THE BLOG
The inevitability of #SpaceasaService
Joseph Mallord William Turner Norham Castle, Sunrise c.1845 - Tate Britain, London
If you are in a hole, stop digging.
And get yourself a plan.
The real estate market, offices in particular, are most certainly in a hole.
Across the world, especially in major Western cities, but truth be told pretty much everywhere globally, we are seeing low office occupancy and utilisation. Post Covid, many employees have become used to, and effective at, working from home.
And are generally happy to save on commuting costs.
They do need, and want, an office to socialise with colleagues, collaborate, meet customers, mentor and be mentored, receive training, and as a place conducive to individual focussed work. But, they don’t want or need to do this, mostly, more than 1-3 days a week. Plus they do not perceive the format and services of their current offices as providing what they need to do this effectively.
From corporate occupiers point of view, according to a new report from the ULI & Instant Offices, ‘only 14 percent of occupiers believe their existing workspace portfolios align completely with their business objectives and strategies’.
So we have demand but different and less than pre Covid times.
On the supply side landlords and investors are facing problems: share prices are down, construction cost inflation is high, interest rates are much higher than the average of the last ten years, liquidity is weak and investors are pushing for bargains.
In addition they have limited understanding of what customers really want going forward and a shortage of talent with strong service and empathetic skills.
Finally banks, investors and purchasers are not yet taking employee well-being, satisfaction, or workplace productivity into account.
So we have a mismatch between what customers want out of an office, the skills and costs needed to supply it, and a financial market that is both tight and lacking in understanding of the new realities of demand.
With all this in mind I’ve been thinking about what strategies should be adopted by real estate companies.
Here are some suggestions as to what should be prioritised given that money is tight, and expensive.
Adopt a customer-centric mindset: Understanding customer needs and preferences should be the top priority. Regular engagement, surveys, and feedback collection can be done with minimal costs and help shape future strategies.
Enhance customer experience: Focus on low-cost enhancements that can have a significant impact on customer satisfaction. For example, improving building maintenance, offering responsive customer service, and organising community events.
Establish partnerships with coworking providers, HR firms, training organisations, or local businesses that can help offer additional services to customers without incurring significant costs. Not least of all, help customers make hybrid working work.
Prioritise low-cost retrofits that can have a significant impact on customer satisfaction. This may include repurposing under-utilised spaces into shared amenities or improving lighting and ventilation systems for better energy efficiency and comfort.
Focus on cost-effective technology solutions that can improve building operations and customer experience. This may include adopting more affordable IoT sensors, energy management systems, or software tools to enhance communication with customers.
Implement sustainable practices that don't require significant capital investment. Examples include adopting green cleaning practices, encouraging waste reduction, and promoting energy-saving behaviours among customers.
Diversify portfolios: While this strategy may require more capital, selectively diversifying the portfolio with lower-cost assets, such as smaller office spaces or properties in emerging locations, could help mitigate risks and provide more stable cash flow. As we know, you make your money in real estate when you buy, not when you sell. Bad times are good times to buy.
Attract and retain talent: although it might not seem like a cost-effective strategy, investing in the right talent can yield long-term benefits. Focus on offering competitive salaries, fostering a positive work culture, and providing professional development opportunities to attract and retain the right people. Smart people want to work with companies embracing the future, not protecting the past. Be the future.
Finally, play a long game of educating stakeholders on the changing dynamics of the office market and the importance of employee well-being and productivity. The wider market is still thinking and investing based on principles that were solid pre-Covid but no longer are. There is a storytelling game to be played: innovative, forward thinking and customer centric real estate companies have to persuade the market that they are where future returns will be found. Attitudes need to be reset.
Essentially everything above points towards the inevitability of a #SpaceasaServicefuture. Where customer experience is what matters, and if you don’t understand that you have a problem. Because, as I’ve repeated incessantly, the real estate industry isn’t about real estate anymore. It’s about enabling people to be as happy, healthy and productive as they can be. Everyone needs a workplace, in the sense of somewhere to work. But that can now take many forms, and be in many locations. No-one needs an office anymore. They need to be made to want an office. And this applies regardless of how the space is being procured: 1 day or ten years makes no difference. Unless the space provides the services the customer needs it has no point, no future, and no value.
#SpaceasaService will no longer be a niche, it’ll be the the norm.
Office Valuation: What will Matter?
Woman Holding a Balance, c. 1664 Johannes Vermeer - National Gallery of Art - Washington DC
I had a rant about the current way we value commercial real estate yesterday. So today I thought I’d look at what emerging trends and metrics are likely to shape the industry in the coming years.
