The commercial real estate world has flipped upside down. “Location, location, location” and gut feelings? Those days are gone.
Something that I’ve learned while working on a project for the Albany, NY Commercial real estate market. Now, the smartest investors are trading in their lucky charms for fancy computer programs. And guess what? Investors using these tools are seeing serious ROI of at least 15%.
Predictive analytics isn’t about guessing anymore; it’s about knowing. By using data and complex equations, we can find secret deals, cut down on risks, and make way smarter choices. Ready to say goodbye to the old and hello to the future of wealth?
Understanding the Supply Chain-Industrial Real Estate Connection
Let’s start with the basics. What’s the big deal with the “supply chain” anyway? It’s like a manufacturing highway of processes that puts raw materials into a consumers house. Then it goes through logistical hoops. Next is distribution, which gets all the components over. And warehousing just keeps it safe while it is waiting to happen.
Industrial real estate – warehouses, distribution centers, factories – is the place where everything happens. Picture it like the backbone of that manufacturing super-highway. These buildings are the site of all the great moments and tragedies involved in producing all of our products.
The health of a supply chain directly impacts how much those buildings are worth. If the supply chain is running like a dream, those warehouses and distribution centers become super valuable, which raises lease rates and property values.
But what do you do when a truck gets run over? Then things start disrupting with the logistics. Whether its a world event, or a simple natural disaster, things can get intense. These can ultimately affect the bottom line, which you can guess, affects values.
Common Misconceptions: Separating Fact from Fiction
Alright, it’s time to clear up some misconceptions. There are some outdated ideas floating around about commercial real estate, and keeping these around could result in great error.
You’ll hear people say location and sq footage is the end all be all, and that just isn’t enough. By itself, I feel that metric can be similar to baking a meal with water and flow, which is almost pointless. If you’re not careful, that can decrease a property’s value.
Then, locations are never equal like people seem to believe. While great locations mean a great head start, things can still be ruined by ports with issues or regulations. There was a time when a client tried to purchase a property, only for me to inform them that there were too many trucks during peak hours.
You also might hear supply chain issues aren’t bad, and I don’t even know where to begin with that statement. It is so critical and I just cannot tell you how many times people will say that this won’t happen to them. They plan to fail because they fail to plan. Infrastructure must be diversified and safe, which gets expensive quickly.
You’ll also hear tech is just for huge companies, and I want to say that there is so much software out there for anyone who wants to learn this. These solutions are accessible, and they are invaluable, especially at the entry level.
Key Supply Chain Metrics Impacting Property Values
Let’s talk numbers! Knowing which numbers to track with metrics is the key to understanding property rates.
First, remember those times those ships stalled while we were trying to get them in during covid? The costs sky rocket, and there is a high demand for property to stock more goods, which raises valuations. I used to see it a lot in Long Beach a few years ago, where things were high and I told a client to purchase inland.
Then the costs were high getting through. You want the easy way to the railroads, airport, and freeways. A client of mind was so smart to hire me a while back, as I was able to model their total transportation fees for locations with fees.
Inventory fluctuates. As sales rise, or they are flat, that creates an increase in the short-term, so you’d want warehousing there.
Then production costs take too long, which hurts. Make sure that property does what it can to reduce costs, which a new buyer can do with the right intelligence.
If you get your numbers in gear, I promise you’ll be safe in the market. Just use the proper tools and techniques.
Actionable Strategies and Implementation
Alright, you’re in. You see the value. So, what do you do? Here’s a plan to start using supply chain data in your commercial real estate deals today:
Look at a property carefully. Now that you see how the supply chain works, that impacts all of it. Is there logistics rising nearby? Are they in resilient locations? Use the freeway, and reduce costs if you can.
Use more than just one data source. Listen to everyone, listen to the government. And even listen to competitors. Triangulation is worth gold to figure some crazy things out.
Make it a game. Look into all the details of supply chain. Check on customer rates.
Make friends. Ask experts, get help from people and managers. I remember when I first started and the consults I went through for hours was worth my time to learn all the information I could.
Practice makes perfect. It is so exciting to start, but don’t bite off more than you can chew. I can tell you it never works out the way you want it to, so just manage your results overall and what you want to know.
Analytics Tools and Techniques for Valuing Industrial Real Estate
Time to talk about the cool technology we use to value property in industrial real estate with supply chain analytics!
Location is key, still. Location analysis keeps everything in check, and ensures you know the best place for investment opportunities.
There is predictive modeling and algorithms that make a machine predict where to keep values up, based on congestion, commerce and more.
Data visualizations can transform complex data and put it into graphs, charts, and more. This lets you show clearly where the value is.
With the right tools in hand, you can see how valuable this can be to unlock the greatest potential in valuations! Remember, what data you collect will become your source – pick smart.
Case Studies: Real-World Applications of Supply Chain Analytics
Let’s put this into perspective with situations that have already been put into motion.
There was on client that was overstocked in shipping, so I was able to identify it. That increased their ROI by 22% as they went to a less crowded city.
Another used transportation costs, and looked at the costs which helped reduced the exposure by over 15%
These cases have proven just how important it is to stay one stop ahead in the market.
Future Trends and Predictions
We are always getting fast in CRE, so let’s talk about the trends you should be watching to keep getting fast!
The US will be getting the big share of distribution deals. This is based on the border that is there for Canada and Mexico.
Online stores are the highest demand space and consumer space. People want faster and free stuff, so stay close!
Make your ESG as sustainable as possible. This will show more ethical business for your tenants.
Adapt and evolve to show success in the market overall.
Conclusion
Listen to the words I was speaking. It isn’t good to just roll the dice anymore. Keep a proper relationship and you’ll thank yourself down the line greatly in your business.
