Valuation: impact of dynamic data
17 November 2016
Sonny Masero explains how dynamic data could change the way in which buildings are valued and managed
What is this obsession with data? The internet and the success of companies such as Google and Facebook have caused data to capture the popular imagination like never before. How can these corporations with vast, apparently intangible, assets be some of the largest businesses in the world? Their extraordinary value is not based on physical assets, yet these businesses are transforming and disrupting most of the established industries, and the property sector is next in line. Data will affect yields and property valuations at an increasingly accelerating rate.
‘Proptech’ and ‘CREtech’ are terms that have already been coined for the innovative use of technology in the property and corporate real-estate sectors. The hype has not yet reached fever pitch, but you can see that the excitement about data-driven apps is on the rise.
There are obvious examples of proptech software hosted in the cloud, enabling, for instance, online estate agents and crowdfunding sites for property investment, computer-aided facilities management, building energy management systems, intelligent building management systems, computer-aided design and building information modelling – or, for the acronym-happy, CAFM, BEMS, IBMS, CAD and BIM – as well as property asset management platforms. Some of this software has been around for some time and migrated online, while other applications have been devised specifically for the mobile internet era. Their success depends on 3 key abilities:
- to provide commercial value to customers;
- to acquire data and use it to provide valuable intelligence; and
- to enable both of the above at scale.
Property assets do not change at the same speed at which they create data, so the sector and technology are out of sync. The professionals who manage assets on a day-to-day basis are not always online, and tend to concentrate more on lease agreements or building maintenance than on apps for buildings. Properties do generate data, and in large quantities, but this shouldn’t mean that the market becomes data-driven. The use of technology should instead be need-driven and, in some cases, event-driven.
A real-estate data strategy must be driven by the requirements of the property, the portfolio and the market, and needs will obviously differ between asset classes and grades. While traditional property valuation principles will persist, commercial properties will be able to deliver greater value with the use of smart data for differentiation and operational optimisation. For corporate real estate, data will be used to get more from a company’s most important assets, namely their people. How will this change the role of the property manager?
Data is already being used to make buildings more efficient and easier to maintain, which can reduce operating costs and increase net operating income. It is also being used to manage buildings so that they are more comfortable, reducing complaints from employees and tenants and thus improving relationships and productivity. In addition, data is used to prioritise investment, increase yields in portfolios and maximise the use of capacity in estates.
Technology is creating an increasingly rich picture of how properties perform in real time and this will, in due course, inform the design and refurbishment of buildings as well as more dynamic lease or service charge arrangements. Internet and mobile technology has changed the way that properties operate as offices, retail spaces and specialist uses such as data centres. Property portfolios and corporate real estate have altered as a result, particularly in the last decade, while performance data has also become more visible through portfolio benchmarking and disclosure requirements, and there is no reason to expect that this change will stop – or will indeed do anything other than accelerate.
Data is already being used to make buildings more efficient and easier to maintain
To satisfy clients, tenants and occupiers who will have more asset data available to them, property managers will need to be data-enabled to maximise returns. There will be room for negotiation over data about the market – such as comparable freeholds and leases – geospatial information, the condition of property’s physical assets and how the building is managed, including operational costs, as well as the satisfaction of building users. This is not a change in the type of data – the change is in the volume and velocity of data. It is now possible to monitor instantaneously how comfortable and productive people are in an office or see in real time where shoppers tread in a store. The latest price information is available at your fingertips – and at those of the occupier.
Property owners and asset managers should both review their data strategy on the following 4 levels to ensure that software can be synchronised with established asset management and business processes:
- customer/client/tenant relationship management;
- portfolio/estate management;
- property management; and
- facility/building management.
The business need for data insight on each level is likely to be framed by a defined frequency, for instance, with a live feed, daily or weekly digests, monthly or quarterly reviews, or annual reporting. Complexity in a portfolio or a property will also be a factor, determined by the number of users, properties, uses, tenants, data sources and data volume. This frequency and complexity is key to deciding whether software is required or a spreadsheet will suffice. An evaluation of the value of a tool should be performed in the context of an event – the transaction or service delivery – taking place at each level.
Sorting through the available data solutions is not a straightforward process. In hindsight, it is easy to identify winners such as Google, LinkedIn and Facebook, but not so in advance. The best option is to consider the following principles when selecting tools.
- Time to value: the process of data acquisition must be inexpensive and should deliver value quickly.
- Open: tools should use open standards and be both web-based and interoperable to avoid getting locked into a single provider and enable combination of data sets.
- ‘Easy button’: users will be time-poor, so data analysis should provide insight at a single click rather than assuming sophisticated knowledge of systems.
- Collaborative: no single person is responsible for a commercial property, so the tool should enable sharing of data insights and action.
- Push: real-estate professionals may be familiar with apps in their personal life but it is not the norm in the sector to use them, so tools will need to provide succinct information in a useful and timely way.
In the interest of disclosure, my company Demand Logic tries to adhere to these principles to help ensure long-term success. As a software company, we provide the equivalent of a Fitbit for buildings, which monitors live data and provides insight for facilities managers. We work with many large property companies, investors and their managing agents and contractors to improve the way in which buildings are managed and maintained.
Customers such as RBS and Land Securities appreciate the value in which live data about comfort and productivity, the condition of heating, ventilation and air conditioning (HVAC) and the energy performance of individual pieces of equipment can fundamentally alter asset management. They understand it can improve the conditions for occupiers while also saving on energy and maintenance. It can also improve the commissioning process and reduce defects in the warranty period. This enables our customers to demonstrate to existing and potential occupiers that their properties are built, acquired and managed well.
These are all immediate steps that can be taken to improve conditions for occupiers and reduce operating expenses. In the future, this data could be used in a variety of other ways. In property acquisitions, due diligence can be improved with live data about the condition of the building services and a better understanding of the potential for operational energy savings. For instance, does a long-term, scheduled planned preventive maintenance (PPM) contract deliver the best building performance? Live HVAC data can inform a hybrid maintenance model that combines essential PPM with demand-led maintenance, meaning that engineers can deliver maintenance on demand.
Data will change the property sector. Those property managers who understand this impact early and equip themselves with the right tools will secure value early as well; they will be better prepared for the next phase of technology innovation too. Late adopters will see less value as these practices become the norm, providing less differentiation, and they will be less able to adapt as we see accelerated change.
Sonny Masero is Chairman of Demand Logic