THE BLOG
Property Managers: From Zero to Hero
January 2017
OK, the zero moniker is unfair, but Property Managers are very much the last to be credited and first to be vilified players in the real estate industry. No-one notices them when properties run smoothly, but come any sort of problem they are the first to be blamed. Whenever a budget needs tightening they are at the front of the queue. They are the poor cousin to the dashing developer/owner.
Their world though is about to turn upside down, and as an industry, if they play their cards wisely, Property Management can move from Zero to Hero. Conversely real estate owners, long secure in the solidity of their assets, are about to see their world do the opposite. The certainties of real estate, reliable and upwards only income streams, are about to become a lot less certain.
All because ‘the Real Estate industry is no longer about Real Estate’. A few years ago this was easy to scoff at, and many did, but today the reality is sinking in. Business for asset owners is set to become as predictable as a Deliveroo riders income.
Why? Because the purpose, the point, the utility of real estate is changing, and changing fast. We really do not need shops anymore, and we most certainly do not NEED offices anymore. Or at least not for the reasons we used to.
Amazon is now the 4th largest retailer of clothing in the United States (remember all those property people saying ‘you need to touch clothes before buying them’?), and the smart physical retailers are speedily turning their stores into ‘experiences’. At the bottom end shops are serving much the same function as before (too cheap to ship) and at the top end the Apples of this world are configuring their spaces as brand building lust factories. The middle though is being hollowed out; desperately hoping click and collect is enticing enough to get people into their stores but not distinct, or profitable, enough, to find their life anything but tough. The crashing footfall of this year’s Boxing Day sales is a precursor of where this market is going. Ceteris paribus*.
In the office market, an amalgam of forces is impacting the demand side. The rise of the ‘gig’ economy, both full on freelancers or the ever increasing hordes of ‘Contract’ workers, working for one or more ’employers’ on a daily, weekly, monthly basis is reducing the need for permanent desks. Companies are moving to one or other end of the ‘barbell’, either huge and mightily powerful (such as Facebook & Google swallowing 85% of online advertising last year!) or small, nimble, and highly skilled. The SME (50-250 staff) market in the middle is dying. It always staggers people to hear that there are only 205 companies that employ more than 250 people in the City of London and 80% of all companies there employ less than 10 people**.
And the reason for all of this is technology. Whilst most people concentrate on ‘new ways of working’ the real action is in the changing nature of the work we do. Simply put, technology is moving further and further up the ladder of competencies and as McKinsey demonstrated last year***, ’45 percent of work activities could be automated using already demonstrated technology’. And this attack force is gaining power faster than ever, with advances last year in machine learning, computer vision and natural language processing that surprised, if not shocked, many in those industries. Google Generative Adversarial Networks for a taste of this.
This though is now well know and much commented on; how can it take Property Management from Zero to Hero? The answer lies in what the real estate industry is now about, if not real estate. And that is ‘Services’, in the broadest sense. Along with much else throughout society we are moving from a world that is focussed on ownership, to one all about access. Increasingly we are moving to an almost post consumer world where we are less bothered about accumulating more ‘stuff’ and much more interested in being provided with services, experiences and ephemeral pleasures. So Uber instead of Cars, Spotify instead of CD’s, Netflix instead of DVD’s: on-demand this, on-demand that. Why bother to own something you seldom use, that becomes out of date rapidly, or that you really cannot afford. Rent it when you need it. Real estate is not immune from this trend. Just as it is now easy to buy almost any Software as a Service, so it will become with real estate. Space, as a Service, is the future of real estate. On demand and where you buy exactly the features, and services, you need, whenever and wherever you are.
There is though even more to it than that. Regardless of whether you do actually occupy your space in an on-demand fashion, you will be using it in a different way. The robots really will remove the need to deal with any task that can be algorithmically defined. Which leaves us humans to do what we do best, and that is anything that requires social intelligence, is unique in character (empathy, design, innovation, imagination, creativity) or that requires us to interact with complex objects in an unstructured environment. This is the world of Moravec’s Paradox: “it is comparatively easy to make computers exhibit adult level performance on intelligence tests or playing checkers, and difficult or impossible to give them the skills of a one-year-old when it comes to perception and mobility.”
