This is a message to all fellow real estate professionals: the stars are slowly aligning. Data, investment, and analytics are coming together in must-have, not a nice to have format. Technology is here. Finally.
“Hey Enrico, relax, this is real estate… data doesn’t have to be instant, we work in quarters ”. This is what I got told three years ago when I first got into the sector after finishing a Masters in Finance. I was just trying to get hold of granular housing supply and demand data for the UK. Something that seemed basic to me for a sector worth $217 trillion globally.
Data was static (and still is) and mostly updated quarterly at best. Certainly, no consensus forecast updated daily like in the equities world.
My Bloomberg terminal returned zero results as well. Since then I have learned my way into the many and often inconsistent data sources available. But I have always been stuck with a question. “How is it possible that I can get LIVE data on all oil vessels around the world on Bloomberg but I can’t have basic real estate data? WHY?”
After a while, I realized this is mostly due to one factor. MONEY. Why would you need real-time info on something you can’t trade in a similar fashion to a stock? That makes perfect sense to me; there is no money to be made with short-term trading.
But things are changing. Buildings will be tradable with greater liquidity sooner than you think. Asset tokenization is something we might need to get familiar with. Companies around the world are raising a significant amount of money to tokenize buildings, portfolios, and funds. And serious investors are betting on this trend, speeding up innovation. Take Harbor, a US-based start-up that has raised around $40m since the beginning of the year from some of the most well-known investors including Pantera Capital, Andreessen Horowitz, and Fifth-Wall.
Will real estate companies need to hire traders? Yes, very likely. And market-makers will appear as well. But let’s keep this for another blog post…
And this is not all. The trend will be accelerated by the increasing number of IoT sensors that will be deployed in our “smart” cities and “smart” buildings. McKinsey estimates that there will be more than 20.4bn of IoT devices connected worldwide by 2020.
Land prices will change based on geospatial data collected in real-time. These include air quality indicators, school quality, traffic congestion, new transport links, crime rate, flooding risk and much more.
Fund performance can be driven by the ability of collecting and harvesting all this big-data in an effective way and access to deal flow will become less and less relevant with time – true factor based pricing is closer than you think.
The value of a building will be affected by other variables that are currently overlooked. We will be able to access a live credit score of tenants before buying a building or even understand how occupiers feel about their buildings. Good, they’re then more likely to renew their lease. Information about wear & tear of buildings and “smartness” will start becoming available. As occupiers’ requirements increase, buildings with poor technology or poor operational performance will trade at discount.
But what would be the impact of greater data transparency and liquidity on property yields? Illiquidity discount will be reduced, increasing asset values, as asset tokenization will provide greater liquidity.
Yield differentials between high-quality and poor-quality assets will start to increase. More participants in the market with more information competing for the best assets will compress yields of the first and expand yields of the second.
On average uncertainty when buying a building will decrease, lowering risk premia. Lower risk premia mean lower returns. Is this bad? No, because there is less risk by definition and this might give early investors an opportunity to benefit from yield compression as transparency improve.
This new world is coming, and it’s coming soon. I can’t wait to start trading…