Real Estate as a Service: Are flexible short term leases the new future? 16 Provocations!


Last week I took part in a round table panel discussing whether short term leases were the new future for real estate. My role was to provoke debate. So below you will find my quick overview of the market and then 16 ‘Provocations’.

One panel member disagreed with ‘at least 10’ of these. IMHO because they were on the wrong side of the trend….

What do you think?


There appears to be a ‘perfect storm’ building for the traditional real estate industry. 

A world of solid assets, underpinned by long term leases from tenants with strong covenants and long histories, was the norm. Sure there were property cycles, but so long as you did not get your timing terribly wrong, your assets would increase in value, the leaseholder was on the line to fully repair and insure your buildings and in practice you did not even have to engage much with your customers. Once that lease was signed, they were stuck with you. Largely, one could sleep soundly, in the knowledge that tomorrow was going to be much like today.

That world is blowing up, and blowing up fast.

The average age of an S&P 500 company is under 20 years, down from 60 years in the 1950s, 

Today, 40% of the top 20 global companies are tech companies. 100% of the top five.

Ten years ago three of the top five were oil companies with just one tech company, Microsoft

And they do not employ many people - Google, Apple, Facebook only employ 225,000 people. Amazon employs 500,000 but most of those are low paid warehouse jobs.

Between them they are worth nearly $3 Trillion dollars

In January last year McKinsey stated that “Overall, we estimate that 49 percent of the activities that people are paid to do in the global economy have the potential to be automated by adapting currently demonstrated technology.”

In a similar vein last year the RICS published a report saying that “Surveying appears to be an industry in which 88% of the core tasks are ripe for automation to a greater or lesser degree.”

Various reports have estimated the % of jobs set to be lost to automation over the next two decades, ranging from 14-47%. Whatever way you cut it a lot of work is going to be automated away.

But that is not really the important bit. Regardless of how many jobs, in their entirely, are lost, the nature of the work we do is set to change fundamentally. Anything ‘structured, repeatable or predictable’ is going to be automated. AI is advancing at such a rapid clip that this is likely to be sooner rather than later.

Seth Godin wrote a blog post entitled ‘Goodbye to the Office’ in 2010 in which he suggested that ‘work was leaving the building’ in that everything we used to need an office to provide us with, in order to be able to do our work, was becoming redundant. We have laptops, the internet, the cloud, connectivity everywhere, supercomputers in our pockets. The only thing left he wrote was ‘I need someplace to go.’

And that is why the genie is out of the bottle:

  • We do not need as much space as we used to
  • We do not need an office to actually do our work
  • The work we do is changing entirely anyway
  • The type of space that we need therefore is entirely different
  • A bland shell is no longer acceptable 

Add on top of this that the majority of occupied units are small (in the City of London 70% are less than 10,000 sq ft and 50% are less than 5,000 sq ft) and you start to see that the Product/Market fit of many of these spaces is breaking down.

In a world where the ‘structured, repeatable and predictable’ work is being done by machines then the work we all need to do, when together, is going to be intensely human, probably involving design, imagination, empathy, social intelligence and the like, and in that case the types of spaces we need are much more varied, softer, more engaging, more collaborative, and more specifically tailored to the exact type of task we need to do. i.e much more the Activity Based Working type of arrangements that we are all becoming familiar with.

The problem therefore, for perhaps at least half the occupiers of office space, is that they:

 A) do not have the skills, the time or frankly the inclination to get to grips with this much more complicated type of workplace and 

B) …even if they did, with half the occupied units less than 5,000 sq ft, they don’t have the space to economically create such a place.

So, the status quo is to remain where they are, taking on a lot of space they either do not need, or that does not help them to be productive. They have expensive employees, needing to do tasks that involve high order human skills and they’ve got them tied to fixed desks, with fixed phones and probably even fixed computers. Is it any wonder that in the Leesman Index surveys only 50% of respondents say their workplace helps them to be productive. Or that, for on average 50% of the time desks are unoccupied.

I call it the 50/50 double fail.

And into this double fail we have seen the rise of the co-working spaces, with the $20 billion monster that is WeWork leading the pack (and today representing London’s largest tenant). But it is of course much more than WeWork, with operators as varied as Fora, Huckletree and The Office Group appealing to different audiences. 

Flexible space may only account for 4% of the total space in central London but it is growing fast, and with roughly 18% of total take up last year being flexible, it does seem like this is an idea whose time has really come.

Perhaps the biggest driver of adoption today is pure familiarity; as more and more people experience office space that is not as dull, dreary and downright enervating as so many of us have endured for decades they realise that ‘it does not have to be this way’. And that feeds back into demand. Want the best staff? Give them the best space.

Critically it is not money that is driving this change, or at least not in a conventional sense. You pay more, sometimes much more, per sq ft for flexible space but the flip side is you are actually buying true #SpaceAsAService - space that provides you with the service you need, as and when you need it. That trade off seems to work for very many people. 

After all: ‘Companies do not want an office, they want a productive workforce.

So, the provocations are:

  1. Flexible, short term space, for much of the market, is the future. The standard, traditional office ‘Product’ is no longer fit for purpose. It no longer has ‘Product/Market’ fit.
  2. The Real Estate business is no longer about Real Estate: the industry has to movefrom selling a Product to delivering a Service
  3. No REIT has a ‘Brand’ designed for this future. they are all Brands aimed at investors, not customers. 
  4. The Real Estate Customer is now every single person who enters into a property - Real Estate is moving from being B2B to B2C.
  5. As with B2C markets, Landlords/Investors will need to be thinking ‘lifetime value of customer’ - how to build a Brand that can support a customer from 25 - 65.
  6. Traditional Real Estate companies know almost nothing about their customers - in the future the best will know a very great deal, and use it to shape personalised #SpaceAsAService for each and every one.
  7. Landlords HAVE to choose a role: A) Outsource ‘Service’ to an operator like WeWork, and leave a lot of money on the table. B) Turn themselves from Product to Service companies: with all the cultural, operational, structural and financial change that entails or C) Partner closely with an ecosystem of providers who can help them build a strong Brand and value proposition
  8. In the future UX = Brand & Brand = Value
  9. Whoever is the curator of the user experience reaps the highest reward
  10. Landlords need to offer more than a ‘Workspace’, they need to offer high quality ‘Workplace’ solutions - ‘sell me a productive workforce, not an office’
  11. Buildings need operators who understand engineering, technology and data and are equally skilled in hospitality and the curation of customer experience. These skills are at the top of the value tree. 
  12. The best, most profitable Landlords of the future will embrace all these skills.
  13. Valuations will be based on rolling income histories - the Operator makes or breaks an asset. 
  14. Bond like valuations based on long leases and covenants will exist, but will bevery low yielding investments as the demand for ‘old school boring income’ will be intense.
  15. The Real Estate market will become barbell shaped. You will either be a winner or a loser, not much will exist in the middle. Traditional landlords, only skilled in physical real estate will not be winners.
  16. Real Estate companies need to become technology companies and treat their buildings like iPhones; marriages of hardware and software, and services.

So, there you go. 16 Provocations. I do hope they 'provoke'!