VI are key contributors to a newly launched CBRE IM series of white papers explaining the importance of using technology and information in investment strategy and decision making. The first in the series of insights focuses on residential investment.
Hurdles to data-led decision making increasingly surmountable
Real estate investment decisions have long been based upon a combination of data analysis and intuition. with great variation in the sophistication of the data analysis and the weight given to intuition. To generalize though, the techniques employed have typically lagged the sophistication used in other asset classes (such as equities and fixed income) and intuition has played a greater role in the decision process. The purpose of this paper is to illustrate how novel place types, analytical techniques, and non-traditional data can generate powerful insights at unprecedented granularity, reduce reliance on intuition, and maximize investment returns while minimizing risk and promoting social impact.
There are valid reasons for this status quo. Assets are heterogenous and difficult to compare on a consistent basis. In addition, assets are truly marked-to-market only when they are traded, which occurs infrequently due to long average hold periods. Meanwhile, other institutional data are often tightly controlled, opaque, or accessible at only coarse predefined granularities. Furthermore, real estate is greatly influenced by behaviours (for example, community engagement or homeworking) that are not commonly measured. The dearth of accurate, consistent, and timely data and the limited ability to source, aggregate, and analyse the data at scale leave market participants with imperfect information, making it challenging to draw conclusions with sufficient precision. This creates a reliance on intuition to complete the picture.
Disparities mean that depending on the place, one strategy (such as build-to-rent) may be more advantageous than another (such as build-to-sell), further illustrating that understanding market-specific dynamics is vital to developing an effective investment strategy.
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