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The idea of using analytics in real estate has been slow to take off, despite the fact that the multitrillion-dollar commercial market presents numerous opportunities. But emerging use cases show that some in the industry are trying to change this.
Commercial real estate is an expansive industry that can be affected by many factors, including economic downturn, environmental impact, technological advancement and even social trends. And while most people associate commercial real estate with warehouses and retail options, the industry also encompasses office spaces and apartment complexes.
PropTech -- a broad class of data tools and platforms specifically for real estate -- has been growing in the past 10 years. According to Unissu, the funding for PropTech in 2018 alone was $13.85 billion.
Analytics in real estate drive change in many ways in the commercial sector, from optimizing office space to driving investment opportunities to even managing a safe return to work for employees.
Real estate analytics teams
Before a commercial real estate company can use analytics, they must have the right data and the right team.
"One main issue is knowing about the data that even exists," said Anne Kinsella Thompson, research scientist and real estate economist at MIT's Center for Real Estate.
Thompson said that even once an analyst finds the data available, it can be difficult to know which is the best source, especially because analytics are still a relatively new adoption in the space.
"I think a lot of times that the background of people in the industry isn't necessarily an analytical background," she said.
Albert De PlazaolaGlobal principal of strategy and design, Unispace
Commercial real estate is such a broad market, and an analyst must be familiar with the niche area, as well as the analytics that will benefit the organization in that market.
"There's always issues with the farming out, especially if it's to private analytics companies that don't have a feel for what you're trying to go for, and not just how to do the programming," Thompson said.
Historically, analytics in real estate haven't been an internal matter for commercial real estate organizations. Companies have typically looked to consultants before investing in building their own analytics team. But for organizations with the available resources, having business analysts on staff who understand the specific market as well as the technical aspects can pay dividends.
Analytics in development
One area where analytics in real estate are playing an important role is the development and construction of commercial spaces. New buildings can take a toll on the environment, but data can help developers understand how to use resources efficiently and meet evolving environmental impact standards.
"Construction is a large contributor to environmental concerns as we add more concrete to the built environment, and so doing it without waste is important," said Byron Carlock, national partner and real estate practice leader at PwC. "Analytics are trying to drive some construction efficiency."
Commercial real estate is not above environmental, social and corporate governance. Many developers are now chasing Leadership in Energy and Environmental Design (LEED) certification for new construction. To meet LEED standards, buildings are not only being built more efficiently, some older buildings are being repurposed.
"I think analytics associated with everything from solar shingles to solar walls -- for improving energy intake from those capabilities and allowing more efficient operations of buildings as we move toward a zero-cost environment both residentially and commercially -- are all very important strides," Carlock said.
Analytics in commercial real estate don't just help buildings stay environmentally friendly, they also support development and building in different spheres. Unispace, a commercial interior design company, uses analytics to optimize office space utilization.
"Pre-COVID, we would have taken the same basic methodology of utilization, figuring out how often workplaces are utilized," said Albert De Plazaola, global principal of strategy and design at Unispace. "We took a look at a couple of quantitative metrics that would allow us to start identifying opportunities or inefficiencies or challenges."
Unispace uses analytics to optimize underutilized office space and redesign it to better fit the needs of employees. By analyzing the number of employees using the space and the need for collaborative spaces, the team's analysts can design an updated office space that will better fit employee needs.
Of course, all the data and analytics that Unispace used up to March of this year, when lockdowns fundamentally changed how most offices work, is useless now. But that doesn't mean office spaces won't still need redesigns, especially looking to the future as some employees wish to return to the office in some capacity once it is safe to do so. Data can help guide office managers and building owners to understand how much capacity they need.
"I think that remote working will be an accepted work practice and will have to be somehow accounted for in the workforce experience," De Plazaola said. "And I think that's the opportunity right now for workplaces. How does it adapt to a changing role of what it was meant to do?"
The retail dilemma
Retail is a large part of commercial real estate and has seen a lot of changes in recent years with the continued rise of e-commerce. While consumer use of retail space has gone down, especially in the last nine months, analytics can still help this market.
"E-commerce growth has popped up even more, but 85% of sales are still done in stores," Carlock said.
According to Carlock, sales still can be driven in retail with analytics that improve the customer experience. Online ordering with in-store pickup is practice. With this practice, people will often purchase other items in addition to their online orders. Additionally, with personalization, retail workers can suggest other items for the customer to purchase.
Analytics have also driven developers to reposition retail space, often creating more mixed-use areas with boutique offerings instead of large department stores, Thompson said.
"Nobody wants to go into [a department store] and search through 10 floors to find the specific product they're looking for," she said.
Analytics can help retailers understand and anticipate evolving customer dynamics and help them pivot from one model to the next as things continue to be uncertain in the space.
The lifestyle aspects
Carlock said real estate has been slower to adopt automation and optimization of information flow than many other industries. Recently, real estate has moved to a more digitized environment, with more records kept in digital systems, a streamlined digital process for leasing and reduced time to closings.
Analytics in commercial real estate have an even more prominent role in a post-COVID-19 office environment. Not only can analytics improve office functionality, they can also improve the return to normal.
When it comes to health, sensor data plays an important role in maintaining safety. According to Carlock, sensors can help determine safe occupancy loads, frequency and standardization of bathroom cleanings and temperature checks upon entry and exit.
"That allows landlords, hospitality companies, health clubs, anyone who is trying to get back to the office to manage reentry safely and healthily," he said.