Protection v transparency: How much data is the sector willing to reveal?

Digitization is driving greater transparency, but for some market participants there may be more value in data opacity, observes Audrey Klein, managing director, international institutional clients at Corestate Capital Group

Digitization is now a core aspect of modern corporate strategies. Data collection and pattern analysis also play an integral part of everyday business at a real estate company. The industry is becoming more professionalized in this regard, despite still lagging far behind many other sectors.

Big data analytics and blockchain are mostly at nascent or even theoretical stages in the industry. Artificial intelligence, on the other hand, is the most widely used technology and can be found in smart buildings, most often in applications related to energy consumption.

Sensory technology installed in buildings can enable a forecast of maintenance and energy costs, help determine fire and security risks as well as user preferences. This particular market is expected to grow to $18 billion by 2020. Another AI application in use is automated transactions, which are allowing due diligence processes to be significantly shortened by applying AI such as Natural Language Processing, which helps review documents and draft contracts.

Intelligent cashflow optimization is another example of AI in action: in this case it helps determine the ideal match between potential tenants and a certain property and therefore creates more accurate price points.

Data transparency is good news for investors

The collection and processing of data holds a lot of potential for players in the real estate industry. From an investor perspective, more detailed data means a better understanding of the market, user preferences and the investment itself.

Interestingly, the move towards larger data pools is driven not only by investors wanting to optimize their business strategies but also by the regulator.

Take, for example, the implementation of MiFID II, which requires fund managers to collect and provide all sorts of new data on fund cost, target markets and target clients. To invest in a specific product, managers must have information about an investor’s concrete know-how or how risk-tolerant that client is. An end to the requirement of more detailed and granular reporting of data is not in sight.

Maintaining a competitive edge

With the increasing availability of data comes not only a professionalization of each individual company but also of the entire industry. Industry standards, for example on sustainability performance, can be set through initiatives such as GRESB. Here, real estate owners share their property performance data and benchmark them against the competition.

While this greater transparency is certainly attracting other investor groups to the real estate industry it also has the potential to threaten business models.

As data has emerged as the most valuable resource – data miners such as Alphabet (Google’s parent company), Amazon, Apple, Facebook, Microsoft and Tencent are now the six most valuable listed firms in the world – property companies should be cognizant of the data they keep and be mindful of its confidentiality. It is crucial that companies focus on the important area of risk management and compliance to protect their customer, asset-related and employee data, and consequently act in their best interest and with integrity.

Any exclusive information a firm can gather can contribute to a competitive advantage, while readily available market data levels the playing field for all. Many companies in the real estate sector – fund managers and investors included – are happy to live with a certain opacity in the market to protect their competitive edge.

The real estate industry may be behind on embracing the latest technology and data schemes, yet may be a step ahead in protecting the most valuable asset outside the properties themselves: its data.