"The State of the Art in Real Estate"

The following text is Gil Castle's final draft of a featured article appearing in Business Geographics, November/December 1994

Copyright © 1994 GIS World, Inc.

Real estate is a huge industry. The total value of commercial and residential real estate assets in the United States is estimated to be $2.4 trillion and $8.7 trillion, respectively *. By comparison, the total value of corporate equities is estimated to be $4.1 trillion.

Real estate is a geographic industry. As the often-cited joke goes, the three most important factors in real estate are "location, location, location!" As a corollary, real estate is a game of information arbitrage; every property is a unique combination of physical and locational attributes which correlate directly to the property's value.

Real estate is thus a "GIS-compatible" industry. GIS accommodates virtually any type of information needed for a decision, and uses location as the means for integrating that data. GIS even provides "the sizzle as well as the steak" via high quality presentation graphics. In short, the real estate industry can benefit-and indeed is benefiting-dramatically from GIS.

The first book focusing exclusively on GIS in real estate is scheduled for publication in mid-1995 by GIS World, Inc. The book is being written by seven of the nation's foremost experts on real estate applications of GIS technology. To provide a comprehensive perspective, the authors are drawn from the private sector and academia.

This article delineates a few key trends identified in the (several hundred page) draft manuscript. Paralleling the format of the book, the article contains sections on commercial real estate, residential real estate, and implementing a GIS.

Commercial Real Estate

GIS technology can improve significantly the efficiency and reliability of a broad spectrum of traditional real estate activities including:

GIS technology also enhances ancillary real estate endeavors such as:

How is GIS currently being used in the industry? GIS has been employed the most-but certainly not exclusively-for site selection. This finding is consistent with GIS utilization among all industries; past Business Geographics surveys reveal that retailing, demographic analysis, trade area analysis, and related applications are the best understood and most frequently implemented**. The leading practitioners arguably are Homart Development Corporation (Chicago, IL) and Farallon Real Estate Services Company (San Francisco, CA) for shopping centers, and The Walker Companies (Atlanta, GA) for warehouses. These firms maintain detailed digital, demand-side, and supply-side data bases on every potential site in the United States, using combinations of off-the-shelf GIS software and in-house proprietary models. Not only are they able to find a site fulfilling a client's criteria in a fraction of the time of competitors using traditional methods, but also their recommendations carry far greater credibility.

Who is exploring the future of GIS, for site selection and beyond? Again, though a broad spectrum of traditional real estate professionals can benefit directly, the front runners at present are brokers. They recognize the competitive advantages inherent in the above-mentioned "information arbitrage" and "sizzle" facets of GIS. Leading firms run the gamut from very large (CB Commercial, Torrance, CA) to relatively small (Pizzuti Inc., Columbus, OH).

After brokers, an "honorable mention" goes to investment managers who mainly use GIS in their research departments; notable examples include Aldrich, Eastman & Waltch (Boston, MA) and The RREEF Funds (San Francisco, CA). "Definitely worth watching" are corporate real estate executives who-in finding and administering space for managerial, clerical, manufacturing, inventory, distribution, and other typical company operations-oversee three-fourths of the capital invested in commercial real estate; firms using GIS for asset inventory and management include Chevron Corporation (San Francisco, CA), Sun Microsystems, Inc. (Mountain View, CA), and Autodesk, Inc. (Sausalito, CA).

Residential Real Estate

Residential real estate refers to owner-occupied dwellings, whether single-family detached, town houses, condominiums, mobile homes, or vacation houses. (Rental units, whether single-family or multi-family, fall under commercial real estate.) The majority of residential real estate sales are through a multiple listing service (MLS). The dollars at stake are enormous since households move on average every five to seven years, the value of the nation's residential real estate is (again) $8.7 trillion, and the broker's commission on each sale is on the order of six percent.

Not surprisingly, residential real estate is a highly competitive industry. Within the last three years, new technologies have made the industry even more competitive. A number of firms around the country have introduced alternatives to the MLS. Examples include:

Some of these alternatives use computerized maps for searching for homes and/or for displaying the locations of selected houses. To date, these alternatives have not relied heavily on GIS.

However, they have contributed to a high level of worry (sometimes approaching panic) on the parts of many MLSs, who are fearful of losing their business to these new competitors. To counteract the threat, MLSs have become aggressive in exploring and adopting new technologies-notably GIS.

Using PCs, brokers dial into the local MLS's data base and download all current listings fulfilling specified criteria (again, three bedrooms, two bathrooms, and so on). Rather than receiving only text as with a conventional MLS, brokers can have the selected homes appear on a GIS map on their computer screens, and "toggle on" other important locations such as schools, shopping centers, and major roads. Additional features can include displaying key information on each house next to its location (e.g., asking price, time on the market), and even photographs of exteriors, interiors, and neighborhood vicinities.

The GIS can save brokers and potential buyers a considerable amount of time and effort by exploring the listings on the computer screen, rather than driving all over town to check out the locations of the available houses. The GIS thus provides the brokers and the MLS a competitive edge over other brokers and MLSs without a GIS. Among the metropolitan areas with MLSs using GIS in this fashion are Seattle, WA; San Diego, CA; and Atlanta, GA.

Certainly worth noting are the activities of the National Association of REALTORS® (NAR) in promoting GIS technology among its 750,000 members. In addition to being an information source, NAR is now a reseller of third-party GIS software and data.

Implementing a GIS

When will GIS be widely used throughout the real estate industry? The number of organizations investigating GIS appears to be accelerating, but non-trivial obstacles must be overcome before real estate professionals everywhere embrace the technology. These obstacles include:

Though these obstacles can all be overcome, an easy decision is to let someone else be the pioneer. Once a critical mass of firms have successfully pioneered the use of GIS technology, and once the rewards of doing so are obvious, suddenly everyone else will have to play catch-up just to remain competitive.

Thus, the bottom-line question that more and more real estate firms are asking themselves today is this: "Do we want to be an aggressive industry leader or merely a follower?"


* David J. Hartzell, Robert H. Pittman, David H. Downs, "An Updated Look at the Size of the U.S. Real Estate Market Portfolio,"The Journal of Real Estate Research, Volume 9, Number 2, Spring 1994, Page 211.

** Nora Sherwood Bryan, "Putting Business GIS Users under the Microscope," Business Geographics, Volume 1, Number 5, September/October 1993, Page 8. and Nora Sherwood Bryan, "Exposed...the BG Reader," Business Geographics, Volume 2, Number 4, July/August 1994, Page 10.