How Predictive Intelligence Gauges the Real Estate Market
The buying and selling of commercial property is simply more complicated than residential property investments. But, what if you could predict – or better, know – not only which commercial real estate property is promising to invest in or sell, but also how promising it could be in the market?
Such knowledge would minimize your element of risk, or encourage your desire to sell. But, most of all, it would boost your confidence in the process – including the waiting period for your ROI to, in fact, return to you.
This is the magic behind commercial real estate data. When interpreted correctly, CRE data becomes a tool that can pass as a form of predictive intelligence. And that is exactly why commercial real estate brokers use it.
What Is Commercial Real Estate Data?
Much like a meteorologist observes and compiles data of atmospheric conditions (temperature, air pressure, cloud patterns, wind speed) to forecast the weather, a commercial real estate broker studies property information and market conditions, among their other job responsibilities! What they find helps them predict the health and prosperity of a business or property.
It goes without saying then, that the bottom line for a real estate broker’s forecast about a property’s potential to be accurate is valid, current data. So, they use CRE data gathering tools and other reliable sources regarding commercial real estate, such as public records and brokerage reports.
Generally, there are three categories of CRE data that brokers use to evaluate a property: property-level data, transaction data, and demographic data (market data).
- Property-level data: Basic information about the property (location, building & lot size, zoning, property price, etc.). This also includes the property asset type, whether multifamily, industrial, retail, or office.
- Transaction data: Information regarding the property’s prior ownership and sales (owners/tenants, mortgage/loan providers and amounts, past and present debts, etc.)
- Demographic data: Includes economic, socioeconomic, and consumer behavior information (local supply & demand, market rents, median household income & age, purchasing power, migration to and from an area, types of return, etc.)
Demographic data, especially, is a key piece of the predictive puzzle; it provides an analysis of the market, allowing CRE data specialists and brokers to recognize and track developing trends, consumer behaviors, and other factors that might be influencing the property and industry as a whole.
Wielding CRE Data to Gauge the Market
Rather than becoming bogged down by data, commercial real estate brokers efficiently and intelligently sift through it to determine and analyze the right data. Then, they combine their findings with their market experience to create actionable steps.
Part of a broker’s data processing involves comparing multiple data points, which is best done by comparing similar properties. In addition to the property, transaction, and demographic data mentioned above, brokers also look at tax returns, profit and loss statements, and rent rolls.
Any discoveries – whether deep or wide – made during their analysis can then be used to craft an investment strategy. Brokers go a step further and tailor a strategy around the type of property (multifamily, industrial, retail, etc.), its geography, the investment itself, as well as the investor’s degree of desire to be involved in day-to-day or long-term decisions. These become benchmarks – a measurement of the investment’s allocation, risk, and return.
Advice & Experience
In addition to their ability to wield extensive data that gives them insight to the CRE market, brokers are also the experts for your local market. From pricing to zoning and upcoming developments, it’s their job to know the area. They will likely know – or possibly were involved in – the histories of successful (and failed) sales and leases. This hard-earned local experience, coupled with brokers’ ever-changing analyses, makes them an invaluable advisor and source of information for their clients.