How many of these are likely to become part and parcel of future valuations? Could we get industry agreement on metrics covering all of these factors?
Does any of this really matter? Ultimately isn’t an asset simply worth a figure based on the revenue it can generate? Do we need to bring in consideration of all this other stuff? Can we really quantify it? Isn’t it all a bit too qualitative?
Here’s 8 groups of data points to consider:
Flexibility and adaptability: With evolving work styles and demands, commercial spaces will need to be designed to accommodate flexible working arrangements and be adaptable to changing needs over time. Will spaces that can be easily reconfigured or repurposed become increasingly valuable?
Health and well-being: As awareness of the importance of mental and physical health in the workplace grows, will features promoting employee well-being become more important in commercial office design. Will metrics such as air quality, natural lighting, and access to green spaces play a larger role in valuations?
Technological infrastructure: The increasing reliance on technology and remote work means that commercial spaces must be equipped with robust digital infrastructure. Will connectivity, bandwidth capacity, and smart building systems be critical in determining the value of a property?
Sustainability: Will sustainable design and energy efficiency become more important as businesses and investors prioritise environmental responsibility? Will metrics like energy use intensity, water efficiency, and carbon emissions be increasingly relevant in determining the value of a property?
Location and accessibility: Proximity to public transportation, amenities, and urban centers will continue to be important factors driving commercial real estate valuations. However, will the rise of remote and hybrid work shift the focus to locations with strong community-based amenities and high quality of life?
Collaboration and social spaces: As companies recognise the value of in-person collaboration, will shared spaces designed to encourage interaction and teamwork become increasingly important? Should these spaces also be adaptable to serve multiple functions, such as meetings, training, and events? Does that get factored into the valuation?
Security and safety: The future of commercial real estate will require a heightened focus on safety and security, both in terms of physical safety (e.g., secure entrances, surveillance) and digital security (e.g., data protection, cybersecurity). How do we value this?
Tenant experience: Will metrics focusing on tenant satisfaction and experience play a larger role in valuations, as companies increasingly recognise the importance of creating an attractive, engaging workplace environment to retain top talent?
In conclusion, will the future of commercial office real estate valuations likely be driven by a combination of factors that emphasise flexibility, health, sustainability, and technology? I’ve not separated out productivity, because that could be considered a by-product of delivering all the other factors. Put somebody in an environment that focusses on all the above and they’ll be as productive as they are capable of being. The space itself will maximise their abilities, or at least not impede them in any way.
Will we end up anywhere near here?
#SpaceasaService - 20 Branding Questions
The most famous Brand in Renaissance Art: Albrecht Durer 1471 - 1528
What operational capabilities do you need to create and curate a strong #SpaceasaService Brand?
Here’s 20 to get you going. Each is a rabbit hole worth diving down.
You could do it yourself but best to assemble a diverse and multifunctional team to jointly investigate and analyse.
As with all brainstorming you’d probably be well advised to facilitate an individual idea generation process first, collect and group responses, and then use these as the kick off point for an all hands on deck collaboration session
So, in no particular order …..
What are the key components of a successful #SpaceasaService brand, and how can you ensure you are delivering on those components
How can you create a consistent brand experience across different properties and locations when offering #SpaceasaService?
What kind of training and development programs are needed to equip staff with the skills and knowledge required to deliver #SpaceasaService?
What kind of technology infrastructure and systems are necessary to support the delivery of #SpaceasaService?
How can you effectively measure and track the success of your #SpaceasaService offerings?
What kind of feedback mechanisms should be in place to capture tenant satisfaction and make improvements to #SpaceasaService offerings?
How can you use #SpaceasaService to build stronger relationships with tenants and increase retention rates?
What kind of staffing models and resource allocations are necessary to deliver #SpaceasaService effectively and efficiently?
How can you effectively communicate the value of your #SpaceasaServiceofferings to tenants and other stakeholders?
What kind of partnerships and collaborations are necessary to build a strong #SpaceasaService brand in real estate, and how can these partnerships be nurtured and maintained over time?
How can you effectively communicate the unique value proposition of your #SpaceasaService offerings to potential clients?
What kind of marketing strategies and tactics are most effective in promoting #SpaceasaService in real estate?
How can you leverage social media and digital marketing channels to build brand awareness and attract new clients?
What kind of content marketing strategies can be used to position #SpaceasaService offerings as the solution to the changing needs and preferences of modern tenants?
How can you differentiate your #SpaceasaService brand from competitors in a crowded market?
What kind of branding and visual identity elements are needed to build a strong and memorable #SpaceasaService brand?
