IPAs are enhancing their tech strategy with geographic information system platforms, proptech applications and even virtual reality to cater for increasingly sophisticated site-selection processes. But will data-driven innovation ever replace the personal touch? Jacopo Dettoni investigates.
In the world of big data, investment promotion is finally catching up with other sectors. A growing number of economic and property developers are looking at data-driven solutions to showcase their assets or communities, thus increasing their chances of attracting and retaining investment. This in turn is prompting tech companies to develop tailor-made applications for the industry.
For instance, solutions based on geographic information system (GIS) technology – already popular in North America – are gaining traction overseas, providing a tool for locations of any size to easily match properties with investors. The widening range of property technology (proptech) applications is also helping local authorities and businesses to combat typical inefficiencies in the commercial segment of the real estate market. Now, augmented and virtual reality content can be tailored towards investment promotion.
Additionally, the more prospective investors there are to browse the web and look at online datasets, the greater the scope for predictive models and artificial intelligence (AI) solutions to discover insights into these investors’ decision making.
A Question of Quality?
Though this data-driven revolution is generating substantial interest, it throws up concerns over issues such as data quality, which can skew investment decisions for better or worse, and raises questions over the role that personal or ‘soft’ skills will play in the future of investment promotion and asset allocation.
Historically, the investment promotion sector has been slow to embrace innovation. It took time for investment promotion agencies (IPAs) across the globe to establish a solid online presence (some are still catching up), and it will take time for them to apply data science to their strategic thinking. However, the investors they wish to attract are often on the other end of the technology adoption spectrum and widely rely on data and technology to support their decision making. This is forcing IPAs to rethink their approach.
“It’s something we had been looking at for quite some time,” says Paul Wookey, CEO of IPA Locate in Kent in south-east England, of its decision to implement a GIS platform to showcase the county’s attributes in mid-2017.
“The companies we are working with require quite a lot of bespoke data to help make their decision as to which location suits their needs the best. Whenever we had to respond to these queries, we had to go to multiple data sources and compile this information and get back to the company – and that needed quite a lot of time, and in some cases quite a lot of cost. This new technology enabled us to respond much more quickly to the clients’ requests,” he adds.
Getting in First
Locate in Kent is among the first IPAs in Europe to use a GIS platform that can showcase the main features of its investment locations and their characteristics (demographics, labour market, industrial clusters and so on), and benchmark them against other locations across the country.
“There was a risk for us becoming an early adopter, but we are still confident the level of sophistication that it gives us will be an edge when we are trying bring in investment,” says Mr Wookey.
Apart from North America, this technology is largely uncharted territory for IPAs around the world. Kent is among a handful of European IPAs to utilise GIS technology, along with Berlin Partner, which has developed its own GIS platform with the support of EU funds.
Anatalio Ubalde, co-founder and managing director of GIS Planning, a Financial Times company providing GIS solutions for economic developers, including Locate in Kent, says: “In this field, everything that happened in the US will also happen globally. An early majority of IPAs adopting the technology will shape up, and the others will follow suit.”
Proptech on the Rise
The accelerating pace of innovation in the real estate market is also creating new opportunities for economic developers. World Business Chicago, a public-private agency tasked with promoting development across the city, teamed up with proptech firm Rofo.com to produce its in-house GIS platform. At the same time, developers will benefit from a more competitive real estate market once proptech start-ups make their mark.
“So far they have produced small improvements,” says Andrew Baum, visiting professor of management practice at Oxford Saïd Business School and real estate industry veteran. “They’ve made it easier to collect information on what’s on the market, also in the commercial segment of the market, but they haven’t made a big dent yet in speeding up transactions.”
Although proptech applications have not yet disrupted a market that is typically resilient to change, they are stirring up interest. Using various data sources, Mr Baum estimates that in 2017 there were likely to have been more than 2000 proptech start-ups of “serious ambition” globally.
About 60% of these appear to have raised seed, or better, funding. Somewhere between $30bn and $50bn (an average $25m to $40m per firm) has been raised and is being spent by these ventures. Some recent newcomers are being nurtured by major players in the market such as commercial real estate firm Colliers, which launched a proptech accelerator in January 2018.
Augmented and virtual reality are also set to unlock further potential in investment promotion. Golden Shovel, a communications agency that focuses on economic development, has been working with clients to replicate in virtual reality the experience of site familiarisation tours to promote a particular location as an investment destination and an appealing workplace. The agency launched the product in September 2017, signed eight contracts since then and expects to bring on 50 more clients in 2018, according to Golden Shovel president John Marshall.
Level Playing Field
While innovation can boost major investment locations, the benefits are even higher for markets that might otherwise struggle to raise their profiles because they are small or in remote locations, or are simply less well-known destinations within a specific area.
