2023: The Future of Real Estate

May 2015

I’d like to suggest to you that, by 2023, “The Office is Dead*”.

Now before everyone screams ‘don’t be ridiculous’ I want to be clear;

I do not mean there will be no more offices. Nor do I mean that what is coming applies to every company in every office. A large chunk of the market will stay pretty much as it is. But an even bigger chunk will not.

I am well away of the supply and take up figures for office space and have eyes in my head so can spot a crane like everybody else.

But regardless, my position is that large scale change, in how we work, and the work that we do is coming and that it is impossible for this to not be reflected in how we use real estate.

My contention is that the real estate business is no longer about real estate.

It is no longer about a roof over our head, or a place to work. Instead, because of technological developments, and the behavioural changes that will follow in their wake, the point of the real estate industry is changing. What will be demanded of the industry, and the product the industry is going to need to supply, will become very different from what it is now.

And some will adapt and build great brands (and yes, in this world Brand will have considerable value) and some will not.

So how well do we do, as an industry now? Well not that great.

Office desks are occupied roughly 40-50% of the time. And according to the Leesman Workplace Efficiency survey some 47% of people say their offices aren’t conducive to productivity and 77% of employees claim to be poorly or partially engaged at work.

Obviously this is not only a real estate issue but it does rather reinforce the thought that things as they are are not that great.

So, we need something better. But just improving what we’ve done before is not the answer. Because we don’t need real estate anymore for what we used to need real estate for.

So we need something new.

Marketing guru Seth Godin wrote this as part of a blog post in 2010 – and it pretty much reflects the property industries default, defensive argument when discussing offices.

Why do we need offices?

  • That’s where the machines are.
  • That’s where the items I need to work on are.
  • The boss needs to keep tabs on my productivity.
  • There are important meetings to go to.
  • It’s a source of energy.
  • The people I collaborate with all day are there.
  • I need someplace to go.

We need to ask ourselves. How relevant is this today? Let alone in 2023.

Why 2023? Because it is eight years hence and as likely to be as different from today as the world was eight years ago.

This was the biggest selling phone the day Apple launched the iPhone.

 

The Motorola Razr.

People loved this phone.

Until they didn’t.

5.4 million iPhones were sold in the first year.

61 million sold in last three months.

Other things were different just eight years ago

Facebook had been open to the general public for 1 year and had about 20 million users. Amazon web services was 1 year old. Google’s streetview was only in five US cities and Chrome was yet to be launched. There were no Google Docs. Blackberry shares were $230. Nokia had a phone market share of about 50%. Kodak and Blockbuster were going strong. As indeed was Lehmans. Twitter only launched in April 2007 and Tumblr in February. LinkedIn had just 7 million members against some 350,000,000 today. There was no Instagram, WhatsApp or Snapchat.

Effectively hundreds of millions of people spend their time today doing things that simply did not exist 8 years ago.

So let’s go forward, to 2023, but let’s speed things up. Let’s go exponential.

 

This is the famous hockey stick – the proxy for Exponential change.

For a long time growth is flat and then bang, you hit the corner and things take off.

In many areas of technology we are just hitting that upswing.

And this affects….. Everything.

All of sudden, change, and progress, becomes much faster.

That’s how you go from selling 5.4 million iPhones in a year to 61 million in 3 months.

The smartphone industry hit the upswing in the hockey stick several years ago and growth has been, and continues to be, exponential.

Thanks to ben-evans.com

Five years ago PC’s were the leading computing device, and roughly 1.6 billion people upgraded once every five years. Today about 4 billion people are upgrading their phones every 2 years.

This year, for the first time, over 1 billion smartphones will be sold.

The prevalence of large screens, with even Apple giving in and producing the 6 and 6+, means more and more people are looking to their phones as their primary, or close run secondary, computing device. Research has shown that people spend almost half their entire day interacting with one screen or another.

And this change in consumer behaviour (which includes business behaviour as it is employees who are fundamentally driving this change rather than management) is leading to profound changes in how the software industry is addressing product development.

This is a forecast for how the world will look in 2017.

Population up a bit, adults and literate adults up a bit. There are no more PC’s than now but a lot more mobile phones, even more tablets and a massive increase in the number of smartphones.

