How to Use Big Data in Commercial Real Estate
This guide will help you learn how to use Big Data to enhance your knowledge of commercial real estate while teaching you how to apply your education to your business.
While you already know what Commercial Real Estate covers, you may not know how Big Data applies to buying, selling, leasing, renting, preparing, staging, and closing commercial real estate properties. Here is what you need to know:
Commercial Real Estate Big Data
Big Data refers to sets of information that exponentially increase by the second due to the contribution of information by consumers and businesses. Big data can be spread across the world and it can be isolated by one company or individual.
In commercial real estate, big data encompasses property values, number of clients, number of sellers, geographic location, government statistics, and so much more. If we were to list down all that big data covers – and that is just for commercial real estate – we would need to start our own Wikipedia site.
How is Big Data Collected
Many are already aware that data is collected from services, devices, and applications with the permissions given by the consumer.
Apart from that, big data services collect information from almost every available resource out there. These include:
- Public real estate records
- Community surveys
- Mass media
- Social media
- Law enforcement agency community data
- And other creative forms of data collection (Read on as we discuss this in a later section)
These data collection methods allow companies to provide a bigger picture and analysis of what a big data client needs. In commercial real estate, combining the information and processing it to help identify your goals, needs, and plans will give you an idea of how to run your business.
How is Commercial Real Estate Big Data Used
When you have access to big data and programs that can analyze and categorize information, you can manually calculate the what, when, where, and how of the business.
Using the information from both consumers and other businesses, you can determine which properties you can sell now or later.
You can also get an estimate of how high you can sell a property, who is most likely to agree to that price, and when you can sell a property. The same goes if you are looking to acquire a property.
Apart from that, big data can also help you determine how much a property and its tenants can earn based on foot traffic, local government projects, frequency of home turnovers in the area, and so much more. This does not even break the surface of what commercial real estate big data can do.
The key is to know how to read, analyze, and calculate the date while also using your expertise to make the best decision for you and your clients.
What Kind of Data is Integral to Commercial Real Estate?
For the purpose of this guide, we will focus on the most basic and significant set of data that pertains to commercial real estate:
Note: In this article, we will highlight terms that are included in the study of commercial real estate big data.
Property values continuously change due to several factors, including but not limited to environmental changes, business landscape, tax revisions, inflation, stock markets, foreign exchange markets, and of course, the quality of the land and buildings. More on these later…
Commercial real estate primarily deals with three types of clients: Corporate enterprise clients, medium enterprise clients, and small business clients.
Corporate enterprise clients that have more than 1000 employees usually buy or lease a commercial property due to the needs of the company.
Medium enterprise clients may lease a small commercial building or several floors in a large building.
Small business clients are your annual lessees and renters of commercial real estate spaces.
When it comes to commercial real estate, age and gender are not considered as significant factors in the collection of data on demographics. The reason is that many transactions usually go through real estate professionals and agencies.
Therefore, the main demographics in commercial real estate should focus on specialized real estate experts and agencies. These include people who are looking for large properties, leased properties, or rental properties. One more thing to keep in mind when looking at demographics is location.
Pro Tip: It is rare for a real estate expert to search for a property by looking over the entire Unites States. They are more likely to target micro areas like districts and townships.
Property values rise and fall depending on the surrounding businesses and commercial real estate buildings. Simply put, people are drawn to areas that have everything they need or something they really want. This is the reason why property values soar when a Starbucks opens in an area or as real estate professionals call it, the Starbucks Phenomenon.
When a high value business property opens up in an area, there are several reasons why a property’s value might increase:
- The business that opened has the resources to conduct a feasibility study for a large section of the demographic. In the case of Starbucks, they only open stores where they know they will earn a large profit.
- More people will be inclined to visit the area, thus causing a rippling effect to surrounding businesses.
- Competition increases thereby the demand for properties in the area will increase as well.
It is said that every town has a main street and this is where all the people go and where the high value commercial real estate properties are. However, if you want to show your real estate prowess, you’ll know that foot traffic is not limited to main streets.
