THE BLOG
Innovation in Real Estate: It’s now or never
“Productivity isn’t everything, but, in the long run, it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”
And where does productivity growth come from? Largely it is from Innovation, though of a particular type. According to the National Bureau of Economic Research in the US ‘there are substantial positive impacts of product innovation on revenue productivity, but that the impact of process innovation is more ambiguous’.
This explains why, despite the nationwide UK level of productivity being substantially below trend since 2008, the picture at the micro level is very different. There are many companies whose productivity, and growth, has risen dramatically. If you look at these companies, and they are mainly technologically sophisticated companies (if not necessarily ‘tech’ companies) you will see that they have innovated aggressively in developing new products, rather than refining existing processes.
Again this is not surprising; any student of Clayton Christensen or Charles Handy knows about the innovation ’S’ curve and the difference between sustaining and disrupting innovation. Refining processes is for those in the top right of the ’S’ curve, commodity or monopoly providers of mature products to large audiences. The downside here of course is that that road is a dead end and Handy’s ‘Second Curve’ will eat you up. It is only a matter of time.
And where is the establishment commercial real estate industry? Sadly, up there, top right, innovating away, but only in refining processes, most likely by ‘digitising the past’. In other words, going nowhere, suffering from either valuations at huge discounts to asset value or running out of ideas and falling back on buying back their own shares.
Meanwhile, where is the ‘new’ commercial real estate industry? Creating new products (though really these new products are mainly services) and creating new and considerable value.The poster child is of course WeWork, which has gone from zero to $20 Billion in just seven years, but there are others like investment startup Cadre who’ve raised $113 million to date, or meeting room/hospitality company Convene who’ve raised the same. VC fund Fifth Wall has raised $240 million. Any company raising nine figures is anticipating creating 10 figures of value. Will they all succeed? Probably not. Will they Innovate process? Definitely not. Will they create new Value Propositions, with new Business Models? Absolutely.
Do these companies pose a threat to the incumbent mainstream real estate companies? The conventional wisdom today is no, in fact it is not at all uncommon to hear WeWork be dismissed as ‘a fad’. Wiser voices though are starting to be heard: Cain International Chief Executive Jonathan Goldstein was recently quoted as saying. “Currently landlords like us are doing lease deals with them (WeWork). But I am convinced that within two years they will turn around to people like us and say they want to do management deals, and because they will be such big occupiers they will be able to dictate the terms of the market. Landlords will have to think about whether they are willing to deal on that basis.”
And that is just the start of it. Agency faces a deeply problematic future: besides the rising tide of ‘flexible’ space being taken largely directly from operators, there is increasing use of AI, feasting on astonishing computing power and tsunamis of data, being used to algorithmically match demand with supply.
An RICS report in the summer suggested that 88% of a Surveyors work could be automated within 10 years. McKinsey say that 49% of ALL work performed today could be automated using ‘currently demonstrable technology’ and this technological ‘take-over’ is fundamentally changing the nature of the office space people need. Much that exists today will become obsolete or requiring of major overhaul.
In turn the very nature of who are the real estate industries customers and competitors is changing. The reality is, and this is definitely not accepted wisdom, every single person who enters your space IS the customer, and your competitor is either the existential worry that your product is no longer ‘fit for purpose’ or, as the industry becomes ever more technology driven, the major technology companies. When real estate becomes conceived, designed, built and constructed primarily via software and hardware (robotically) who do you think understands that world best? Well….
All the above could be taken very negatively but in reality, for the company that has ‘Carpe diem’ in their DNA, this is the best time ever to be in the real estate industry. Sheer scale and financial muscle is no longer the be all and end all; brains, attitude, agility and a ‘startup spirit’ have outsized power today.
Innovation is the key to productivity growth, and within real estate will be the single biggest differentiator between those companies falling down, and those rising up, the value chain.
How one builds an innovation culture is for another post but for now wouldn’t it be great if I could have used UK, rather than US, examples of large, significantly funded commercial real estate startups?
It’s time to get serious about innovation. It really might be now or never.
Innovation - Enlightenment 2.0?
There really is no progress without innovation. There might be plenty of money making, as incumbent companies exploit the status quo and optimise successes from the past but 'all things must pass', and they do. It is only a matter of time before the certainties of today are replaced by the unknowns of tomorrow, and the future belongs to the innovators.