“Some of the smaller markets [in the US] have done an excellent job in the past 10 to 15 years in pushing themselves forward,” says Thomas Stringer, managing director for site selection and incentives at consulting firm BDO. “It’s been a combined effort. They built up a workforce, made local economies competitive, became destinations that young people and skilled workers want to live in. All of this, combined with a push forward in technology, has put them on the list.”
Even rural communities have been presented with the chance to punch above their weight. One of them is Ponca City, located on the border between Oklahoma and Kansas. Having developed a local oil and gas industry, it has built on this in the past decade to develop a local manufacturing sector through the early adoption of a GIS platform on the website of the Ponca City Development Authority (PCDA) in 2006.
“We are a community of 26,000; for us to have that level of technology and knowledge made us able to play in a bigger pool,” says Katherine Long, data master at the PDCA. “It seemed that if [we wanted] to reach a larger audience, we really needed to be able to talk in a larger audience vocabulary. We don’t compete for investment in the same way as bigger locations such as Tulsa, Oklahoma City or Dallas, but if an investor is looking for a more rural location, then the GIS platform gives us a better capacity to showcase what we do here,” she adds.
Innovation, together with the growing availability of data across sectors, is widening the space for the development of predictive analytics and AI solutions to give unprecedented insight into the decision making of possible investors.
“AI and predictive models is where we see the next progression from adopting GIS technology,” says Locate in Kent’s Mr Wookey. “Things will change quite rapidly in the next five to 10 years with the way AI is coming in. We need to become much cleverer about the way we begin to lay out our offer: we need to anticipate what we are good at and what we can offer.”
Predictive models have already reached an unprecedented level of accuracy. As soon as Amazon announced its quest for a second headquarters in North America in September 2017, giving details about the characteristics of the communities and the assets it was interested in, observers ran their models and anticipated most of the shortlisted locations.
A few weeks after the announcement, the analytics division of credit rating agency Moody’s listed 10 cities that, according to its models, met Amazon’s needs. Seven of those eventually made the company’s final 20-city shortlist. Data scientist George McIntire was also able to predict 11 of the final 20 cities.
Meanwhile, Amazon’s site selectors were busy browsing the web to sift through the 238 proposals they received, often using GIS platforms and thus leaving behind traces of their decision making. “Our software platform had digital signals about which locations were being evaluated before any public announcements were even made,” says GIS Planning’s Mr Ubalde, who adds that 65% of the 20 shortlisted cities “are served by our technology”.
The challenge is now for data scientists to use all the data points collected by tracking the online behaviour of site selectors across the globe to create solid predictive models also for decisions that, unlike Amazon’s headquarters quest, do not disclose their underlining criteria.
“We are trying to automate a lot of the work that a commercial property agent does and [we are] doing that with technology,” says Tushar Agarwal, co-founder and CEO of office space leasing proptech firm Hubble. “The benefit is that we pick a huge dataset around the conversation between the clients and ourselves, their actions, intentions, where they end up in the transaction itself. So we can build up a huge data set of what someone does... and build insights from that dataset around how people are likely to behave, and what people are likely to transact on in the future.”
If the opportunities of the big data revolution are unprecedented, so are the challenges. “Technology is very important – for site-selection consultants it is an enabler, an accelerator – but it can also be dangerous [and] can give consultants and companies the illusion they are making great decisions with perhaps lousy technology and outdated data,” says Darin Buelow, a principal at Deloitte’s global expansion optimisation practice. “We have to continue to embrace technology and new methods and meet the client’s demand to do things faster, but also to do so with an eye that if it compromises the outcome, then it’s not a good change.”
GIS technology and other data-driven solutions rely on a mix of public and private information that they regularly update, but Mr Buelow believes there is little awareness in the market about the importance of data quality and freshness.
Another potential concern is the relationship between technology adoption and job security. “Most IPAs’ staff are public servants who value job security highly, and they might be scared that technology may lead to lay-offs,” says Bostjan Skalar, head of the World Association of Investment Promotion Agencies. “But you will still need people for some soft information functions – and even if they don’t like it, they will need to adopt these new technologies sooner or later.”
The Human Touch
Full automation in the many phases of investment promotion is not yet a reality, though. In fact, economic developers that have embraced new technologies for years see it as an enabler that empowers human soft skills, and not the other way around.
“One-on-one personality, knowing your community, being able to showcase it verbally on the ground when someone comes to visit a site, when you are in the final list – that could make or break a community very quickly. And it goes back to being able to have somebody who is knowledgeable, personable and rapidly responsive to any need that a company could be looking for,” says Ponca City’s Ms Long.
Data-driven innovation is making investment promotion more sophisticated and competitive, and enabling previous outsiders to make the final list of candidates in site-selection processes – even more so with the development of proptech and virtual reality. Meanwhile, a new wave of innovation generated by blockchain and cryptocurrencies is already bubbling under, and this will inevitably affect investment promotion as well. But the human element behind all the data still makes a difference – at least for now.