Commercial Real Estate’s Data Dilemma


“There are three kinds of lies: lies, damned lies and statistics.”

Taken from Mark Twain’s 1906 serial Chapters from My Autobiography, that favorite quote of mine is just as applicable if you fast forward more than a century and look at commercial real estate today.

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Even when looking at supposedly hard facts, like price per buildable square foot, vacancy rates or comparable sales, statistics in the commercial real estate industry are subject to so many factors and unknown variables that these numbers become nearly meaningless.

With so many disparate sources used to compile reports, it’s hard to tell when so-called “facts” are actually factual. The statistics that prevail subscribe to the law of small sample sizes, or at the very least selective sample sizes.

The problem is pervasive. Even data pulled from services such as CoStar—which is more comprehensive than most research services—in reality provides a non-objective data set, relying on self-reported numbers from participating brokers, owners and tenants. Practically speaking, there is no universal set of data tracking the entire inventory of buildings, whether at the neighborhood level, by property or asset class, or broadly for New York City.

So, while there may appear to be a huge sea of data on the commercial real estate market based on the overwhelming number of published reports, much of what we’re actually left with is a smattering of industry “Snapple facts.” These are good for lunchtime “Did you know…” conversations, but those numbers are difficult to use for the purpose of making an informed decision.

As brokers, tenants, owners or investors, it’s critical that we have an understanding of the sources and methodology behind a data set in order to make informed decisions. Otherwise, we’re taking a blind swing at a building-sized piñata without knowing what’s inside. It could be a treasure trove of candy, or it could be nothing but air.

It’s important to remember that numbers in real estate aren’t perfectly fungible.

Take comparable sales, for example. After World War II, William Levitt built mass-produced affordable housing on Long Island using assembly line-style construction practices, in which each home was built to identical specs—same size, same shape, same demographics, same everything. The only way that the value would differ from home to home would be in the event of any owner additions over time—a new carport, improved decor and furnishings inside, and so on. These were true “comps.”

In today’s real estate market, comps are more of an “apples to oranges” comparison. When an owner gets $150 per square foot in rent for a retail space in Downtown Brooklyn, there’s more to it than just assuming that it reflects market value and that any adjacent spaces are worth the same.

There are several underlying factors that go into such a figure which—unless you can get your hands on the lease—aren’t public knowledge.

Who’s paying for the buildout? How many months of free rent is the tenant receiving? Did the tenant pay a premium for that specific location? Was the owner desperate to lease the space and willing to settle for below-market rent, just to fill the vacancy? The list goes on, and not just for lease comps.

The bottom line? One out of every three statistics you read in commercial real estate is misleading in some way, including this one.

So when you’re looking at the next research report put out by the latest industry experts, keep in mind that they’ve probably gotten their information using the same incomplete data dump methods as everybody else. And when it comes to commercial real estate, the phrase “data dump” has a particularly special and symbolic meaning.

Timothy King is the co-founder and managing partner of CPEX Real Estate.