Mobile is eating the world. It is vital to stop thinking of physical places as somewhere people have to go to – offices for instance. You don’t need a place to have purpose.

This charts clearly demonstrates how the tech landscape has fundamentally changed.

Thanks to ben-evans.com

Just 5 years ago – yes FIVE years – Microsoft had over 90% of the market for connected device sales. Pretty much every computer ran on Windows.

But today, that share is down to 20% or so. And dropping. Google’s Android and Apple’s iOS power over 96% of mobile devices.

And due to the equally exponential increase in power, these mobile devices are effectively the equivalent of 1990’s supercomputers.

In our pocket.

It is no longer a Microsoft controlled world. Even the workplace is about more than Microsoft.

The world has changed. In just five years. Give it another five years and today’s fifteen year olds will be entering the workforce.

And they use technology completely differently.

Thanks to ben-evans.com

Note how little they use the telephone and email; that technology is for grandparents.

Replaced by social networks, messaging and photos.

WhatsApp has 750 million monthly users, Facebook 1.4 billion, and the likes of Twitter, Snapchat and Instagram hundreds of millions as well.

The way we work, how we communicate, with each other and with our partners, suppliers and customers will change. Soon. And rapidly.

It is no wonder that Slack has become the fastest growing business application of all time. Just imagine, the end of email is nigh.

 

Storage is expanding rapidly. Here we have, on the left a 128 megabyte micro sd card from 2005 and on the right, nine years later, that has become a 128 gigabyte card.

So a 1000 times improvement in 9 years.

But the increase in storage size is getting even faster. Here is the 2015 version, just one year later.

 

200 Gigabyte. 56% bigger than a year ago. Can you imagine where we’ll be in eight more years?

Computer processing power has followed Moore’s law for 50 years now. Transistors doubling every two years.

And note of course that the vertical axis is logarithmic.

We’re currently at the level of a mouse brain.

The Economist wrote last week that maybe Moore’s law is ending – but not because it is running out of runway. No, the issue is power efficiency. It might prove more effective to parallel process farms of chips than speed each one up.

Either way, we will continue to have more and more pure computing grunt available in the years ahead.

And this is the Solar market.

Prices collapsing – demand soaring

That graph is Economics 101 isn’t it?

You may have seen, and if you haven’t I heartedly recommend it, Elon Musk launching the Tesla Power Pack last week. A hang it on your wall way for anyone to locally store solar power.

How far off are we from commercial properties being run on solar power.

Look at that graph.

Similar applies in the world of Cloud computing.

 

If ever there was an exponential business, this is it.

This graph shows the growth of Amazon’s cloud business.

In July last year Amazon did a $600 million dollar deal to be the cloud infrastructure for……….. the CIA.

So, when I am told, as I was two weeks ago by a senior lawyer, that ‘we don’t use the cloud because it’s not secure’ i think ‘Why do they think that?’ and ‘How long is the firm going to be in business?’

Many of the fastest growing companies in the world live on the Amazon cloud – Pinterest, AirBnB, NetFlix, Dropbox.

To a large extent the Cloud is where your business software has either gone, or is heading.

And that is a good thing.

Just imagine, no more server rooms, and anything you need available anywhere you are, anytime.

And then, Broadband

Look at this image of an internet speedtest result.

 

Nearly 1000 mb downloads and 350 mb uploads

Where do you think this happened? No, not TechCity – which famously has pretty rotten broadband, but on a farm in rural Yorkshire. It was installed by the wonderful people at Broadband for the Rural North. Fed up with waiting for BT to install any decent connectivity this is a group of people who clubbed together and did it all by themselves.

Meanwhile, as Ofcom reported the other week, in Cowley Road, Brixton residents luxuriate in the slowest broadband speeds in London, just 1.41 meg.

Broadband is the infrastructure of the 21st economy. We have a government that PR spins about ‘superfast’ broadband rather than get on and ensure we all have what is needed, but I am going to, as an optimist, work on the basis that this does get sorted out.

It is vital to the success of the whole economy.

So let’s hope for ‘fast and getting faster.

