Real estate developers, investors and technology; staying competitive in a changing world

June 2015

“Only when the tide goes out do you discover who’s been swimming naked” as Warren Buffett memorably put it in 2001. Well, in the property world we’ll need to wait another year or two to find out, as the next downturn can’t be that far off. This is the property market after all, and boom markets always turn to bust. For now though everyone looks brilliant, as particularly the London market just keeps on rising at many times the rate of inflation or growth. Beneath it all though, big change is underway and the fundamentals of what it means to be a developer, especially a large one, are changing with it. From a tech perspective here are four areas (amongst others) that the successful companies need to consider.

First off, the four tech megatrends (Mobile, Cloud, Connectivity and Internet of Things) mean that all companies need to rethink their digital infrastructure. What worked five/ten years ago just doesn’t work well enough today. Back then life was simple; just buy everything Microsoft were selling. But whereas five years ago Microsoft had over 90% of the market for all internet connected devices, today they have about 20%. And that is dropping. ‘Mobile is eating the world’ (as the VC’s at Andreessen Horowitz say) and Microsoft have missed the boat. Years late to the party Windows Phone is barely more relevant than Blackberry in the new world owned by Apple’s iOS and Google’s Android. In tech ‘Every dog has its day’ is an ineluctable truth. You cannot pick a long term winner, because none will ever exist.

However, the beauty of buying Microsoft (for which of course you paid a high price) was that everything connected to everything else. And that is something you still need. What you don’t need though are systems that only talk to each other, that ‘don’t play nicely’, as they say, with everyone else. Which explains why so many of today’s rising tech companies opt for a digital infrastructure where different products and systems from multiple vendors (or increasingly the Open Source community) can all be set up so they can exchange data with any other product or system. Largely through API’s, in the jargon. The key now is being able to mix and match technologies, so that you use the ones that best suit a purpose and not getting hung up on requiring one monolithic structure. So if you want to use Microsoft Excel, and Google Docs, and an iPhone app, with some data in SqlServer and some in MySql then just do it. Just ensure everyone can talk to everyone else.

Secondly, if you are looking to innovate, and who isn’t, then you need to place your innovators on the edge of your company structure. If you think that you will create new products, with new business models, and new value propositions by bundling everyone together in the IT department then please think again. No disrespect to IT departments but in the standard corporate setup they are on the ‘cost’ side of the equation, and not thought of as ‘assets’. As such the vibe, the mood music, the operational imperative is all wrong for engendering innovation. This will change in time, as IT itself starts to be rethought as not a corporate silo but rather a function that is embedded in each and every area of the company. IT departments will cease to exist; rather the availability of technological skills will be embedded within every member of staff and in operations across the board. Amazon already works like this, they do not have an IT department.

As well as being separate from IT, your tech innovators need to have access to anyone within your company but must not form part of the organisational structure. They need to be entwined but standalone. If not then their thinking will fall too much into line with the existing ‘company way’, they won’t be exposed to enough third party influences and influencers, and the natural politics that no company can avoid will act like a break or vice on new ideas.

Thirdly, you do have plans for Smart Working don’t you? Rearranging how you think about desks, and working hours, and putting in the hours, and where your people work, and how they are judged, and focussing on results not presence. Etc, etc. Being end to end digital, and rethinking why you do what you do, and considering whether there isn’t a better way. It is commonplace to dismiss the civil service as bureaucrats, but in the UK at least large areas of government are a long way down the Smart Working road and have transformed how they work, where they work, the costs of how they operate and the property requirements that all this entails. Their journey can tell us in the private sector a lot about how work and the workplace will change. With the London market being so perky not much of this is being thought about too hard, but you can be sure that when the next downturn hits this process will catch fire, not least of all because, done properly, you can cut a lot of property costs whilst increasing productivity and keeping your best staff happy.

And finally, in property we are set to rethink who the customer is. Contrast the old school developer/investor, who considers the customer the person who they send an invoice to four times a year with how WeWork (who sub let space but have a $5 billion valuation) approach their market. To them property is subordinate to engendering community amongst their occupiers (who are treated as individual customers). They have created a new way of working, through very careful branding and an intense focus on user experience. At the personal level. People are queuing up to pay a mighty premium for a space to work.

As co-working, Smart Working and other non traditional ways of occupying space take hold, as they will, the compact between a landlord and those who use their spaces fundamentally changes. We are entering a world where ‘Office as a Service’ will become the norm for many. What percentage is hard to guess, but I’d not be surprised for it to be 30+% within a few years, if not more. People will not be chained to a single desk five days a week; they will use this or that space, in this or that location, on a random basis. And will gravitate to those ‘brands’ that they come to trust as providers of the best service that suits their requirements. It is estimated that 40% of the workforce will be contingent by 2020 (freelancers, contractors or part time); where are these people going to work? All over the place is the answer, and ‘Office as a Service’ is what they will require.

These two trends will grow in tandem. And to a large extent they will become the new customer of the big developer/investors. And in so doing the mindset of the industry will change. The real estate industry will no longer be in the real estate business; it will become, as I’ve written before, part of the imagination business, offering up great space, with user experiences that encapsulate their brands, on demand, and supported by great services.

So these four areas cover a lot of ground but are at the heart, I believe, of what a great and successful development/investment company will become. Different from today, and most definitely challenging, but so full of promise, opportunity and growth for those that really embrace the zeitgeist.

Now, who’s not wearing their swimming costume?