historical relationships between many different variables across several market cycles and predict potential portfolio related risks.

What’s the setback?

It’s no secret many people are scared of the unknown. That’s the case here.

Many CRE managers and investors will opt for instinct-based decisions rather than ones made from pieces of information acquired from data analytics. Why is that so?

Maybe that is due to them being unaware of the wide variety of datasets, lack of analytical abilities, and most likely – resistance to change. Some may not know where to start, others may not know which skills are required to start. 

Man looking at a screen

Lack of awareness

In the past sourcing, consistent and accurate property and market-related data have been proved to be a difficult task. There are no widely accepted industry standards around data definitions and governance. Data collection, analysis, and reporting are at the surface level and require significant human efforts which often results in information silos and leaves very little time frame to analyze that information on a deeper level. 

Limited capabilities

CRE investors and managers have limited capabilities when it comes to aggregating, sourcing, and analyzing big datasets from various sources. They need adequate tools, talent, and technology to efficiently leverage data analytics to make investment-related decisions and deal with rigorous reports and risk management requirements. 

Limitations of heuristic mindset

This industry has for a very long time relied on relationships and exactly that is how investors have traditionally accumulated unique information. Most investors have combined this information with their instincts to make investment decisions.  

Now, with the increased ability and data transparency, access to information is not a competitive advantage it once was. Usage of data analytics would impact the decrease of subjectivity as they continue to use traditional decision-making.

Getting started with data analytics

Even though many institutional managers and investors are just beginning to use data and advanced analytics, these tools are expected to become a must in the future. How can CRE managers and investors get started on or do more with alternative data? Well, they should consider focusing on two main goals which are developing a data management plan and changing the organizational mindset to embrace objective, data-oriented decisions.

I hope you will feel less intimidated about data analytics after reading this and be inspired to take the next step towards the future.