Foot traffic depends on many factors, some of which include:
- Local weather
- Routes to main business and community areas
- Transportation routes
- Natural disasters (A prime example is the daily fine dust issues in East Asia)
- Environmental profits (When someone discovers a natural resource that the community can profit from)
- Good press
- And More
While not many direct buyers or lessees will look at the latest tax revisions when choosing a location for their commercial real estate property, an expert must know the changes in the property tax codes. One thing that direct buyers dislike is getting blindsided by a 20% property tax increase when they just bought a property.
It is your duty as a real estate professional to assess the tax codes and how they will affect your clients. While some professionals may think that once a property is sold, it is out of their hands, you may want to consider advising your client so that they can at least move a few miles into a different district, get better tax options, and give you referral clients in the future.
Parents know this already, but people who are single or still deciding when to start a family may not be aware of the effects of the schools in a district on property values. For commercial real estate, schools also make up a huge part of the decision-making process.
Good schools equal more foot traffic, more business, and more infrastructure improvements. That is not to say that other schools don’t deserve as much recognition. It is just that education is also a consumer market-based commodity.
People move to specific districts because of education and they also move out when they feel that the system is lacking for their children. The effects of that will touch the commercial properties as the demographics of districts change when the quality of education changes as well.
This is one of the reasons why many schools may not be readily open to the idea of changing or adding to curriculums unless absolutely necessary.
Social data is the information that companies can purchase from data companies or the information that they collect from their existing client base and subscribers. Social data may include, but are not limited to:
Social Media Data
- How people react to commercial real estate information online. These includes information that they share, like, or comment on.
Search Engine Data
- What people search for on search engines like Google, Bing, and Yahoo.
Sales Funnel Data
- This data is likely the most important for companies because it shows the buying process of consumers from interest to purchasing, as well as how businesses provide services in accordance with consumer behavior. This is considered social data because the information is collected from online behaviors of current and possible clients.
Unique Data Sets for Commercial Real Estate
Unique data sets are information collected using unconventional methods. These types of data are rare and can only be found within companies who conducted the research. If you are interested in this type of information, you may need to access it through websites like Enriched Real Estate and other commercial real estate websites. And here are the examples:
Traffic data is collected using the computerized infrastructure monitoring system of certain cities. Some of this information is public, while others are not. For example, Microsoft has created a research program where they use traffic light data to determine the frequency of foot traffic in some areas. (Of course, with the permission from the government.) This process requires adding the company’s own devices in designated traffic areas so that they can collect the data directly without having to go through public transportation records.
Property Owner Data
While property owner data is readily available in City Hall or city archives, it’s not exactly accessible online most of the time. Not only that, only the owners and their representatives are allowed to access their real estate data though government institutions.
Take note that not all owners will allow their information to become public, so real estate professionals still need to communicate with the owners who are looking to lease, sell, or rent their properties. This data is highly valuable because professionals can communicate with the owners directly to discuss commercial real estate transactions, estimates, and such.
Buyer data is not as simple as property owner data. The data of buyers can only be acquired if prospective buyers inquire directly about the property they are interested in. Most commercial property buyers do not click “Buy Property” online. Instead, they go directly to real estate professionals to establish their intent to buy, sell, lease, or rent a property.
Real estate professionals will then record the information of those who asked for information. When it comes to online queries, they give buyers the option of subscribing and giving out their names and emails to be saved in a database for future use. Buyers also have the option to refuse or choose what kind of information can be sent to them. A prime example is a newsletter subscription to a commercial real estate website.
Now that we know some of the most important data commercial real estate uses, let’s move on to how you can use it for your business.
How to Apply Commercial Real Estate Big Data to Your Business
First of all, data application is not as easy as it looks. It takes time and money, but the rewards are worth it. You have two options when dealing with commercial real estate big data.
One, you gather and acquire the data, analyze it, and create a plan of action based on your findings.
Two, you hire someone else to do it for you.
