The New Age of Data in Real Estate Commercial and Legal Considerations Table of Contents
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The New Age of Data in Real Estate Commercial and legal considerations Table of contents Forewords 3 Section 1: Introduction 4 A long-standing need for data 4 Established use of data in a legal context 4 Section 2: New incentives to use data – plus legal considerations 5 The evolution of real estate legal advice 5 New data-driven legal tools 6 Data protection 6 Data security 6 Data governance 7 Intellectual property rights and contracts 7 Data-driven technologies 8 Section 3: Lessons from other sectors 9 Automotive industry 9 Financial Services 9 Energy and Utilities 9 Retail 10 Life Sciences and Healthcare 10 Regulation and innovation 10 Section 4: Real estate has unique characteristics 11 Conclusion: Moving forward 12 Where will the new age of data in real estate take us? 12 Where does a transformative approach to data begin? 12 Key contacts 12 About Nuveen Real Estate 13 About Osborne Clarke 14 2 Nuveen Real Estate Osborne Clarke foreword foreword At Nuveen Real Estate, we believe in Our clients’ businesses are being profoundly investing in tomorrow’s world. By aligning changed by the impacts of digitalisation, our investment strategies with structural the imperative of decarbonisation and – for drivers of real estate demand – technology, the real estate sector in particular – the sustainability and demographics – we aim changing dynamics of our cities and urban to deliver both investment excellence to environments. our clients and have a positive impact in The coronavirus pandemic has created an era of extreme unpredictability. local communities. The real estate industry We’ve seen sudden radical shifts in day-to-day occupation and use of real is embarking upon an initial extended estate – even of whole urban districts. Although there’s a strong sense that the way we live, work, travel and connect in our cities won’t revert to period of technological transformation, pre-2020 patterns, there’s not yet any real clarity about what our new habits which has seen an acceleration due to the will look like. How we make use of our offices in the future, and the impact of home working, is one area being very hotly debated. Faced with all of coronavirus pandemic and the resultant this fluidity, the visibility and insight that data can generate becomes an end necessity to evolve. in itself. But beyond that, we’re increasingly working with clients seeking to convert the raw material of data into new business models, efficiency for asset management, and deeper and more collaborative relationships Data is increasingly important for all stakeholders in the value chain, from between landlords and tenants. investors to end-users, and is a critical enabler to enhancing the user experience of real estate, as well as achieving climate and social goals. We’re delighted to have had the opportunity to work with Nuveen Real As we move into a future where the importance of data continues to Estate to develop the thinking that we present in this white paper. We hope grow, there are valuable lessons that the real estate industry can learn you find it timely and engaging, and we looking forward to discussing the from other industries that have already experienced (or are experiencing) content further with you. digital disruption and will need to become more sophisticated in how it commands data. We are proud to partner with Osborne Clarke on this white paper to discuss key opportunities and challenges that this presents for the industry. Conrad Davies Partner, Head of Urban Dynamics Osborne Clarke [email protected] Lesley Smith Head of Legal, Europe & Asia Pacific Nuveen Real Estate [email protected] 3 Section 1 Introduction Data has always been crucial in real estate. But the types of data available from real Established use of data in a legal estate for use by parties such as investors, context landlords and tenants are expanding Legal due diligence in property transactions will include the usual title information, replies to enquiries, suite of searches and tenancy exponentially. The value of data is being records. Notwithstanding discussions and pilots to innovate enhanced by new technologies able to around this body of data, such as providing it instantly via an online dashboard, or moving Land Registry records onto a blockchain collect, interrogate and exploit it. structure, the approach to investigating a property remains largely unchanged. The sector is seeing new data-driven opportunities for automated efficiency, new offerings and insights, and new ways to boost the value of investment An established area of data-centric tools for transactions is the use portfolios, the quality of the built environment, and the experience of of data rooms and document management solutions. These are occupants. Other sectors offer inspiration and learning around what can be increasingly becoming ‘smarter’, as well as moving towards providing achieved, as well as the challenges to be countered. value beyond the point of due diligence and acquisition into the asset management phase. Workflow software