Annoyingly, innovation is surprisingly hard. The future is often taxed to protect the present. Whilst Heraclitus was right about 'the only constant is change' such a reality is often discombobulating and resisted. How then do you push on and invent the future you want, rather than have it imposed on you? My answer: find someone who can answer these 20 questions.
How do you define innovation? And how is this different from day to day management?
What are the most important ingredients for successful innovation at a company?
Where do you find innovative ideas? Where does innovation come from? How do you allow ideas to spread through your company. Particularly in large companies how does one surface ideas, whether from employees, suppliers or customers?
What is the role of senior leadership and managers? Do managers think of themselves as innovators? If not, why not?
If asked, which current management practice does the most to stifle or kill creativity and innovation within the organisation?
How important is culture? Is innovation the prerogative of small companies or ‘can elephants dance’?
How are employees encouraged or incentivised to be creative and innovative? Given that innovations often fail why would good people go there. As success has many parents but failure is an orphan aren’t there easier ways to make money or progress up the ranks?
How do you embed innovation within your company; how does it sit alongside maximising the efficiency of current operations? Are they not incompatible?
What is the best process and tools to put in place to involve all the important parties and drive innovation across the enterprise from concept to customer?
How do you find and build the people and capabilities/competencies required to be successful in innovation?
What are the characteristics of the best innovation leaders at different levels of the organisation and how do we recognise and reward them?
What does the process of innovation look like in your company?
Is innovation just about products and services or should it encompass business models. Should innovation be sustaining or disruptive. Should the same teams work on both?
Innovators want to innovate but successful businesses often resist change. How do you overcome this tension? How much freedom and power should the innovation team have?
Is innovation a separate entity within a company and if so where does it sit in the organisation chart. Who does innovation report to?
How do you know when to cull a new idea? Defining success can be tricky - sometimes good ideas need nurturing before succeeding. Are there metrics to help you spot the duds against the slow burners?
Constant learning is often the catalyst for innovative ideas; how does one build a culture of learning throughout a company?
What’s the “tomorrow problem” your company needs to begin working on today?
What technologies, business models and trends will drive the biggest innovations in real estate?
It’s 2025 and we’re the best company to work for in the world: What two things did we do to earn this award?
What you need are good answers to these questions. With them, the work can start:)
Antony
Space As A Service
I gave a talk on 'Space as a Service' at the inaugural Nordic Proptech Summit in Stockholm in October 2017. Held at the exceptional new 'Epicenter', a 30,000 square metre building dedicated to working with 'Scale Up' businesses it was part of an exceptionally stimulating and inspiring day.
An interview with Bayfield Training
Interviewer: SEUNG JUN OH
You topped the rank in the UK and was ranked the 9th most important Commercial Real Estate People to follow on twitter on Duke Long’s list. What do you think made you so successful in social media?
ANTONY: Twitter rewards effort. It is no surprise that of the major social media channels it has the smallest number of regular users (330 million against Facebook’s 2 billion) because you have you put in a fair amount of work to build up the list of people you follow and to build your own following.
The reward though is huge; my timeline on Twitter is endlessly fascinating. I follow a large number of extremely interesting, thoughtful and in many cases very successful people. If you engage thoughtfully with people it is extraordinary the connections you can make. I would say I have met more interesting people via Twitter than any other way.
I have always been a news junkie and am a voracious learner. So, Twitter suits me very well; I put a lot of effort in to circulating ideas, thoughts and miscellaneous content and love a good debate. In return, a lot of people seem to enjoy following me, and arguing back!
SEUNG JUN OH: You have read History and History of Art for your Bachelors course at University of Bristol. Can you tell us why you have moved onto the field of real estate?
ANTONY: After University, I worked in Advertising for just six months before joining a high-end Art Dealer, based in Belgravia. This is a most wonderful job but not terribly exerting. As such many dealers, at least in those days, took to property developing as a sideline. We were lucky enough to have an art client who funded our developing and we built a number of residential developments in central London.
Our show apartments were very stylish.
“By far the most interesting topic for me, which I focus on, is how technology is changing the way we all ‘work, rest and play’, and how in turn that impacts on all aspects of the built environment.”