Same with the Internet of Things. CISCO (who are admittedly biased) suggest that 50 billion objects will be connected to the Internet by 2020 – but that is only 3% of ALL the things that could be connected. So maybe they are underestimating growth?

 

The key point though is that real time data will be available from most things where there is a value to that data being available in real time.

And then throw in processing this data through predictive analytics and machine learning and we will have a much more controllable built environment. And by being more controllable we can optimise it. To make life better for more and more people.

Today real estate is pretty dumb; in eight years it’ll be pretty smart.

And this exponential growth applies to 3D printing, Drones, 3D Lidar sensors (the type that are used in self driving cars) and industrial robots.

Everywhere you look speed is increasing, functionality is mushrooming and prices are crashing.

Have you seen these telepresence robots from a company called Double robotics?

You pop in a tablet and then, controllable from your laptop or phone, you can whizz them around a remote office, or factory. Or wherever.

Is it as good as being there? No. But it’s not far off.

Tech is not like the wider economy. It develops exponentially, not linearly.

Put it all together and what do you get?

A world where we should be looking to be 10x as productive, not just 10% better.

A world where routine work will be automated. You won’t be gamifying dull work, as dull work can be codified. And if it can be codified it can be automated.

Reporting will be realtime – every data source will have API’s, so mixing and matching information will be easy.

No more monthly report creation. There is much talk today along the lines of ‘I can’t do that on a tablet, I need a proper computer’ Well that will mostly disappear as processes are redesigned, digitised and repurposed for this new world. Those things you can’t do on a tablet will, in most cases, become things you no longer need to do.

Data will be contextual. I.e what you are presented with will reference where you are and what the time is. This will remove a ton of friction in so many applications. No more drilling down.

And ‘Everything’ will be available as a service. All your applications will be cloud based and you’ll have access to just about anything you need via a multitude of software, data and infrastructure as a platform companies.

And none of this requires an office. Mostly this is work being done by software.

And new types of company will emerge, with new business models, that allow them to remain ‘lightweight’, despite scaling up to the global level.

For example

  • Uber owns no cars
  • AirBnb no rooms
  • Facebook creates no content
  • Alibaba has no inventory
  • WeWork owns no property (despite being valued at $5 billion)

And likewise, these new companies don’t employ that many people.

  • AirBnB has 2,500 employees whereas Hilton 135,000.
  • Facebook has 10,000 employees to handle 1.4 billion users.
  • Uber has just 2,000 employees to support a $40 billion valuation.
  • WhatsApp was bought for $19 billion when it had a paltry 55 employees.

So yes, I am aware that these companies are taking a lot of space, all around the world, at the moment. But compared to their capitalisations, really not so much. And anyway, to an extent they are outliers, the unicorns that are so rare as to be almost mythic. Most tech companies really don’t need much space.

Because whilst we tend to think of big companies when we think of the office market, most aren’t big.

In fact most companies, whether tech or not, are small:

The City of London produced a report, which they launched at MIPIM in March showing that, in the City of London

  • 98.6% of companies are SME’s with fewer than 250 staff.
  • 80% have less than 10 employees.
  • Only 205 firms in the City have more than 250 employees.
  • 72% of occupied units are less than 10,000 sq ft.

These types of firms are almost guaranteed to be using less space per person in the future, regardless of how technologically savvy they are.

This is the age of ‘spaceless growth’.

And that is before you factor in the rise of ‘contingent workers’, those who are self employed, or consultants, or contractors.

I do not have the UK figures but the recent Intuit 2020 Report stated that In the U.S 40% of workers will be ‘contingent’ by 2020.

So, in this world, what is the point of the office?

Extrapolate all this technological change through to 2023 – what then?

Let’s reprise Seth Godin’s points about the point of the office:

  • That’s where the machines are. NOPE – the machines we need are with us all the time
  • That’s where the items I need to work on are. NOPE – they are in the Cloud
  • The boss needs to keep tabs on my productivity. NOPE – you’ll either have no boss or that type of boss will be history
  • There are important meetings to go to. YES – but I seldom need an office to connect with someone
  • It’s a source of energy. YES – but in this new super connected world there is plenty of energy elsewhere
  • The people I collaborate with all day are there. NOPE – The people you collaborate with are all over the place.
  • I need someplace to go. Well perhaps you do.

