Let the New Cycle Begin

There is, I think, a rather discombobulating paradox about data, in real estate.

On the one hand, so much of what is possible with modern technologies is impossible without well ordered, if not necessarily structured, data.

You simply cannot play the game without it. Without data you are effectively disenfranchised, with little to offer, and no strings to pull.

However, once you are fully enfranchised, with your data ducks all neatly arranged in a row, you need to rise above and beyond data in order to do anything really meaningful.

What really matters is qualitative. Quantitative data only gets you to base camp. It’s the qualitative that opens up the summit.

And yes, there is qualitative data, but it’s of a different character to quantitative, and mostly treated as ancillary by ‘excel jockeys’. Soft and fluffy versus hard and real.

For decades real estate has been about the quantitative, the inputs to financial models to divvy up the rankings of financial assets. Just a numbers game. Recently I heard it said that the most technologically advanced actors in real estate are those furthest away from the actual, physical real estate. When one can abstract out the physical to purely financial, data and technology is all you need.

And that has been where the most money resides. When real estate is but a financial instrument it’ll follow that the real estate is not what matters.

But when real estate becomes more about ‘social infrastructure’, as memorably termed by Gareth Lewis and the team behind this years PwC ‘Emerging Trends in Real Estate’ report, the qualitative moves to the fore. What matters when its effectiveness as a financial asset is dependant on messy, complicated, nuanced and eternally in flux human-centric variables?

Data does matter. Critically so. But it is very much necessary but not sufficient. Those financial returns will not emerge by power driving excel like in ‘the good old days’.

Layer upon layer of design, imagination, empathy, critical thinking, vision, humanity and countless other qualitatively nurturing variables are now required in the mix.

The office market is exhibit number 1. The most beaten into submission by excel real estate asset class. Sheet upon sheet of macros determining precision investing and analytical rigour.  Home to the very best ‘numbers guys’ (mostly).

Which all looked so professional, authoritative and grown up. Returns guaranteed, the future mapped.

Right up until Covid demonstrated to the individual occupiers of these spaces (hitherto absolutely NOT the customer) that they really did not NEED them anymore. At least in anything like the quantity or duration that they did before.

And so they sit, under occupied and under utilised. Steaming elephants in the room. Slayers of spreadsheets. Every professional, authoritative and grown up analysis eviscerated.

Or at least that is the reality, despite being generally skirted around. 3 years of pretence that the world has not changed goes on.

And will do.

Until the penny drops. That real estate as financial instrument is a thing of the past.

When your customers are users, not financiers, and when for financiers to get what they want, the customer has to first be satisfied, the entire structure, character, dynamic and incentives of real estate needs to change. The existing ‘immune system’ has to be overwhelmed and a new order installed.

The leopard has to change its spots.

Easy? No.

Inevitable? Absolutely!

Let the new cycle begin.