JLL recently stated that they believe ‘up to 30 per cent of corporate real estate portfolios will include flexible space by 2030.’ I applaud them for saying something much of the industry does not want to hear, but I believe their prognosis is not nearly aggressive enough. For me, the numbers are likely to be closer to 30% by 2022 and 40+% by 2030.
Why? Because the commercial real estate industry is undergoing a structural change that will affect every facet of the market and reshape the entire ecosystem that has existed for 50 years or more. This change is not just a function of the natural, cyclical real estate cycle but a set of structural, fabric changes that are the by-product of a world where technology is leading to fundamental changes in how businesses operate, the work people do, and especially how and where they do it.
There are 5 technological ‘megatrends’ that are ‘the great enablers’ of all the change heading our way. And each of these are on an exponential growth trajectory. Indeed they are all hitting the uptick of the exponential curve. They are the ubiquity of 1990’s SuperComputers (aka SmartPhones) in everyone’s pocket, pervasive high speed connectivity, cheap and abundant Cloud Computing, billions of IoT sensors connecting anything that can usefully be connected to the Internet, and the rise of AI and robotics.
Combined these are reshaping demand. The very nature of the work we do is being reshaped to the point that we no longer NEED an office to ‘work’, or indeed a shop to shop. We may desire them, but we do not need them.
Which means the nature of employment is changing, and on-demand or in some other form, contingent work is becoming the norm for many people (perhaps up to 40% by 2020 say Intuit). In their Workplace 2020 report last year Google wrote ‘Flexible working will be the defining characteristic of the future workplace.’ and the bigger the company the more so. Companies employing over 6000 people will be 66% flexible by 2018’.
In this world, purchasing flexible space, Space As A Service, becomes an obvious response for individuals and companies. And just as it is technology that changes behaviour, not the other way round, so it will be that this demand leads to a change in the nature of supply. Put simply, the real estate industry is going to be forcibly moved from being a rent collector, to a service provider.
And that changes everything. The changing nature of what an office is for (the robots will do anything rote or predictable, so we need places that catalyse human skills), and the fact that they will often be operated ‘on-demand’ will lead to a lot of space being no longer fit for purpose.
The necessity for our buildings to become much ‘Smarter’ will transform what it means to be a property manager. Short leases, or rather the death of the lease, changes notions of valuation, financing and asset management.
The really big change though, the fundamental, maybe even existential challenge for the real estate industry is that the business of real estate will no longer be real estate. Rather it will be all about Service, Data and Brand.
In a #SpaceAsAService world your customer will be everyone who enters into and/or works in your building. The value you are able to build around your physical asset will be a reflection of the user experience, the UX, that you can provide each and every one of them. Because in an on-demand world they can simply go somewhere else.
How do you build a great UX? By using data in a way the industry has not even touched upon to date. You need to know who your customer is, their needs and desires, how they wish to work, what services they require, and what it is about your space that they engage with. Then you need to understand how your space is being used at a much more granular level than most do today; not only to allow you to move from preventative to predictive (on-demand) maintenance but to analyse, and A/B test new layouts and configurations.
Put all that together, the services and the data, and that will be your Brand. And in this world Brand really is everything. It is your Brand that will attract users, enable you to maximise revenue, and build a waiting list for your space. There will be a large yield gap between the best Branded spaces, and the rest.
So the consequences of #SpaceAsAService go far beyond a bit more co-working. Physical assets are going to need to become smart by default, property managers are going to need to re-focus from operations to user experience, Landlords are going to need to become experts in AI and data analytics. on top of morphing from Product to Service companies.
If demand does indeed make all the above come to pass, it strikes me that we’re looking at a very different industry, providing a better 'service' to a happier customer and probably (some at least) making more money into the bargain. Do you think we are up to the job?