The real estate investment industry, once seen as slow to adopt technology, is experiencing a digital revolution today. Fuelled by innovation and the growth of data, every aspect of the investment cycle is being reshaped.
In this article, we delve into this exciting revolution, exploring how digital innovation is redefining the landscape for real estate investors. Here’s a look at how technology is helping investors make more informed decisions and get an edge in a property market that is under pressure from high interest rates.
AI is revolutionising decision-making processes
Artificial intelligence (AI) has been making waves across a range of industries recently. And the real estate investment industry is not an exception from the trend, we are already seeing use cases. Real estate valuation is a good example. Today, some investment managers are using AI to enhance automated valuation models (AVMs) – sophisticated algorithms that can estimate an asset’s market value by analysing vast amounts of data on parameters such as location, demographics, build quality, and amenities. Leveraging the power of AI, fund managers can value assets with unprecedented speed, sophistication, and efficiency, optimising their decision-making processes.
As for generative AI – a type of AI that can generate creative content, personalise experiences, and interact with humans – it is adding value in many ways, unlocking new levels of productivity and competitiveness. On the valuation front, generative AI can assist in bringing together data from different sources, thereby reducing the time and effort required to gather and standardise the data. Meanwhile, it can also be used to enhance many other industry processes. For example, with generative AI, real estate investors can generate ultra-realistic photographs of properties in different environments, stage properties virtually, create digital twin simulations and interactive 3D experiences, generate customisable lease and vendor contracts, summarise complex contracts, create chatbots that offer personalised interactions, and more. According to the McKinsey Global Institute (MGI), generative AI could generate an extra $110 billion to $180 billion in value for the real estate industry in the future.
New insights from data analytics
Access to high-quality data has been another game-changer for the industry. Today, investment managers are increasingly using data platforms and lakes to aggregate, process, and analyse vast amounts of data. These enable the seamless integration of diverse data sets, including data on economic indicators, demographics, and consumer behaviour. This comprehensive analysis is empowering investors by helping them predict future market trends and anticipate shifts in demand, allowing for proactive adaptation of investment strategies and the mitigation of risks.
In a recent interview with the Financial Times, Ryan Severino, Managing Director, Chief Economist, and Head of Research at Miami-based real estate investment firm BGO, emphasised the pivotal role of data and analytics in identifying market shifts. Severino explained that new data tools enable BGO to recognise when “the tide is changing” within specific market segments, which is crucial in an industry like commercial real estate, where holding periods are long. He also said that thanks to the abundance of high-quality data sets available today, the firm’s knowledge base has been enriched, leading to a better understanding of the property market. Severino’s insights underscore a broader trend in the real estate sector towards data-driven decision-making, where proactive market monitoring and predictive modelling are becoming essential for optimising investment strategies and enhancing portfolio performance.
The rise of data centres
Finally, from an investment point of view, it’s worth touching on the rise of data centres, and how this sub-sector of the property market – which sits at the intersection of real estate, infrastructure, and technological advancements such as AI – is becoming an increasingly attractive asset class for investors.
Data centres play a key role in today’s digital world, storing the huge amount of data being generated by organisations. They can also be attractive investments, as they typically offer stable, long-term leases with creditworthy tenants such as large technology companies. Investors are taking note. In 2022, the value of global M&A deals in this space hit €45 billion, close to the €46 billion record set in 2021. And since then, the deals have continued. In December last year, for example, Digital Realty and Blackstone unveiled a $7 billion hyperscale data centre joint venture in an effort to capitalise on the unprecedented surge in data demand fuelled by cloud adoption and the AI revolution.
Going forward, despite the current headwinds in the real estate sector, we can expect to see strong growth from this area of the market. Between now and 2026, the global co-location data centre market is forecast to expand at a compound annual growth rate (CAGR) of 11.3%. The only caveat is in relation to the large energy consumption of these centres. Renewable energy, innovation and new energy efficient technologies will be key to reduce the carbon footprint of these data centres and represents the only way to reach the net zero emissions of this asset class.
How IQ-EQ can support real estate managers with their data strategies
At IQ-EQ, we partner with real estate investment managers to develop and implement effective data strategies. We gather all kinds of data for investment managers (e.g. rent rolls, occupancy, footfall, lease expiries, budget vs actuals, etc.) drawing from our system (comprising accounting data), property managers, and/or via ingestion on clients’ systems through our data platform. Once collected, our data is reviewed using robotic solutions, standardised to ensure consistency, and checked by accountants for financial reporting before being stored in a centralised repository. Fund managers visualise the data through IQ-EQ Cosmos, which enables stakeholders to derive insights in real-time and contributes to informed decision-making processes across the board.
