How CRE Developers Can Accurately Predict Demographic Trends

Real estate development projects are driven by demographics. Where people live, travel and spend time, along with annual income, education, household formation and age, are all details that inform and shape a city’s construction pipeline. Often, developers need evidence of specific demographic criteria to merit a development thesis before land acquisition or ground breaking, and ultimately, prospective tenants in the building will do a similar analysis before signing a lease. This is all done to ensure that a property and its tenants will thrive in and serve the surrounding community. 

In the last decade, analyzing market demographics has become more complicated. Migration patterns are changing rapidly, and remote work has allowed people to be more transient than ever before. Although a market might experience population growth, hard data about new and emerging demographic patterns is difficult to capture and often unreliable. As McKinsey notes in recent research, “Forecasting the future—of industries, design tastes, or tenant behavior—has always been among real estate developers’ most difficult tasks. But today, expanding cap rates, higher input costs, and lower labor availability raise the stakes. At the same time, rapidly changing behavior makes traditional speculative plays less predictable.” 

With predictive analytics and geoprocessing technologies, a new method of demographics modeling is emerging. It’s giving real estate developers a reliable image of new demographics and the ability to better forecast the future. 

With these tools, developers can gain the data needed to make informed decisions in emerging markets and strike on attractive investment opportunities. 

The History of Population Forecasting

Population forecasting has always been a part of the real estate development model. Afterall, developers need to ensure that a project is needed in a community and will be used – both for the benefit of the community and for the success of the investment plan. However, the importance of population forecasting isn’t exclusive to real estate developers. People across industries, from health care to public policy and city planning, all rely on population estimates. Forecasting is more than estimating future population numbers in a given area. As the American Planning Association explains, population forecasting analyzes everything from the types of people that will live in a specific area; the type of life those people will lead; how long they will reside there; the lifespan of the population; who will replace them when they move or pass away; how many children they have; and even if their children will stay in the community. It looks at a wide breadth of factors to determine the current and long-term future needs of the area.  

Traditionally, forecasts are conducted using mathematical and analytic techniques. In the past, these methods have proven to produce an inaccurate estimate of population growth, significantly overestimating population size and demographic make-up. In some cases, the forecasts have been so inflated, the American Planning Association says, “If only some of these almost fantastic local population forecasts made in the past were added together, the result might have anticipated a population for the United States of close to a billion.”

Predictive Analytics, Geoprocessing and Digital Maps

New technologies are solving the inaccuracies of traditional modeling techniques while also addressing new challenges in forecasting. Predictive analytics, geoprocessing and digital mapping are just a few of the tools that are helping to achieve new models to predict population and demographic trends.   

Predictive analytics uses machine learning to process historical data and then creates a model to determine if and how those patterns will change in the future. By using machine learning, the system can process more data sets and variables than a traditional mathematical method, producing results with a high level of confidence. For population forecasting, predictive analytic modeling can incorporate the latest census data along with more recent data sets, like migration patterns or postal address changes, to produce a more reliable forecast of population trends. Research from the International Journal of Data Science found that machine learning algorithms produced more accurate predictions of population trends than traditional modeling. 

Predictive analytics has several applications. Here, it is being used to predict population patterns, but Northspyre’s technology also uses predictive analytics to help developers make more informed decisions and achieve targeted outcomes on development projects. The system analyzes market data and project specific data, like proposals, budgets, orders and contracts, and it compiles the data in a centralized command center where developers can easily view information side-by-side. This information is valuable to developers, who are often building speculatively and trying to calculate the future.

Geoprocessing and digital mapping can also be used to understand current and emerging demographics trends and analyze geographic information systems (GIS). GIS is a dataset representing a specific geography, and it can include land sites, roads, developments and waterways as well as weather patterns, population density and even events that can shape or reshape an environment. Geoprocessing is a method for analyzing this data, while digital maps create a visual representation of the data. Both can give real estate developers a deeper insight into a market and even the activity around a specific land site. 

Integrating New Data Sets

In addition to using new tools to improve population forecasts, developers should also diverge from traditional data sets. Traditional data to forecast population trends include statistics on birth and death rates, migration patterns and postal change-of-address forms. These continue to be important tools in population forecasting, but today, there is so much more. GPS data, for example, can track movement patterns within a city to understand where and how people travel and at what time of the day. Likewise, credit card data can illuminate shopping patterns, pointing to amenities needed in a certain area, and how much people are spending in a single trip. There are numerous alternative data sets that real estate developers can use to incorporate into a tech-backed forecasting model and create a better picture of demographic trends in a market. 

A developer’s understanding of demographic trends is foundational to the long-term success of a real estate development. By utilizing technology tools to run more precise algorithms and analyze broader datasets, developers will gain more accurate insights and uncover emerging trends. 

Download our guide “Software Misalignment in Real Estate Development: Right Tech For The Job” for more insight into how the right real estate technology can help your development firm achieve its core objectives and scale successfully.