Now imagine what types of spaces we are going to need, and what types of services we are going to require to engender all this human creativity and collaboration. It’s going to be much more flexible, fluid, and customisable, with multiple types of spaces being available on-demand, with varying configurations of seating, facilities, desks, screens etc, etc. Atria and other ‘common parts’ or communal spaces will be much more intensely utilised, probably by many more people on a daily basis, but with many of them coming and going as they congregate or disperse as networks come together and interweave with each other. Think of a social network as opposed to a traditional organisational hierarchy.
This ‘Space as a Service’ requires an entirely different Property Management approach. This is much more Human Management than anything else. Yes, the physical asset still has to be maintained and function effectively and efficiently, but the robots will help with a lot of that anyway. What is required now is people with all the skills required to enliven a space, and make the ‘User Experience’ of that space special. For it is the ‘User Experience’ a space delivers that will determine the financial results physical assets deliver. A great ‘User Experience’ will help create a great ‘Brand’ and for an owner, it is their ‘Brand’ that will be their asset. This is not to say that the physical space itself is not important anymore, but it will no longer be the defining variable in value terms. Ultimately, it is the data about a space (UX can be quantified), rather than the space itself, that will matter.
Who can deliver this? Yes, exactly – the Property Management team. That’s how you get from Zero to Hero. Simply put, without great Property Management (whose remit will necessarily expand to fulfill the new requirements) a physical asset will decline in value. And vice versa. And if it is your business that can make that difference? Well, expect to be paid handsomely to make it happen. Asset owners have never had to provide ‘Service’ like this before, and that upends current business models. The real estate value chain is being reconfigured.
The downside? This is and will be hard to pull off. As much from the owner’s perspective as the management team. Moving from rent collector to service provider is, frankly, going to be hard for many owners. The cultural change required is profound. And building the necessary soft and technical (there is a lot of tech in all of this) skills that will be needed to fully exploit this opportunity is not going to be easy either. The prize though is great. The ‘Brands’ that pull it off, and build networks of delighted customers, will find that a world where each of us uses less space, for less hours a week than we do now, is paradoxically much more lucrative than it is today.
Try to imagine the real estate equivalent of Apple, who take the lions share of profits in the smartphone market because their combination of hardware AND software is so compelling they can charge a substantial premium for it. That’s what we are after; real estate hardware AND software.
A challenge for the year ahead.
Antony
PS In case you think the above is nonsense this was reported today: ‘Alibaba is buying Chinese mall operator Intime for $2.6B to modernize offline retail’. https://techcrunch.com/2017/01/10/alibaba-intime-2-6-billion/
The acquisition is all about “a new form of retail in China powered by internet technology and data”.
* Ceteris paribus: All things of course are unlikely to stay the same. The question is whether real estate people change the right things.
#PropTech resolutions for 2017
December 2016
At the beginning of last year I wrote an article, “It’s 2016 and you need a Digital Strategy”: people who already had a Digital Strategy responded favourably, but elsewhere it was largely ignored. More was written and said in 2016 about #PropTech than ever before, but in the industry at large, not much happened. In fact, the year ended with two of the most lavishly funded #PropTech companies merging, a sign perhaps that the market only had the demand to support one of them.
In the real world however (outside analogue Real Estate) technology continued to have a massive impact, to the extent that across Europe and the US the media seems to talk of little else but the end of jobs, the dispossessed and a backlash against globalisation and ‘the robots’.
The genie though is out of the bottle, and barring revolution or war (not entirely impossible with Trump in the White House – or Trump Tower or wherever else he is going to run his companies, sorry I mean the US, from) technology is an unstoppable force. We would all do better to acknowledge the good, the bad and the ugly implications of technological ‘progress’ than stick our fingers in our ears and hope it will all stop. Trump, and his protectionist like, may well mandate that ‘jobs come home’, but if they do, it’ll be the robots that do them.
But all of this is A GOOD THING. Capability Brown got his nickname because he became known for saying to a client ‘this land has great capability’; well we need to realise that humanity PLUS the incredible technology at our disposal should have us singing ‘this world has great capability’. If the world does go to hell in a handcart it will be our, not technologies, fault.