SEUNG JUN OH: It says on www.antonyslumbers.com that you have been writing a monthly column on Technology & Property in the Estates Gazette since 2014. What were the most interesting topics for you that you have written about until now?
ANTONY: By far the most interesting topic for me, which I focus on, is how technology is changing the way we all ‘work, rest and play’, and how in turn that impacts on all aspects of the built environment. Technology leads behaviour; as new tools become available we humans rapidly pick up on the ones we like and behaviours can change rapidly and pervasively. The Smartphone for instance, has had an incredible impact on many aspects of everyday life.
SEUNG JUN OH: In real estate, you have to ask what will change in a world where we no longer need an office to work or a shop to go shopping?
ANTONY: It is really quite an existential question, and that makes it fascinating, challenging and hopefully rewarding if one gets the answer right.
SEUNG JUN OH: You run quite a lot of websites relating to consulting on commercial real estate properties. Can you tell us a little bit about these websites and how they can help?
ANTONY: I wear several hats. First, I run CityOffices.net which since 1999 has tracked all Prime office developments across London and major UK cities. We follow a project from pre-planning through to completion and letting, recording the history and the team involved. This is a subscription service offering a wealth of data on all the major players in the industry.
Glasnost21.com is a Software as a Service suite of productivity tools:
CRM, Project & Image Management, and a business development module, Pipeline. It is a great product for small (up to 50 or so) businesses or teams to use to keep everyone in the loop of ongoing business. Another subscription service, it is widely used by people from different areas of the real estate industry. And then with my own antonyslumbers.com hat on I offer workshops, seminars and talks on ‘Digital Transformation’ and ‘New Business Models for Real Estate’. These are where I get to dive deeply into the technology/real estate interface, and help people navigate and prosper from a rapidly changing environment.
And lastly, with twenty years’ experience designing, coding and running software products and services, I help people develop the digital side of their own businesses.
SEUNG JUN OH: You have presented at our Shopping Centre Investment Course as an expert on retail technology changes and the impact they have on commercial real estate properties. Can you outline the major changes that need to be considered for commercial real estate owners and investors in the future?
ANTONY: As mentioned above technology enables us to work without offices and shop without shops. So, what is the point of real estate? What happens when our customers no longer NEED our product? The answer lies in defining what it is that will make our customers WANT our product, despite not needing it. And that depends on data: about our customers, the ‘Job they need to do’ and our spaces and places. There are many answers, but the game is changing profoundly. What is needed are better retailing skills, better use of human skills, much better use of technology and a deep understanding and embrace of data. There is a huge amount of value destruction coming in real estate in the next 5-10 years, but also a huge amount of value creation. The problem is that the old ways of avoiding the former and making the latter are changing.
SEUNG JUN OH: As an expert in bringing firms up to date with technology, do you have any other key industries besides commercial real estate that you have your eyes on that may encounter major technological changes in the near future?
ANTONY: A recent report from the RICS stated that 88% of the tasks a surveyor currently does are replaceable with technology sometime over the next 10 years. McKinsey said earlier this year that 49% of ALL tasks performed in business are replaceable by currently demonstrable technology.
In a nutshell, every industry is going to be radically changed by technology over the coming years. For good and for bad. Understanding why and how this will happen is important for everyone. As is building up business models and value propositions to capitalise on all the opportunities, whilst avoiding the pitfalls. As the great Peter Drucker said, “The best way to predict the future is to create it.” After all you do not have to outrun the robots; you just need to outrun your peers.
An interview with ORM London
By Amy Creeden: Marketing Manager ORM
Ahead of our ‘Connecting People to Property in the Digital Age’ event we interviewed our keynote speaker, Antony Slumbers, on the emergence of Proptech, the impact it is having on the property sector right now and how property companies can use data to improve the customer experience.
Can you give an overview of the property sector in relation to the digital revolution – why do you think this sector is so late to the digital party?
Ernest Hemingway, in his 1926 novel ‘The Sun Also Rises’, wrote this snippet of dialogue: "How did you go bankrupt?" Bill asked. "Two ways," Mike said: "Gradually and then suddenly". And much the same could be said about digital adoption. Not a lot has happened for years and then, suddenly, as if a light has been turned on, everyone is jumping up and down saying “What do we do? What do we do?”. The property sector is definitely one of the laggards, but to be fair the wider business community has not really adopted digital as much as the property sector thinks it has. Just look at the national productivity figures: the UK underperforms by 16% the other six members of the G7 group of industrial nations.
