Data is transforming the property sector – at last!
Data is transforming the property sector – at last!
For too long, the UK property sector has been reluctant to embrace the power of data. Returns were predictable, leases lengthy and the location was what mattered most. There was little incentive to change but significant costs and potential downsides to rocking the boat. Why fix what’s not broken?
As lockdowns took hold across the UK, commercial property landlords realised significant and long-lasting behavioural changes were here to stay. Previously simmering trends are becoming anchored. Online shopping, working from home and the convenience of food deliveries have changed how consumers interact with the built environment. The power of location has diminished and landlords must increasingly compete with non-property-based offerings.
They must, often for the first time, truly leverage data to remain relevant. No longer are businesses limited to multi-year, multi-million-pound, high-risk digital transformation projects but can instead deploy micro-interventions that leverage data science tools to generate actionable and instant insights. These can be obtained at a fraction of cost and effort but deliver significant immediate value.
Complacency in the property sector
“Location, location, location” has always been the driving motto in the property industry and its key generator of value. Location is the industry’s most effective barrier to entry. As long as commercial landlords owned the right locations (and had access to the capital to acquire and hold them) then their returns were predictable and near guaranteed. This without having to contribute much effort. Additional services and amenities were always classed as nice-to-have; tenants would fight for the right address. Leveraging and engaging with data was too often a priority for tomorrow.
It has taken a massive business problem to provoke action. Commercial tenants have felt the brunt of the pandemic, exposing the inherent inequality in risk-sharing that exists with landlords. Covid-19 has become an opportunity to re-appraise the intrinsic purpose of retail stores and re-examine working patterns.
Over 16,000 stores and 30 nationwide chains have either gone into administration or rationalisation in 2020. The commercial landscape is rapidly changing, and tenants are rethinking their property needs. HSBC is reducing its office portfolio by 40%, Aviva, Clifford Chance and others are following suit.
Those that retain a property footprint want to change their dependence on fixed property costs and the leases that bind them to it. Tenants require more value, more flexibility and a more individually tailored solution. They also now need to balance their property needs with their online shopping or remote working initiatives. This past year has been a wakeup call to most landlords.
Data, data, data …. not location
Now that competitive advantage is not simply achieved through the attributes of physical locations but rather within a complex, omnichannel ecosystem. The value curve has dramatically shifted. To remain attractive, landlords need access to instant, actionable insights that are adaptable to volatile market conditions. Traditional market reports provide ‘static’ aggregated predictions which are too general, lack specificity and are rarely tailored to the needs of multiple users. It is time executives learn to harness data and use it to better align their products to the needs of their customers, or risk following in the footsteps of Intu.
The challenges in deploying data science tools to property were often condensed to beliefs that 1) existing systems are poor at talking to each other, 2) data collection is complex and expensive 3) associated implementation costs and complexities are substantial.
These concerns remain somewhat valid. The technological landscape is still shifting and improving but is far from perfect. Most property companies are poor at installing sensors and creating processes to automatically collect data, and finally, the market is awash with stories of digital transformation projects that have cost millions, taken years to build but yielded debatable benefits. There is an understandable reluctance to engage in large-scale digital transformation projects.
Not all problems should be solved by all-singing, all-dancing digital platforms. Rather executives should consider what is their most pressing issue? What insights do they lack to make the right decisions? Which scenarios do they want to test? What is the critical challenge which human intelligence alone cannot solve?
Part of the solution lies in delivering short, hard-hitting, single-issue, rapid-delivery data science projects. Building user-friendly decision support tools that address a clear and specific need. These tools can be built within a short timeframe and are comparatively affordable, often tangibly proving their worth within six months if not in a single quarter.
While data tools on their own cannot answer every question, they will inform strategic discussions, frame negotiations and provide specific and valuable insights. These can be tools to better predict future rent levels and sources of demand, optimise sustainable levels of turnover rents or use local site attributes to suggest the highest and best site use for developers.
Brick and mortar properties will remain at a significant disadvantage due to business rates, service charges and significant costs of occupation. Despite this, our stores and offices are not going anywhere, we still have significant utility and affinity for them. A return to normal will see us embrace the high streets and celebrate our returns to offices as if it were the ‘Roaring Twenties’ all over again.
The coming market shifts will demonstrate which landlords have used the pandemic to re-think their strategic approach to a resilient and digital future, and which have remained complacent. The property industry is littered with low-hanging data fruit, the time has come to start picking; carefully and deliberately.
About The Author
Chris de Gruben is an Arca Blanca property expert, a chartered valuation surveyor and urban planner with more than 15 years of experience consulting and carrying out real estate market research for the private and public sector. He specialises in urban development, property and construction in the UK and several emerging markets.
About Arca Blanca
Arca Blanca is an integrated consulting and data company, resolving complex growth and profitability challenges. We help businesses of all types thrive in the face of unprecedented change and upheaval driven by new technologies.