Considering data-driven strategies for real estate investing

The real estate investing landscape is undergoing a transformative shift driven by the increasing integration of data and technology. Manulife Investment Management believes that the rapid pace of innovation in the real estate industry necessitates a departure from traditional investment analysis methods. 

“Real estate investors who embrace and understand the complexity and value of data and advanced analytics…may be able to capture a competitive edge in forecasting, market selection, and enhance the entire investment decision-making process,” writes Erin Patterson, Global Co-Head Research and Strategy, Real Estate at Manulife. 

Historically, real estate investing has relied on traditional investment analysis, incorporating historical data and economic conditions to inform their decisions. However, as per Patterson, this approach has limitations as it is backwards-looking and influenced by biases such as sourcing bias, selection bias, and behavioural bias. 

To overcome these limitations, the asset manager suggests that investors are now turning to nontraditional data from unconventional sources to gain a more comprehensive and real-time understanding of commercial real estate markets.

Victor Franco M. Calanog, Global Co-Head of Research and Strategy, Real Estate, at Manulife, points out that nontraditional data provides behaviour-oriented, trend-based insights into variables affecting real estate performance. 

“The real game changer comes from combining traditional and nontraditional data to find patterns that glean fresh insight into which markets and assets have the potential for greater income and capital appreciation—the age-old search for alpha,” he adds.

Along these lines, the asset manager contends that the collaboration between data scientists and experienced real estate investors is crucial to asking the right questions. 

Additionally, Maulife elucidates on the challenges facing data-driven strategies in real estate investing. He lists historical real estate data, governance issues, and uncertainties about the required time and capital investment as some of the problems that need to be addressed. 

“Despite these challenges, we believe there’s a significant opportunity for the real estate industry to embrace a new data-driven mindset,” says the asset manager. 

Read the full insight here.