The two processes have its pros and cons, which we will briefly discuss here:
Analyzing Data Yourself
- More affordable
- Results rely on diligence and attention
- Direct analysis gives you more qualitative information
- You can use the information to boost your proposals and pitches
- Manual errors can happen and affect your final data analysis
- It takes a lot of time to process it all
- It requires a specific set of skills to know how to analyze and interpret data, which takes time to learn
- Some data may not be accessible, thus making your analysis less robust
Big Data Companies
- Has a large number of analysts or one experienced analyst who does all the work
- The margin of error is less when their business (aka analysis) is on the line
- You get results faster
- You don’t need to work at it
- They can give you recommendations based on the results of their analysis
- They usually have a larger database of information and access to expensive data sets
- Can be expensive depending on the amount of data a company has
- You can’t see the minute process so you won’t know how they analyze the data as it is their trade secret
- If the data is miscalculated, the company has to repeat the process thereby costing you time and money
- You only get a surface analysis unless you request a consultation on what to do next (another expense)
Choosing a Method
Either way, analyzing data yourself and letting someone else do it for you will yield almost the same results. If you do it yourself, you save money and can learn how to fix mistakes in the process. If you have someone else do it, you spend money, but the trade-in is that you can use your time to focus on your business and how to utilize the data to its maximum potential.
Basically, you just need to choose if you want faster data analysis, high overhead, and immediate results or slow data analysis, low overhead, and long ROI in terms of time and money.
Lastly, if you don’t have the budget, your only choice is to collect and analyze the data yourself. Hiring a third party data processor usually requires a chunk of your capital. When starting out, you can do it yourself. When moving your business up the ladder, you should delegate that task to data professionals and focus on your commercial real estate business’s more important tasks like sales, marketing, and lead generation.
What to Do with the Data Analysis
Finally, we are almost at the end. Once you have your analysis, it is time to decide what to do with that information.
Most likely, you now have a list of prospective client personas, a timeline of property value appreciation and depreciation, and a list of items that need to be done in order to maximize the value of a property you are planning to buy, sell, lease, or rent. Here are your initial options:
Use the data to connect with your target audience.
Large commercial real estate property entities deal with finance companies who make purchases for corporations. In this case, you can use the data to find out which company can afford your property, is looking for a property, and is ready to execute their plans on a property.
For smaller buildings and spaces, you may find direct buyers and renters to be a more profitable target audience. You will then shift your strategy to connect with these people instead. This is much easier because the process does not involve dozens of middlemen and tons of paperwork.
The two audiences are highly profitable with enterprises bringing in a huge bulk of your gross income in one sweep and the smaller enterprises relying on your ability to bring in a huge volume of clients. Either way, you can do both with the data you have.
Develop a strategy to streamline your data for business.
Streamlining your data means using the different sets for specific purposes. Let us discuss the target audience again. Once you know who you want to connect with, it is up to you to determine the best way to reach out to them.
You can contact financiers directly or market to direct buyers online or through physical advertising. Direct communication is dependent on your communication skills, but the rest relies on your marketing skills. Unless you already know the ins and outs of digital marketing and advertising, you may want to bring in experts to help you.
Use the data to bring in more prospects.
Some may think that data is not a marketable product, but this is 2020. Data is now king. Many companies are paying thousands, if not hundreds of thousands of dollars, just to get information on possible clients. (Take note that this does not include personal information – just demographics, location, and buyer personas.) Even if you don’t know who the client is, the data shows that this client is ready to buy.
Now, a client who is ready to buy may have a few questions or a hundred. Your job is to use that data to let them know that this is what they are looking for and if they want to do business with you further, they will know more about it.
Consumers usually look at property value first, so they will want to know the history of property values, the forecasts of the business landscapes, and even how much foot traffic they can expect from any given commercial real estate. Because you already have that data, you can help these clients move forward with their transactions.
Teach others how to use your data.
Now this may seem counterproductive considering you invested a lot of time and money in acquiring this data, but think of it from a business perspective. Other real estate professionals are in need of this data. They may be willing to work for you to access this data. Think of it as a realtor giving you a commission because the data worked to their advantage.
With that said, you can also profit from becoming an educational resource for real estate professionals who don’t have access to this data.
While it may seem like there are only a few steps to use big data in commercial real estate, this is just the beginning. You may want to look into how to execute these steps in a specific manner – which we will go through in our next series of articles. If you want to learn more about how to use commercial real estate big data, subscribe to our newsletter to get the latest update.
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