When real estate investors want to quickly get a sense of the fundamentals of an office market, the standard go-to is a market report produced by a local or national commercial real estate brokerage firm. Reports like these come out quarterly, sometimes even monthly, and offer a useful snapshot of fundamentals like office vacancy rates, leasing and sales volume, and often a breakdown of activity in submarkets. While these are no doubt important figures in understanding the health of an office market, in today’s complicated economic landscape, it helps to look at other sources and take a more thorough approach. Here are some non-traditional sources of information that can provide important insight for investors.
Measuring foot traffic is commonly used as a good way to look at customers in the retail sector but it’s gaining popularity as a useful metric in the office industry. Foot traffic data generated from cell phone locations can help reveal daily activity patterns and identify hotspots in “micro-locations,” said Julia Georgules, Head of Americas Research & Strategy at JLL. “We can then further analyze those hotspots to understand the characteristics, amenities, and businesses driving traffic in those locations,” Georgules said.
There are a number of different platforms that measure foot traffic and offer subscriptions to access the data. In many cities, local business improvement districts and similar organizations partner with providers to measure footfalls, and the information is often available free of charge. Foot traffic data can not only tell you how many people are visiting a building and how often, it can get into even more specifics, like how much amenity and common spaces are being used and at what times during the day, which can be enormously valuable for owners and investors alike in determining what’s working and what’s not working in an office property.
Since the early days of the pandemic, tracking office occupancy through badge swipes has been an important measurement for the office industry. There are a handful of data platforms that draw from badge swipe numbers, but Kastle Systems’ Back to Work Barometer has been the most well-known tracker for many real estate professionals, and it’s updated every week. The measurement tracks badge swipes in 10 major cities around the U.S. In Manhattan alone, the occupancy data is drawn from 70,000 badge holders in 200 buildings.
Comparing average occupancy among the cities tracked and looking back at how the figures have changed over time provides valuable insight for owners and occupiers of office space. It’s also a metric that’s been touched on by city leaders, major employers, and anyone interested in how occupancy figures correlate to other metrics. “Badge swipes can much more accurately track effective occupancy rates,” said NYU Clinical Assistant Professor Tim Savage, who teaches at the Schack Institute of Real Estate. “It’s a much better indicator of performance going forward than traditional occupancy.”
Keeping a close eye on venture capital-backed funding can provide a heads up to future activity in the office sector. VC funding and other private funding events around the country can be a good indicator of future demand for commercial real estate. In Boston, JLL has found through analysis that for every capital event, a real estate transaction follows, usually between 6 to 9 months later. More trends can emerge when the data is segmented for deal size/stage, industry, or innovation being funded at any given point in time.
One of the most visible examples of this correlation is in the life sciences real estate market. The sector had been on a hot streak over the past several years, driven by scientific breakthroughs and later, the race for vaccines amid the COVID-19 pandemic. But when life science VC funding dropped by 18.5 percent by mid-year 2022, life science investment activity mirrored the VC slowdown, declining by 33.6 percent, according to Newmark.
Job posting data
While looking at employment data can be helpful in analyzing an office market, that data comes in at a month or even months-long delays. Job posting data, on the other hand, can be a great way to understand which industry sectors and companies are currently growing in a market. When looking at job postings, JLL researchers analyze by industry and company but they also look closely at the job requirements in order to understand the profile of talent companies are seeking. Job listing sites like Glassdoor, Indeed, ZipRecruiter, and even Google and LinkedIn have various filters when searching listings that make analyzing easier. There are also a small number of companies that make software that can pull data from tens of thousands of job listings sources. That data can then be used in a number of ways, including gaining insight into individual job markets and which industries are growing and what kinds of skills are in demand.
Taking a different approach and looking at metrics like these are useful tools to having a better understanding of an office market’s fundamentals. Some of these measurements also offer an advantage in that the data they offer is more current, as opposed to more lagging indicators like brokerage firm market reports that have typically been the standard. Aside from these, investors may also consider taking a more holistic approach in looking at an office market. “We believe taking a whole picture perspective is important in understanding the ecosystem in a given market and how that may foster or inhibit growth,” JLL’s Georgules said. After all, no two markets are the same. Looking at figures on commute times, crime rates, school systems and access to higher education, public-private partnerships and even long-term city plans are all things that investors will need to take into consideration in this difficult, dynamic office market.