In recent years, GIS has established itself as an integral component of business improvement programs at government agencies and utilities, but has only sparked flashes of interest from the corporate world. New emphasis on reengineering bodes well for commercial GIS, however, and this trend could trigger GIS' ascent to a more prominent spot in corporate America's decision-making arsenal.
It is only now that we can discuss GIS in terms of a strategic initiative. In the past, GIS systems were almost exclusively the tool of staff-level analysts trying to perform tactical assignments more effectively. GIS at corporate America was scattered across a variety of niche users, without any particular cohesion or consistent appearance. Companies had looked to other technologies and business methodologies to gain a competitive edge. Looking to streamlining operations and structure workflow effectively, companies invested in network communications, invested in a number of distribution technologies, and placed great emphasis on applying the principles of Total Quality Management, continuous improvement and reengineering to their business. Now, as more favorable global economic conditions unfold and international barriers fall, however, attention seems to be shifting from leveraging operations to pursuing expansion. And as these companies seek a technology to help them with this direction, managers across the country are finding that GIS has much to offer in managing real estate expansion.
This perspective might help to explain why attendance at the 1994 GIS in Business site selection workshop, for example, reached over 100 people, far exceeding the average number of attendants at '93 workshops. From big business to boutiques, from Maine to California, all ranges of industry were represented with delegates ranging in title from entry level analyst to CEO. And nearly to a last one, attendees noted that their organizations were intent on evaluating or constructing more elaborate site selection support programs.
What exactly constitutes "more elaborate site selection" varies from company to company. For some organizations, routines that simply relate potential locations to target customers (see "Proximity analysis" below) can be a major departure and healthy step forward from years of polishing their thumbs to "eyeball" good looking sites. For others, site selection is evolving to a near-science. The major oil companies, long time users of MPSI's (Tulsa, OK) text-based retail market analysis model, are now seeking to embed their tools into GIS so that they can "see" the impact of various market tactics. In other industries, companies are taking the time to learn the advantages of sophisticated approaches to location analysis and are increasingly erecting programs to develop a comprehensive view of the markets (see Various Models for Site Selection with GIS)
Quite subtley, all of this GIS site selection has also produced some reengineering of the real estate process. No longer are all the real estate reps finding "good deals" and asking research departments to explore the demographics. Increasingly, research is increasingly directing the process, i.e. models are run to identify "winning" sites and then real estate reps are sent out to determine whether the properties can be acquired. The tool is inverting the entire process, shifting the emphasis away from simply "making deals" and placing increased emphasis on understanding the potential performance of these locations. The net result: potentially higher acquisition costs, but reduced risk and a greater likelihood of success.
Site Selection has been the most prominent and traditional area for GIS in real estate, but it no longer represents the only way that real estate organization are using the technology. Public agencies have long found value in deploying GIS in such areas as parcel management and now corporate organizations are finding value using it in such areas as brokerage, appraisal and due diligence.
The most prominent example is probably CB Commercial, who now offer mapping in conjunction with such mainline services as commercial brokerage and portfolio management. I know of one Phoenix-based client who essentially received mapping support from CB Commercial free of charge because of CB's interest in retaining the other aspects of their business. That mapping allowed them to do much better overall market analysis and produced a "win-win" relationship where the client was much more confident in securing multiple properties through CB.
And several other notable ventures are springing up to support real-estate specific GIS needs as well. GeoSpan (Minneapolis) is in the midst of deploying "Geovans" around the country to collect video footage and GPS registrations of real estate properties in conjunction with a GIS program. Their concept essentially amounts to replacing time-consuming drive-bys with more efficient software viewings. Castle Consulting (San Fransisco) has been developing PC-based GIS software to support portfolio management and property appraisal. Grant Ian Thrall of the University of Florida has pursued the idea of using GIS to rate the "quality" of property tax appraisals. Prigmore Associates (Hull, MA) has used the system in conjunction with due diligence. Coopers & Lybrand and Arthur Andersen are in the midst of evaluating how GIS can be used more extensively with their services. And the Castillo Company (Phoenix, AZ) is moving toward integrating GIS with a full line of real estate services including market analysis, site search, due diligence, architecture, design and construction management.
