In late 2008, in what was becoming clear would be a dramatic and difficult shift, a developer client of mine declared with surprising calm, “we’re going into a planning time, not a building time.” He’s built a career of success on remaining nimble and lean, and he weathered the Great Recession substantially better than many of his peers in real estate development and investment.
I am reminded of his simple statement these years later. I now lead an urban data management and analytics firm called Visible City; we create and use custom data tools to inform and guide clients managing complicated systems in urban real estate, planning, evaluation and logistics. Our work to date has been to assist clients in a building time. But our conversations with clients and prospects are now increasingly focusing on how they use data — data from their internal operations, public data, and data from subscriptions — to consolidate and even thrive in a down market somewhere around the corner.
The trends of a down market in real estate are straight forward to observe. Here’s what tenants experience:
- Revenue pressure and narrowed margins
- Exploration of smaller space and reconfiguration of operations
- Search for remaining ways to wring capacity from existing assets
- Focus on retention of employees with the most valuable experience
- Reevaluation of location for visibility and proximity to customers and vendors
- Less flexibility on part of property owner
- Stronger hand in negotiations with property owner
- Signs of distress by competitors
The property owner or investor’s down market journey might include:
- Diminished access to credit
- Rising cap rates/flattening or declining values
- Search for remaining ways to wring capacity from existing assets
- More lengthy negotiations and entitlements
- Rent concessions and higher expectations of tenant improvements
- Signs of distress by competitors
Each one of these steps, for both parties, can be made dramatically more useful with application of today’s data layers and approaches. Analytics will highlight unused capacity and reduce waste, provide real-time feedback about competition, and empower decision making that reflects current conditions, not “gut feel” sentiment that belongs in the last stage of the economic cycle.
Whether in an expansion or a down market, tenants and property owners are both focused on overlapping but distinct steps in a pipeline that begins with a customer and lease payments, and continues through maintenance and capital improvements to the building, which in turn influence the larger district. At each of these steps, tenants and property owners have an unprecedented opportunity to navigate a down market using internal and external data.
In stark contrast to 2008, parties in real estate can now gain access to, and generate insight from much larger volumes of data to allocate resources more dynamically and cost effectively. Tenants, property owners, investors and others can consider nearby current transit usage, foot and bike traffic, social media activity, specific comparisons to comparable property or tenants, local employment by occupation, or nighttime light quality. These kinds of metrics can dramatically build on more conventional bases of comparison like demographics or value information, and together present a richer and more dynamic framework for decision making.
The last years of growth have been a positive backdrop for the use of data to evolve. Whether in 2017, 2018 or later, the real estate marketplace will tip out of expansion mode, and the latest data and interpretation will become even more critical for organizations to thrive.