But clearly you do not need the office for what it is used for now. Or rather, by 2023 you almost certainly won’t. The purpose of the office is set to change, Quite dramatically.

But there is also a dirty little secret that your company does not tell you……

And that is that, as Bill joy who founded Sun Microsystems said:

“No matter who you are, most of the smartest people work for someone else.”

Marc Andreesen, the renowned Silicon Valley VC was recently quoted as saying that we should remember that “95% of the best coders don’t live in Silicon Valley”

It really is time we embraced the Global Village

It is pure luck that most people live and work where they do – it is time to harness the skills of everyone. Not just the geographically lucky. Great companies like Automatic (the makers of WordPress that powers some 40+% of all websites) are, and have always been, totally operated on a remote worker basis.

Maybe that’s how they get some many great people to work for them.

And there is more of this type of behaviour than one thinks already. According to workplace insights “1 in 5 workers across the EU now spend at least ten hours a week working remotely. And more than 50% of Generation Y employees believe they would be more productive if allowed to work more flexibly”.

And it is already clear where this is heading. The Leesman Review said last month

““So the big and bitter pill for many to swallow, is that the desk is no longer the epicenter of productivity. Instead, the highest workplace effectiveness results are achieved through infrastructures and systems that facilitate collaboration, sharing knowledge and exchanging ideas, done in a variety of different settings, most all of them away from a designated desk.”

So YES – The office, as we know it, and how it works in so many companies, is dead.

Welcome to The Imaginarium

A place where we go to do what computers can’t.

 

Unlike today’s typical office, which is jam full of people in environments suited for doing work that will be redundant in the near future, this is a place where we will go to do the opposite:

  • Design
  • Where we use our Imagination
  • Somewhere that inspires us
  • A place for Creation
  • A place where empathy abounds
  • Where Ingenuity and Innovation is what matters
  • A space for Collaboration

And somewhere to go – whether virtually through social media or actually, in person – for all of the above.

The Imaginarium is where we will go to:

  • Create new products
  • Define the work we want the computers and robots to do
  • Make existing products better
  • Create experiences (the key, rather than money, to happiness)

And we will need this Imaginarium because without creativity we are in trouble: Nesta published a report a couple of weeks ago entitled ‘Creativity vs Robots’. It stated that 47% of US jobs and 35% of those in the UK are at high risk of computerisation. However those jobs that were creative had an 87% chance of not being replaceable.

Being creative gives you the highest chance of avoiding being replaced by a robot.

24% of UK jobs can be deemed creative. We need more.

Now, three factors determine the chances of replacement by new technology.

  • Uniqueness (innovation) – how novel is the work you do? How repeatable?
  • Social intelligence – does you work require social intelligence?
  • And whether or not you have the ability to interact with complex objects in an unstructured environment.

To make the most of these, and to encourage and grow these skills we need new types of spaces.

YES We need Imaginariums not offices and the future of real estate is in providing them. The industry needs to get its head around a changing world, with changing demands, and changing pressures.

Truly the real estate industry is no longer in the real estate business. It is in the imagination business, the world of inspiration and human genius. Its business is in enabling us to excel at what we are good at. To create intensely human environments that are technologically advanced but deeply focussed on us, the people who need to be our best to remain in control of our own destinies.

So in summary:

By 2023 the world will be very different, as today is very different to 2007.

The robots will have taken many of our existing jobs

And

Technology developments will have redefined much of the work we do today 

In 2023 the creative class, in the three senses defined earlier, will rule the roost.

People who can do what computers can’t.

Today our offices are largely fashioned around Industrial Age thinking, obviously with many exceptions. But by 2023 we will all be deep in the digital age and the spaces and places we will require will be very different.

It is critical to not think of the future as a digitised version of today. Or real estate in 2023 being just an iteration of what is prevalent today. It won’t be.

Use your imagination and create something better.

The office is dead – long live the Imaginarium.

Antony

* The caveat of course being that we need to add “as currently used”

This is a variant on a presentation I gave to the Fresh Opinions Property Networking group and to Capita Real Estate during the second week of May 2015.