So, with this in mind what should be your #PropTech resolutions for 2017?
1. Stop talking of #PropTech; technology is not a bolt on to ‘Property’. If you are in business, you are in the technology business.
2. Don’t know much about technology? Get someone in to brief you. Keeping up with tech is not your job, but it is your job to exploit what is possible. Find out.
3. After doing No 2 you will know that near as damn it, you should be able to run your business from a phone or tablet (Marc Benioff of Salesforce tries to).
4. With No 3 sorted, feel free to laugh at competitors not fully mobile enabled. They will not be competitors for long.
5. ‘I will format any reports we write for mobile.’ What is it about the Real Estate industry that makes them upload print formatted documents, that are unreadable on a phone? Look around you; what are people looking at? Yes, their phone!
6. Double your hardware budget. Getting your workplace ‘right’ is important but equipping your team with the best possible technology is way more so. A company with great tech could succeed in a terrible office, whereas a great office is useless without great tech.
7. Sort your office out. The Stoddart Review at the end of 2016 showed only 53% of employees believe their office helps them be productive. An unproductive office is like leaving piles of cash on the table after concluding a deal. Low hanging fruit; pick it.
8. Less is more is the perfect Life/Work balance mantra. Eat less but better. Drink less but better. Take less office space but make it better. Work less but better. And use technology to enable all of this.
9. Then do More, with More. Technology gives us all leverage. More (of the right) technology will allow everyone to do more with more. If you can do X in an analogue world, you need to be looking to do X times 10 in a digital one. Countless examples of this exist. It is not fantasy.
10. Buy software that makes you more efficient – BUILD software that gives you a competitive edge.
11. Try and get rid of your IT Department. Technology needs to permeate your business, not be the butt of jokes and hidden away in the worst space in your office. Amazon does not have an IT Department; neither should you.
12. Prepare to hear everyone tell you how their software uses AI and Machine Learning to ‘insert hyperbolic phrase here’! Mostly, they will be clueless as to what that means.
13. BUT AI and Machine Learning ARE the most important technologies out there and WILL change your world. My No 1 resolution would be to learn why and how.
14. Start by hiring Amy, an AI Digital assistant (x.ai), to organise all your meetings.
15. Technology is changing the world to being ‘on-demand’, and our industry is not immune. In fact, ‘The Real Estate Industry is no longer about Real Estate’. Make 2017 the year you think about the Service you provide, rather than the Product you sell.
16. Finally, realise that whilst you probably aren’t that knowledgeable about tech, most #PropTech people know very little about Real Estate. The two sides need to converge. Let’s kill off #PropTech by 2018.
I wish you all a great 2017, and as ever, I am open to argue, debate, support and promote any smart ideas. Follow me @antonyslumbers for more.
Antony
Real estate and the Philosopher’s Stone
October 2016
Isaac Newton, the creator of Calculus, the three Laws of Motion and the Universal Law of Gravitation is perhaps the smartest man to have ever walked the planet.
What is less well known about him is that he was a keen student of Alchemy, the practice of transforming base metal into gold. Or rather attempting to, as it is of course not possible. However, that inconvenient truth was not taken as proof that it was not possible. Instead a rather clever justification for failure was developed, that Alchemy WAS possible but only by someone who did not WANT to do it. If your interests were as base as greed and lust for gold then you did not deserve to learn the secret.
And much the same applies to people looking to monetise data from Smart Buildings, a subject I keep coming across in the world of PropTech. Ah, they say, data about your buildings will be worth more than the building itself. Buy our software and you can perform alchemy. Mountains of gold are there for the taking.
Well sorry to disappoint you but if it foiled Newton, it will definitely foil you.
The rise of Ad Blocking, the software that does what it says on the tin, shows us why. More than 400 million people have so far installed ad blockers, the majority on mobile devices. Why? Because people hate being harassed online, virtually stalked by re-targeting from advertisers that have been painfully slow to grasp just how much their would be customers have come to dislike them.
If all you want to do is monetise data about your customers (people who work in or visit your buildings), or sell ads based on data about them, you will not get very far. In fact you will damage your brand, and whilst not many people in real estate realise the importance of brand, that is a very bad thing to do.
