Real estate: Big data is the future of investment and asset management
Real estate investors are well aware of the crucial role big-data analysis can play in measuring the operational performance of their holdings. A building manager’s ability to monitor energy and water use relates directly to the asset’s efficiency, attractiveness to tenants and, ultimately, market value. The potential ongoing cost savings are compelling: An owner could potentially reduce energy consumption by 10% to 20% with little or no capital expenditure, saving hundreds of thousands of dollars annually for large commercial or retail complexes.
The next phase of big data’s application to real estate will be much more profound. We are at a point where technology and big data will move from monitoring to automated decision-making and active management.
Big data analysis is already a key tool in managing real estate assets — and things are only getting started.
Here are just some of the relevant trends:
- Smart buildings
The digital and physical worlds will continue to converge as the Internet of Things (smart, inexpensive sensors) and the rollout of 5G (the next mobile data standard) allow people to interact with and manage the built environment more effectively.
- Optimization and automation
As more data is created at each building, owners can optimize how systems support the health, comfort and productivity of tenants while also enhancing efficiency. This also opens the door to buildings that self-manage, modifying environmental factors without the need for human intervention. Buildings will be able to self-manage and to provide optimal conditions for specific occupants (e.g., automatically adjusting temperatures in spaces when sensors detect that the space is occupied).
- Virtual power plants
As the world moves toward greater electrification of heating and transportation, rising demand may strain the electrical grid and drive peak prices higher. In response, asset owners are likely to leverage on-site renewable energy and battery storage — in essence, virtual power plants — to manage their supply dynamically and potentially generate significant revenue by selling energy back to the grid.
- Smart cities
Cities, local authorities and land registries are fast adopting open data initiatives, which allow third parties to access digitized public data. Datasets such as transit data, air quality, demographic information and more, as well as property-specific information about ownership and leases — are increasing available.
Impact on real estate investment
In addition to assisting in managing assets, big data will also transform the real estate investment process, as new large datasets can be leveraged to potentially generate alpha and better underwrite risk in real estate portfolios.
We envision that investors will place greater emphasis on understanding energy efficiency and climate change risks associated with real estate — harnessing insights to inform their due diligence process. This will be more important as the world transitions to the low-carbon economy and climate change begins to have a more significant direct impact on property value.
In addition to the data generated from Smart Buildings and Smart Cities, the development of FinTech and blockchain will ultimately create more transparency in real estate as an asset class in the longer term. Traditionally, real estate has had the characteristics of a typical private market: higher transaction costs, opaque data, illiquid and inaccessible to non-institutional investors. Through the digitization of asset ownership and lowering of transaction costs, FinTech and blockchain may give real estate more public market attributes, potentially creating publicly accessible and verified records of asset-level financials. If this evolution occurs, real estate will ultimately become better suited to advanced data analysis — including Artificial Intelligence — which will seek to fill the gap between insights and investment recommendations. Real estate quant trading strategies currently used in public markets may soon be a possibility. This would be truly disruptive to the investment characteristics of real estate as an asset class.
The data disruption
Underpinning all of these trends is the dramatic increase in the volume, variety, speed and accuracy of data at the fingertips of all real estate stakeholders, including investors. Those who are able to develop the right expertise to collect, analyze and extract insights from these datasets will be well positioned to create substantial real estate value in tomorrow’s world. Big data is just one part of the wider technological transformation that real estate is facing. Many other industries have faced disruption and have successfully transitioned to become more dynamic, flexible and responsive. Now is the start of this transition for real estate.
Goal: 30% by 2030
Nuveen Real Estate seeks to reduce the energy intensity of its real estate equity portfolio by 30% by 2030, as measured against its 2015 baseline. Energy is a critical factor in improving the sustainability performance of real estate, which keeps service charges lower, reduces operational costs and improves the overall attractiveness of the asset.
Risks and other important considerations
Investing involves risk; principal loss is possible. There is no guarantee an investment’s objectives will be achieved. An investment which includes only holdings deemed consistent with applicable Environmental Social Governance (ESG) guidelines may result in available investments that are more limited than those that do not apply such guidelines. ESG criteria risk is the risk that because the criteria excludes securities of certain issuers for nonfinancial reasons, an investment may forgo some market opportunities available to those that don’t use these criteria.
The investment advisory services, strategies and expertise of TIAA Investments, a division of Nuveen, are provided by Teachers Advisors, LLC, and TIAACREF Investment Management, LLC.
Nuveen Real Estate is a real estate investment management holding company owned by Teachers Insurance and Annuity Association of America (TIAA).
Nuveen Real Estate securities products distributed in North America are advised by UK regulated subsidiaries or Nuveen Alternatives Advisors LLC a registered investment advisor and wholly owned subsidiary of TIAA, and distributed by Nuveen Securities, LLC, member FINRA.