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For nearly two decades, the commercial real estate industry has heeded calls for increased transparency from a host of industry stakeholders—everyone from investors, developers and owners to occupiers and capital providers. These players are demanding access to timely and accurate data and standardized processes, which together contribute to better decision making, risk management, functional and efficient investment practices and access to the global markets.
Change is coming gradually, but the COVID-19 pandemic has accelerated the movement. The last two years have created a greater need for access to data and information than ever before. Proptech companies are leading the way to a more transparent future by democratizing the availability of data and increasing the volume of information across market sectors.
Understanding Data Transparency
Data is undeniably playing an increasingly integral role in commercial real estate investing. Armed with data, stakeholders have transformed the commercial real estate industry from a fragmented entrepreneurial venture to an institutionalized investment market—and it has made investors hungry for more information.
This is why data transparency is crucial. Creating a more transparent market through shared data and uniform gathering practices improves access to data and the accuracy of the information, driving transaction efficiency and mitigating investment risk.
Transparency has been a long time coming. Back in 2017, Northern Trust conducted a survey with 200 senior asset management and institutional investor executives, and more than 60% of both traditional and alternative investors listed transparency as the top investment consideration. Five years later, more investors are joining the fray.
But it isn’t only major investors that are protected by transparency. As Richard Bloxam, a member of the global executive board and the global CEO of capital markets at JLL said in the firm’s most recent transparency index, “Real estate has always been the world’s largest asset class by value, but it is now becoming an increasingly prominent part of global investment strategies. As a result, more private individuals are being exposed to real estate through their pension funds and insurance policies or holdings in REITs, listed property companies or both closed and open-ended funds. Better transparency is crucial to creating healthy real estate markets, which work for all participants, not just a few.”
JLL has been tracking market transparency for the last two decades, producing a global index report every other year. While data transparency is a critical pillar in a broadly transparent market, the index also measures sustainability initiatives and government regulation. The research has found notable improvements in market transparency over the last decade.
Since 2010, transparency in the global real estate market has improved by at least 2% each index year. In 2020, progress slowed to only 1.1% as a result of the pandemic, but increased tech adoption is expected to significantly enhance transparency. The index ranks the United States second among the most transparent countries, behind the United Kingdom and ahead of Australia, France and Canada, the five most transparent real estate markets in the world.
The research team involved in producing the index has called real estate transparency “a fundamental ingredient of a well-functioning economy and society” and has asserted that real estate markets cannot operate efficiently without a high level of transparency, which allows stakeholders to consistently make better investment decisions.
Proptech Companies Are Leading the Way
In reality, proptech is doing more than enhancing transparency; it actually facilitates transparency. The highest level of proptech adoption in the world is unsurprisingly in the markets considered “highly transparent” by the JLL index.
Proptech companies are collecting data in various ways, from building or city sensors that can track movement and traffic patterns to surveys or sourced information gathered through industry organizations like NAREIT and NMHC. Data availability is also boosted by non-standard and high-frequency data, which provide real-time insights.
Companies like Compstak are prime examples. The firm has built the industry’s largest commercial real estate data platform by crowdsourcing information from users. Compstak uses a token or credit system to incentivize users to share data. If you give data, you get data.
Other data companies including CREXi and Estated are also sprouting up to drive higher levels of transparency in the market. These companies work with stakeholders across the spectrum, from private equity companies, banks and REITs to private owners and operators. The diversity of users alone illustrates the impact of shared information across the industry.
Proptech is also driving transparency in non-traditional property types, like life science, self-storage, co-living and data centers. The availability of data for these property sectors leads the industry in the rate of transparency improvement. As a result, these property sectors are becoming progressively more mainstream with at least 60 countries reporting an increase in investment activity in non-traditional sectors.
Green Street’s price index reports significant price increases in non-traditional property sectors as a result of the increased investment activity, with self-storage actually leading the market in pricing gains, surpassing industry darlings like industrial and multifamily. It shows how data transparency has a real, measurable impact on the investment markets.
Balancing Privacy with Transparency
Alongside the movement for increased data transparency, there is an equally important effort to protect and preserve data privacy. It’s honestly an area that the commercial real estate industry is grappling to balance, and one that will require coordination and cooperation to achieve. Proptech companies specifically will need to address the concept of data privacy to earn user trust and protect against data breaches, a top industry concern.
Data storage is likely to be the cornerstone of data privacy. Proptech companies will need to monitor where and how data is stored. The collection of data will also become important in the conversation about privacy. Rather than collecting sweeping data points, companies should develop a strategic and targeted method of collection.
National governments are already handling the issue of data privacy differently. In China, for example, consumers believe that data should be accessed and used to create convenience, but countries across Europe are moving in the opposite direction, creating laws and regulations to better manage data privacy. Some experts are advocating for an opt-in system to access and share data.
Companies like Northspyre that leverage data and analytics alongside machine learning are a prime example of how data is driving gains in commercial real estate investment. Creating a market with data privacy protections and data transparency will become an increasingly important goal for the commercial real estate industry as data consumption becomes a standard in investment practices.
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