So what is the answer, how does one monetise data from Smart Buildings? The answer lies in the twin trends of the move from Products to Services and Ownership to Access.
Increasingly we are living in an almost post-consumer world where we are less bothered about acquiring more ‘stuff’ and more interested in being provided with services, experiences and ephemeral pleasures. So Uber instead of Cars, Spotify instead of CD’s, Netflix instead of DVD’s: on-demand this, on-demand that. Why bother to own something you seldom use, that becomes out of date rapidly, or that you really cannot afford. Rent what you want, when you want it.
And Real Estate is not immune from this trend.
In fact the Real Estate business is no longer about Real Estate, or soon won’t be. Just as it is now easy to buy almost any Software as a Service, so it will become with real estate. Space, as a Service, is the future of real estate. On demand and where you buy exactly the features, and services, you need, whenever and wherever you are.
And when you become a service provider, rather than a rent collector, what will be your differentiator? It will be your brand, and your brand will grow out of the user experience you can offer your customers. And that user experience will be dependant on data, which is where we start to find the way to perform real estate alchemy.
How come? It is because data is the fuel you need to do the two things that will underpin a great user experience for your customers, and those are the ability to remove friction and enable discovery.
Now friction is anything that makes it harder than it need be to do anything. Friction is what makes life a pain. Often these are small things, but we all know that it is often the small things that are the most annoying. They are the things you have to do when you’ve got other things to do or the information you need to do something else. So one would use data to remove this wherever possible. Armed with real time data about temperature, humidity, air quality, light levels, motion, presence, location etc there are myriad frictions you could make disappear. And every year new sensors arrive on the scene, and in each one is a new business model. You just need to connect the dots; if we knew this, what could we improve?
Whereas removing friction principally deals with everyday pains, enabling discovery is all about gains, the fun or enjoyable things you can offer your customers. Connecting the dots again; if we knew who was visiting us, and when, and we knew all about ‘the space around us’, then how could we make visiting us a more exciting, pleasurable, or just more convenient experience.
This is all a mindset. One where building value depends on building a brand, and that in turn involves thinking about all the ways you can enliven or animate your physical spaces through a better understanding of ‘the digital layer’ that sits on top of it.
Now, going back to Isaac Newton and Alchemy, there was a magical ingredient that alchemists believed existed that would make turning base metal into gold possible, and that ingredient was known as The Philosopher’s Stone.
It would be the ultimate monetisation machine.
Your Philosopher’s Stone IS data, but you need to use it in the right way.
Antony
This first appeared in Estates Gazette on 7th October 2016.
What is Tech? How will it impact real estate?
October 2016
I’m not sure that “Love is all around” but tech certainly is. From the moment you wake up to the moment you go to sleep your life is, believe it or not, shaped by technology.
You tend to only notice the new things, ‘smartphones, robots, Siri, Cortana, self driving cars’, but that is simply because they are shiny and new.
All technology moves through the stages of Genesis, Custom Built, Product, and Commodity (Google Wardley Mapping). Or rather, exciting to boring. DeepMind’s Alpha Go AI machine beating Lee Sedol was exciting (and a decade ahead of what was thought possible) but electricity is boring.
Not much changes year to year but everything changes over a decade. and we are now nearly a decade since the launch of the iPhone, the smartphone that launched an industry that has totally transformed the world. Never before has a technology market been so large. PC sales average 200 million a year, whereas smartphones sell 1.4 billion, and have done for several years. And beyond that, most people update their phone every two years, meaning new functionality is spreading quicker than ever.
Combined with this ubiquity of a ‘supercomputer in every pocket’ we have high speed connectivity, Cloud computing, the Internet of Things, and Artificial Intelligence advancing at breakneck speed towards becoming productised.
All of which has led to us being extremely blasé about incredibly sophisticated services such as CityMapper, Slack, WhatsApp, Spotify, Office 365, Google Docs, Facebook etc. Even though your Oyster Card is actually based on very old technology the layer of services on top of the data it creates is quite extraordinary. And every time you do a Google search or type a predictive text message you are invoking cutting edge machine learning. As William Gibson said ‘The future is already here’.