It's probably fair to say that each of these services represent much more than software. They represent a reapportionment of work, a potential redistribution of time and effort in the real estate process. In the spirit of reengineering, they permit business processes to be redesigned.
Ironically, the power that GIS holds for real estate may be the same thing that has held it back -- its potential impact is so far reaching that it challenges many of the existing paradigms about how the real estate cycle is structured. There will be resistance to full-bodied approaches until more success stories surface and the technology is better understood.
But the ball is rolling ... and if you have wondered when GIS was going to impact the corporate world, watch out. The time, particularly for real estate, appears close at hand. It only seems appropriate that the industry whose byline has been "location, location, location" should lead GIS into corporate America.
The basic concept behind proximity analysis is simple -- step through a market ranking each intersection relative to other intersections based upon their proximity to the target audience. Proximity is essentially distance measured either through a roads network or as the crow flies.
A child care might evaluate proximity to children aged six or younger, an HMO might examine proximity to service subscribers, an ethnic grocery might "hunt" out proximity to ethnic populations. In the example below, we've ranked Tempe intersections according to proximity to the Tempe public.
The evaluation can be further weighted to account for different types of customers or proximity to competition. For example, the HMO might want to break out its evaluation in terms of proximity to service subscribers, proximity to medical staff and proximity to competition. A car dealership might want to look at proximity to various customer segments, i.e. economy, mid-size, sports and luxury segments.
A panacea this approach is not. But for a business public that previously polished their thumbs and went out hunting for real estate by the seat of their pants, this is a significant step toward more rigorous analysis.
Trade Area Analysis: "Ring studies" that evaluate the demographics and competitive composition around a target site, i.e. answering the question -- what is the population and per capita income for an x-mile radius from a target intersection.
Gravity Model: analysis that determines how consumers will "gravitate" toward one product or service provider over another. Initially founded by William Reilly in 1929, gravity models have been used to depict concepts equating to areas of dominant influence and service zones.
Analog Model: Assessing new sites by identifying existing sites whose trade area and general attributes (and hence, revenues) resemble that expected for the new location. These models are perhaps the easiest to understand because they evaluate a potential new site in terms of how other similar, but established sites have performed.
Regression: Application of statistical analysis to derive linear or non-linear relationships between site attributes (square feet, employees, ...) and site performance (volume, revenue, profit, ...). Regression is often applied without well developed geographic content, but benefits greatly from linkages to maps and spatial analysis.
Spatial Interaction: Assessing site performance by looking at the situation from the consumer's viewpoint, i.e. given various competing choices in a market, what percent of their business will the consumer direct to each of their options? Often called the Huff model after Professor David Huff whose 1960s research pioneered the concepts, spatial interaction is perhaps the most powerful, yet least employed site selection model.
These models vary in expense, sophistication and accuracy. But they all provide a one important common benefit -- they offer greater intelligence and reduced risk to companies expanding or disposing of real estate.
Larry Daniel is Vice President, Research & Information Systems at the Castillo Company, 2345 East University Drive, Phoenix, AZ 85044. With over 8 years in GIS, he formerly worked as Director, GIS at MPSI in Tulsa and as a Senior Consultant for Andersen Consulting in Seattle.
"Corporate Locations: Critical Choice in the '90s" by Eduardo Castillo, Southwest Real Estate News, May/June 1991
"Enhanced Modeling Helps Position Business Geographics in the Retail Industry" by Larry Daniel, Business Geographics, September/October 1993.
"GEOVans embark on real-time mapping and data collection" Interview with Jerry Robinson, Business Geographics, July/August 1993, pp.43-45.
"GIS Continues Growth in Real Estate", ESRI ARC News, Spring 1994, p.18.
Profiting From a Geographic Information System by Gilbert H. Castle III, GIS World, Inc., Fort Collins, CO, 1993.
"Trends in Site Selection and Relocation", by Eduardo Castillo, Corporate Real Estate Executive, May 1991, pp. 36-37.
"Using GIS to Rate the Quality of Property Tax Appraisal" by Grant Ian Thrall, GeoInfo Systems, March 1993. pp. 56-62.
"Wake County Develops Intelligent Parcel Management System" by Ginger Juhl, GeoInfo Systems, August 1994. pp. 44-45.