solutions allow deal pipelines A much-quoted statistic from IBM claims that 90% of the data in the world to be managed on a centralised platform, which may allow trends or today has been created in the last two years alone. To say that this figure issues to be spotted that might otherwise have been overlooked. For applies to real estate today would likely be an over-exaggeration, but the example, perhaps a particular sales team consistently takes longer to industry is faced with the same technological forces that are driving change close deals than others – do they need additional training? Is there an in other industries. Real estate is entering into a new era of data. HR issue in the team? The immediate impact of the coronavirus pandemic on the real estate sector was unprecedented. Lockdowns caused workplaces, retail and other venues to empty almost overnight and remain closed for months. It is Traditionally, for successful asset management, the emphasis has been too early to know what the long-term legacy of this disruption will be, but to spend as little as possible, while maximising net operating income. the sudden mass shift to distributed working is likely to have altered office The landlord’s approach to data – or areas that it enables, like property occupancy patterns permanently. Moreover, the emphasis on monitoring management – has often not been high on tenants’ priorities during the health and safety issues – whether to do with individuals’ state of health or leasing process compared with major factors of asset location, floor plate adherence to social distancing measures – is making workers accustomed design, rent, and so on. to new levels of data collection. It is widely acknowledged that part of the impact of the pandemic has been an acceleration of adoption and Once the asset is leased, the focus turns to generating returns. In a world acceptance of digital tools. If sustained, this impetus can be harnessed to of long-term, fixed-rent leases, it is hard to justify a lot of spending on elevate the new age of data in real estate. collecting, structuring or storing data that does not have a clear, short-term return on investment. This is not to say that real estate businesses spend A long-standing need for data nothing on data – buildings have to be kept running – but the conversation around data has historically been driven primarily by what is needed to keep the building operational (for example, data linked to repairs, maintenance, Real estate has always had a complicated relationship with data. Its worth smooth operation of services, etc.), rather than how data can enhance the has been highly dependent on its perceived impact on the value of the experience of tenants and end-users to generate additional value. investment and on the point in time during the investment cycle. However, this is now starting to change. When acquiring an asset, high-quality data is critical and worth investing in. The significant transaction costs of real estate are partially due to spending on collecting, verifying and analysing data about the asset and the local market. This due diligence phase is a well-trodden path and mostly indispensable. Once an asset has been acquired and the focus turns to managing it, many of the original incentives to invest in data change. 4 Section 2 New incentives to use data – plus legal considerations There are a number of structural trends that Building information modelling (BIM) data from the construction phase are disrupting traditional approaches to real can be built out and added to, to become a digital replica and resource for the building. Future occupiers could have clear information about hidden estate, almost all of which are directly or service conduits, or links to operating manuals for installed appliances. indirectly elevating the importance of data: In addition to using sensors, cameras or software to collect data about building usage, there is a growing data marketplace where third-party – Leases are getting shorter, creating greater alignment between landlords datasets can be accessed or purchased. It may be possible to boost and tenants as it becomes easier for tenants to leave, increasing the focus proprietary data by combining it with external datasets. A smart heating on tenant retention. New, flexible ‘as a service’ business models for office control system might be integrated with weather predictions so that, for space measure value by reference to occupancy rates rather than secure, example, the blinds on a building are automatically lowered to reduce the long-term revenue streams (as, for example, has long been the case with building’s temperature in anticipation of an expected hot afternoon. the hotel sector). – Traditional landlord-tenant relationships are changing, with landlords Equally, for ‘as a service’ occupancy-based business models, understanding playing a more active role within the tenant’s demise, blurring the lines patterns of use and user preferences, and having real-time visibility of how between where the landlord’s role ends and where the tenant’s role the space is used, becomes central to maximising the attractiveness of the begins.