The subtle point though, is that besides moving from an analogue to a digital world we are moving from a world of products to one of services. Increasingly we value access over ownership, and want to dip in and out of experiences. We want on-demand everything; taxis, pizzas, films, music, information. Why own anything when you can just use it when you want it?
All around us companies are offering us what we want, when we want it. We might pay more for something pro rata, but we don’t care as we are only buying what we need.
And will property remain aloof from all this? Long leases, upwards only rent reviews, fixed space? Not a chance is the answer. And therein lies the biggest change to the real estate market since the first skyscraper was made possible by the invention of the ‘personal elevator’. ‘Tech is all around us’ has consequences.
According to Google’s new ‘Workplace 2020’ survey & report “Flexible working will be the defining characteristic of the future workplace, rising from 4% today to 32% of organisations polled by 2018′”. Amongst larger companies the change is even more dramatic, with organisations employing more than 6000, up from 10% today to 66% in 2018.”
The same report says “48% of respondents are today unable to access all the information they need via mobile devices”. Which means that, today. 52% can. In other words more than half the workforce can work where they like, as they have all the information they need to do their job.
Where then does that leave the office? As a place to do all the things only humans can. Which boil down to three areas. First, anything that is non-routine, that does not involve repeatable steps, secondly, problems that require ‘social intelligence’ to resolve, and thirdly, anything where ‘perception and manipulation are important in complex and unstructured environments’.
Which is why, again from the Google report “The rise of the new generation of connected workers, empowered by collaborative and mobile solutions, will radically alter the shape of the future workforce and workplace.” And by doing this, will have second order consequences for every property type. What is an asset today make become a liability tomorrow.
So ‘What is Tech?’. Well, it is what is going to transform real estate from being a business that provides a product to one that provides a service. It is what will lead to the real estate business no longer being about real estate. It is what will see the High Street turn from being just about retail to being about mixed use live/work/play. Industrial sheds to super high tech, vertical, urban phenomena. Farming to underground. And offices to ‘Imaginariums’ where humans are augmented by machines. Tech will fundamentally change our behaviour and allow us not to do more with less, but more with more.
There has never, ever, been a more exciting time to be in the real estate business. Lap it up.
Antony
PropTech: The Big Picture
July 2016
Steve Jobs once said of Dropbox that it was a feature, not a product. Which, multi billion dollar valuation aside is probably correct. Great software that it is, ultimately it will end up as part of something bigger. Because it addresses just a small part of a wider need.
PropTech, as of today, is much the same, though without the heft of Dropbox. Much, most, perhaps everything that is vaunted right now is just addressing small inefficiencies, and minor quirks of a marketplace that is largely digitising the past. Lease management, virtual viewings, listing services, comps, data services etc are all addressing the needs of the industry as it is now. Not surprisingly, as one needs a customer. What happens though if that customer is going the way of the Dodo? No point in skating to where the puck is, if the ice is melting.
And melting it is, as the real PropTech revolution will be in what we build, how we build it and what we do in it. And that will upend the entire real estate ecosystem, to the detriment of some but the greater good of a whole lot more.
Last year there was much talk of ‘Stranded assets’ within the oil industry; headlines such as “How fossil fuel firms risk destroying investor returns” and talk of “The $2 trillion assets danger zone”. This was all predicated on the idea that the oil industry was sitting on what they considered long term assets, but that were in reality worthless as they would never be extracted and used, because of the continuing fight against climate change. Societal change will turn their assets to dust!
What if this applies equally to real estate, as the way we work, and the work we do renders old ideas of what occupiers want, redundant? What if 40% of the workforce really do operate as freelancers by 2020, as has been predicted? What if 45% of all tasks currently performed in offices are taken over by technology, as McKinsey say is possible today? What if 5G does become widely available in 4-8 years and we all have devices with us at all times that can communicate at 10G a second? What if Magic Leap (Google them) do create their augmented reality technology that allows us to conjure up holographically real entities, on demand, anywhere we want? What if AI continues this years astonishing progress, skips the high priced limited market stage and jumps straight to being an everyday commodity that all of us can take advantage off, easily and practically for free? What if….?
