Friday, April 29, 2016
Is Real Estate Data Transparency the Next Big Disruptor?
Can online access to data change commercial real estate?
Buying property is usually the single biggest purchase a person will make over the course of their life. The process of searching for a new home is arduous and any prospective buyer will consume vast quantities of information before tenuously making their final decision.
The Internet age has ushered a new epoch, where consumers have most of the power. When shopping for a house you can use Lamudi an online portal that provides a prospector with numerous data points: recent sales in the area, price fluctuations in the past year, average prices per square meter and even mortgage prices. This puts the customer in the driving seat when it comes to negotiations.
Although information is now readily available online for private real estate, commercial real estate remains a different animal. It is still quite difficult to obtain information about lease and sales transactions and even in some cases the available space. Transparency of data has completely disrupted other major markets recently, Uber being the classic example, so is commercial real estate the next to change, change utterly?
In investment sales, access to data regarding potential opportunities has already created a more efficient market. Where previously a net-leased investor may have been constrained to a metro area for diversity in his portfolio, he can now search nationwide for comparable capitalization rates (annual net operating income divided by the cost or value).
The capitalization rate is a very common ratio in commercial real estate. It can help an investor evaluate a potential investment property. Cap rates can also be helpful when you look at trends, for instance if the rates are decreasing it could signal that the market is heating up. It would now be possible for instance for an investor in The Philippines to size up property in Davao, the southernmost city while located in Manilla in the north. Having this information available through open data sources is an invaluable string to a commercial real estate investor’s bow.
Property investors have more data points at their disposal to make more informed decisions, and this is making the markets more efficient.
Agents are now in a strong position also. The data transparency that is available to them enables in-depth interpretation of information for clients; market growth analysis and forecasts are closer to reality, trends can be more easily understood.
The value added is now in analysis and interpretation. Data transparency creates the platform for agents and investors alike to become empowered but what they do with that data will also have a big impact. The experts in online tech will combine the democratized data with an ability to analyze and interpret.
Emerging Open Data Economy
According to a report by McKinsey & Company open data can create multi-trillions of value in the global economy. The new economies are online and the new data is free, open and available to all. Information is power and with ease of access to data, consumers have much more power in the market. When data is easily accessible it is not just good for real estate it is good for all industries. Any business model that relies on protected information is going to struggle in the future. At some point all information will be open to everybody.