As expected, a big surge in inflation all but guaranteed the Federal Reserve would raise interest rates to cool an overheated economy, and it did just that. Interest rates are rising and real estate is expectantly the first casualty. Residential real estate’s slowdown is getting the most attention, but the commercial market also looks to be slamming on the breaks.
We likely have a tough period coming up in the commercial real estate market. At the very least, high interest rates mean that every investment is that much more expensive. As a result, commercial real estate professionals are likely operating with extra caution and turning to other means to inform their next move – that’s where location data comes into play.
While data is nothing new in the real estate industry, it has evolved far beyond mere demographics. Real estate organizations rely on a broad range of insights including market, environmental, and foot traffic patterns. To differentiate from competitors in this market, firms must first ensure they have access to the most comprehensive, real-time location data sets available, and a process and platform to combine and visualize them. That’s what takes data from metrics and numbers to impactful, trusted intelligence for use in investment, site selection and marketing.
Even seemingly rational decisions can prove disastrous when made without the insights and predictions location data provides. Take the American Dream Mall, a commercial real estate cash drain in New Jersey. Geospatial insights including foot traffic and consumer activity could have predicted the decrease in demand for mega malls in the area, despite its water park and other flashy attractions. The right data could have saved investors billions of dollars on this project.
But data doesn’t just prevent real estate catastrophes, it unearths new opportunities for profit. Metrics on ever-evolving consumer behaviors, for instance, help predict the success of commercial brick and mortar locations with precision. For example, data can determine not only which strip mall your tenant’s shop will see the most foot traffic in, but the exact optimal storefront within that mall, down to square footage. This data helps ensure success for clients and renters, ultimately reducing tenant turnover, and also allowing for optimized pricing and layout within commercial spaces. And that’s just the tip of the iceberg.
A recent survey from Foursquare questioned commercial real estate executives on the value of location data. Of those surveyed, 76% acknowledged that investments in location intelligence helped them, their clients or partners achieve business goals. The participants used the data for site selection, sales and marketing, and countless predictions including earning potential of properties. Location data is also growing in popularity across the commercial real estate sector, with 92% of surveyed executives anticipating an increase in data spending over the next two years.
None of this is to say that experience does not matter. Experience, intelligence, and research are what give real estate developers their ideas in the first place. They’ve run profitable companies and done fabulous work. Yet as any developer will tell you, when interest rates go up, the stakes go up too. Each investment is riskier. It can only help to have location data “double check” your work. In the best case scenario, developers will have spent relatively limited resources to gain more confidence that their projects will yield results.
Commercial real estate developers have had their fill of turbulence. The pandemic inserted chaos – and massive losses – into the industry. Now comes another hit. Just as the economy was getting red hot and people were looking for out-of-home experiences again, the industry was hit with another curveball in the form of high interest rates and construction worker shortages.
Commercial real estate, however, is not an industry for the faint of heart. It is for innovators and people who are both willing to hustle and driven by it. In today’s tighter industry, location data is here to make that hustle that much easier.