None of the above is really all that contentious. As William Gibson said ‘The future is already here; it is just not evenly distributed’ These technologies are clearly going where I am suggesting, and nothing will change that. So then what?
Well, even the ‘Offices are forever’ evangelists accept that you don’t need to go to an office to do the vast majority of work today. All the hype around ‘Activity based work’ reinforces this; most of the time it is the face to face collaboration that people highlight as the point of the office. And that is, and will remain, true. But the amount of real face to face we need will reduce markedly as connectivity explodes and the tools for realtime, high definition, zero lag, but haptically enabled, communication come on line. Technology creates options, alternatives, and these often take time to be adopted, but suddenly become second nature and accepted. Think of self check out machines at supermarkets; for quite a while these were resisted, and resented, but today many of us whizz through them as it is quicker and easier that waiting to be ‘processed’ the old fashion way.
So, it seems to me, city centre offices (especially in very expensive places like London, will become rarely used but luxurious treats for employees (or tightly embedded ‘Contractors’). These will be places we go to perhaps once or twice a week, that will be of the utmost quality and that facilitate the intensely human collaborative skills that all of us will need to focus on now that the robots are doing anything that can be automated. They will be cauldrons of social intelligence, imagination, innovation, design, empathy and creativity. Interaction hubs. And if they do not enable this type of ‘work’, what will become of them? They will be stranded assets.
Where will we spend the rest of our time? Nearer to home. Who wouldn’t want to commute less IF the right spaces were available closer to home, with all the right technologies to make them as productive as possible. So the market for transforming urban villages and current commuter belt towns has to be a strong one for quite some time to come. Combined with the above, we have of course the continued rise of online shopping, on demand delivery, and ‘sharing economy’ services. As people slowly realise that trying to revive the High Street as retail nirvana’s is a dead end, they will slowly transform into culturally rich, very human centric, mixed use live/work/play places. The Agora, redux.
And how will we build new spaces and places? With robots, of course. Four drivers will ensure this; first off, the technology either already exists or is easy to fathom out. Secondly, the construction industry currently substitutes labour for technology (and thus impedes progress and suffers low productivity) but as labour becomes more costly, and scarce, not least of all because of Brexit, it will have no choice but to push the button on automating itself. If the Government mandated this through regulation the whole process would move faster but the die is cast; construction is so obviously an industry ripe for automation that at some time it simply will have to happen. Thirdly, everything points to a convergence in the use of space; our homes are full of technologies we use ‘at work’ and our work places are becoming more aesthetically akin to homes, as the way we work suits softer settings. And because of this, the places we build absolutely have to be flexible in a way they’ve not needed to be to date. Usage changes, configurations need to be modified, lighting, heating, furnishings need to flex to perform different functions. Home to office, office to home, either to retail will become commonplace and our idea of what constitutes modular will explode. Obviously this will require work on use class legislation but more importantly it will require construction models, processes, and technologies that allow for extreme flexibility. And fourthly it will become ever more important to be extremely sustainable and energy efficient. These trends, which are strengthening by the day, all point towards the necessity, and desirability, of robotic construction.
And finally, on top of this new type of space, and new usage, will be applied the burgeoning AI mentioned above. Kevin Kelly, the co founder of Wired magazine, has a great way to think about AI. Think back to when farmers had nothing but horses and wooden ploughs. Then think how their lives improved when ‘Artificial Power’ became available, in the shape of engines. Suddenly they had dozens of artificial horses they could call upon for help, that didn’t tire, and didn’t need sleep. And that is how it will be with Artificial intelligence; once we stop worrying about what it means for society we will realise each of us will have dozens, hundreds, thousands of artificial brains to assist us. Instead of thinking how many jobs will be lost, we will start to think of all the things we can now do that were previously impossible. With better hardware, more connectivity, and an infinite number of sensors, AI will enable all of us to ‘do more with more’, make better use of our time, and improve the places and spaces in which we choose to spend it.
All of which is something to look forward to, but to return to the original point; does this mean the ice is melting under the real estate industry as it is today? In my humble opinion it clearly does, but the upside is huge. The future is predictable in many ways, and it is incumbent on all of us to see that, seize an extraordinary opportunity, look beyond rearranging the deckchairs and embrace the big picture.
Antony