There’s still a lot to be said for taking into consideration the traditional top-three real estate investment criteria: location, location, location. Commercial real estate investors have long relied on a variety of location-related data to help inform their decision-making. Historically, that came in the form of reports from property brokers like CBRE, JLL, and Cushman & Wakefield. These reports can provide great market data, but they are only able to do so at the submarket level. Anyone in real estate knows that markets are much more nuanced than that and can often vary greatly from neighborhood to neighborhood or even street to street.
That is where the new location intelligence data comes in. Location intelligence also referred to as geospatial data, is collected in a variety of ways but usually revolves around location data collected by popular mobile phone applications. This type of data digs deeper than mere sub-market reports, providing information on the diverse characteristics of people and places in a specific area. It’s the analysis of a combination of data sets such as migration patterns, crime rates, household income, and foot traffic that provide a true understanding of a specific area. For example, one can obtain what amounts to a neighborhood profile through the analysis of foot traffic patterns indicating where people spend the most time shopping or dining when they prefer to shop or dine, and for how long. What’s more, this kind of data is location-specific. It allows investors to zoom in on certain zip codes, business districts, or even parcels.
Too much information?
Why is location intelligence so critical in real estate today? Because the big picture investors have typically relied on is limited. Details on a particular property type in a certain submarket are helpful. But it’s the small picture, the minutiae of a neighborhood within that submarket, that offers the detailed information that is critical to decision-making now more than ever. A perfect example is the ongoing cry that the sky has fallen in San Francisco’s commercial real estate market. Certainly, there is evidence to support such claims. San Francisco’s office vacancy rate has been on a steady incline since 2020, reaching a staggering 30.4 percent in the third quarter of 2023, per research from Cushman & Wakefield, and it is forecasted to climb even higher over the next 12 months. The city’s retail sector has its struggles as well. In the second quarter of 2023, the retail vacancy rate in San Francisco’s once bustling Union Square submarket reached 18.7 percent. Barring the opportunity for a bargain-basement office acquisition, the real estate investment community has been treating San Francisco like a pariah. But by utilizing location intelligence to take a much closer look at the city, it’s clear that not every area can be painted with the same undesirable brush.
Data provided by Unacast, a location intelligence data provider, shows evidence that the handful of blocks that comprise the 94104 zip code in San Francisco’s struggling Financial District has been faring quite well. Unlike the majority of San Francisco, this neighborhood has recorded positive net migration numbers since the start of the pandemic. Among the neighborhood’s retail offerings, gourmet deli Mendocino Farms has seen a 32 percent increase in foot traffic from pre-pandemic to now. Coffee shop chain Peet’s Coffee & Tea recorded a 33 percent increase in foot traffic over the same period. As for San Francisco’s current status as one of the worst office markets in the world, in the 94104 zip code area, the three-building, 1.8 million-square-foot office campus at 555 California St., boasted an occupancy level of 94.5 percent in Q3 2023, compared to the Financial District’s overall occupancy level of just 70 percent.
There are still signs of distress in this diamond in the rough; Microsoft put its 49,000-square-foot space at the property up for sublease in late October (after having renewed the lease in 2022), but all signs indicate that the iconic complex will survive the vacancy. Majority-owned by Vornado and co-owned by the Trump Organization, 555 California has a historical occupancy rate in the mid-90 percent range. And its foot traffic and migration numbers are on the upswing. So, there’s something about the 94104 zip code, and that very valuable something can be derived through location intelligence. Just looking at the overall trend of the submarket, an investor would get an entirely different picture.
Emerging today, common tomorrow
Location intelligence is not new, but its growing sophistication is making it more valuable to the real estate industry. In a 2022 survey of real estate executives, 74 percent of the participants indicated that they view location technology as a strategic investment that enables competitive differentiation, and 71 percent indicated that they anticipate that location intelligence will be critical to competitive differentiation within the next few years. However, recognizing the importance of new technology is one thing; instituting it is another. The same survey found that 55 percent of respondents cited skills shortage as the greatest obstacle to incorporating the use of location intelligence, and 13 percent pointed to funding challenges as the second-biggest challenge. Still, investors are more likely than not to find a way to circumvent these hurdles, as the benefits of the technology—increasingly precise insight designed to support decision-making—will ultimately have a positive impact on the bottom line.
As the adoption of location intelligence increases, the technology itself will also expand. Location intelligence is bound to become more in-depth, eventually allowing for analysis right down to a particular side of the street. It may seem like an excess of information, but every little detail helps unlock the value of understanding the differences in locations.