What the smarter companies have realised for some time, and many more are suddenly waking up to, is that digital technologies are enabling them to be not 10% more productive than their peers, but 10x as productive. Look at the per employee revenue of the best companies and they are an order of magnitude higher than the average.
For example, WeWork, which is just seven years old, raised its last round of funding in the summer at a valuation of $20 billion. Compare that to the average performance of UK listed property companies. There is no comparison. The digital revolution fundamentally changes the rules of engagement and will allow companies to thrive as much as it will destroy companies.
How are the Proptech start-ups challenging the traditional models?
Technology in general, and Proptech as a subset, needs to do one of two things: Remove Friction or Enable Discovery. Remove Friction in the sense of making anything as easy to do as is possible, or desirable and Enable Discovery in the sense of providing people with exactly what they need, be it functional, social or emotional, at the exact moment in time that they need it. Property people like to say that “people buy from people” but that is an old world, analogue way of thinking; in a digital world people buy from people that make it easy to buy from them.
Across the board the good Proptech start-ups are providing the tools that enable companies to remove friction or enable discovery. The property industry, as historically configured, is a hard business to do business with. Everything is slower, harder, more costly than it needs to be.
Who/what will survive, who/what will fail? Are there any obvious Kodaks and Blockbusters in the property world?
We are in an almost post consumer world where we are much less bothered about accumulating more “stuff” and much more interested in being provided with services, experiences and ephemeral pleasures. So you have Spotify for music, Netflix for DVD’s, Uber for cars and Airbnb for hotels. As a society we are moving from a world of Products to Services, and Ownership to Access. So who will win or lose? Those companies that can provide us with great services and that offer us great user experiences will flourish. Those companies that just want to sell us things, in a one off transactional manner, are doomed.
The Kodak’s or Blockbusters of the property sector are those incumbents who provide us with a bad user experience. And there are many of them, both big and small. Ask anyone who has tried to buy or rent a property, the list is large.
A deep commitment to leverage digital technology, allied to an equal investment in developing human skills, will enable the best companies to build a giant gap between their services and the average.
What digital technology will have the greatest impact on this sector? How can companies prepare?
There are five mega trends in terms of technology: mobile, connectivity, the cloud, the internet of things and artificial intelligence and robotics. All are important and they feed off each other. The starting point must be that all your staff have an excellent smartphone and laptop, they should have as fast connectivity as you can provide them with and all the data and systems they need to use should be cloud based so that they can access what they need when and where they need it. That alone, in the property sector, would set you apart, and is not frankly that hard to achieve. Thereafter getting to grips with sensors, data and artificial intelligence will be the next big divide; these are tools of real power that do require effort and application to understand but that will enable the provision of services hitherto unheard of.
Bear in mind though that advanced technologies do lend themselves to ‘winner takes all’ markets so being left behind could prove very costly. Invest in quality advice.
What role will data play in improving the customer experience, understanding customers on a deeper level/working smarter?
Many people in property shy away from data, as being all a bit too geeky for them. But data does not make you inhuman; it allows you to be more productive, much more productive. Why are Facebook and Google so successful? Because they know a phenomenal amount about each of their billions of customers. Mass marketing was a necessity in an analogue world because we knew very little about our customers and had no way to market to them as individuals. In a digital world you can deliver personal service, at scale. In an analogue world we talked AT people, in a digital one we can talk WITH people.
A skilled and well trained individual, without digital technology, can provide the most fantastic service to customers, but only a few of them. With digital technology that one same person could provide fantastic service to a large number of people. It is the basis for being 10x better than before; using technology to allow you to provide the best service to 10x the number of people.
Underpinning such service though is data, and it is vital you understand the four V’s of your data: volume, variety, velocity and veracity. What you have, how much of it, how fast it is amassing and how accurate it is. You build great services on top of great data.
What is your vision for the future of this sector?
I am enormously positive about the future of this sector. The built environment impacts on every single person on earth, all the time. We have the opportunity to make it so much better, for so many more people. Today, much of the industry and many of the places and spaces we work, rest and play in are not that well functioning, or designed, or conducive to pleasure. I see the challenge, and opportunity, as being improving everything about everywhere. We do have the tools to do it.