How can you use customer testimonials and case studies to demonstrate the value of #SpaceasaService to potential clients?
What kind of thought leadership and industry expertise can you showcase to position yourselves as leaders in #SpaceasaService?
How can you use events and experiential marketing to create buzz and excitement around their #SpaceasaService offerings?
What kind of metrics and KPIs should be used to track the success and impact of #SpaceasaService marketing and branding efforts?
These are all very Brand specific. Clearly there are many other real estate and operational questions to answer but Branding is a weakness within real estate.
Mostly because it has not been an important input into the success of an asset.
But today and in the future your Brand will be massively important.
All the answers you get from asking the questions above will feed into the user experience of your spaces and that will be what defines your Brand.
And ultimately, in the future of real estate ….
UX = Brand & Brand = Value
So it matters!
The Genius of Charles Handy
It could have been written today.
In fact many ‘gurus’ are re-writing it today. Passing it off I think is the phrase:)
A summary* of Charles Handy’s 21 year old, The Elephant and the Flea.
‘Charles Handy's book 'The Elephant and the Flea' is a metaphorical exploration of the changing nature of work and organisations in the modern world.
Handy uses the metaphor of the elephant and the flea to represent two types of organisations: the traditional, large, hierarchical organisation (the elephant) and the small, flexible, entrepreneurial organisation (the flea). He argues that the traditional organisation is becoming less relevant in the modern world, as technology and globalisation have led to a shift towards more flexible, decentralised structures.
Handy suggests that individuals must learn to adapt to this changing landscape by developing their own personal brand, taking responsibility for their own careers, and learning to thrive in a more fluid and uncertain environment. He also explores the concept of the "portfolio worker", who balances multiple income streams and works for multiple organisations simultaneously.
Overall, Handy's book encourages readers to embrace change and adapt to the new realities of work in the modern world, rather than clinging to outdated models of organisation and career development.’
Isn’t it brilliant? Trends are trends. Fads are fads. The former has longevity, the latter not.
*Courtesy (surely not Copyright) of ChatGPT.
Delusional Thinking on Planet PropTech
The Desperate an by Gustave Courbet, 1843-1845
Yesterday I listened to a podcast with two PropTech VCs and the CEO of a very large PropTech software company. And I was genuinely shocked.
After two or so years of the Pandemic and a good year or more of ‘normality’, one would expect real estate industry insiders to understand how fundamentally the nature of knowledge work has changed.
Mostly, companies operated as well whilst in lockdown as they did when all in the office.
And post lockdown it has been as clear as the sun in the sky that, mostly, no-one wants to lose much of the agency they gained from working from home.
Yes, people want to get together, but only when it actually adds value, has a purpose, and is clearly planned.
And they are doing so, roughly two-three days a week.
What they want when they get to the office is now supported by oceans of data, as is what tasks and activities are best done in an office, and what better suits ‘elsewhere’.
We are very much in ‘known knowns’ territory. No guessing required. Any company that wants to understand what people want can easily find out at the macro level, and even easier amongst their own employees.
Everything you need to learn about how to operate hybrid workforces effectively, how to maintain culture whilst mainly distributed, foster innovation remotely etc is readily available to anyone who bothers to look.
And the obvious conclusions are as obvious as they were by mid 2020.
Knowledge work is now a distributed game.
Offices are no longer NEEDED.
People need to made to WANT them.
We have the digital tools to work in a manner that befits the 2020s, not the 1980s.
And all of this is like a gateway drug to realising one doesn’t have to work in the stultifying, presenteeism centric, hierarchical, regimented, command and control, intensely inefficient and ineffective way we did pre Covid.
Don’t believe that was the case? Look up the data? Ask around how your colleagues enjoyed old school office life. Look at how reluctant everyone is to go back there.
But returning to our podcasters, none of the above applies, or seemingly has even been considered.
Their reality is (to paraphrase):
Bosses know working from home = slacking.
If you can’t see people working, they probably aren’t.
People are ‘lazy bastards’ (yes, they actually spat this out).
Culture and innovation only happen in offices.
You will never progress in any company unless in the office all the time.
Office centric companies are definitely more productive than any other model.
One day a week away from the office, probably Friday, is enough.
And finally ….. the balance of power will soon be changing and bosses will simply order people back.
Full on macho management was, and will be again, the way to operate.
From which of course followed that the office market might be struggling now, but will recover and return to where it was pre pandemic. Sure, we need to add some more amenities, and do some sprucing up, but you know, business is business and this is how it’s done.
This is delusional thinking.
Discussing this afterwards, someone suggested to me that ‘it’s their bread and butter, their business, so they HAVE to take this line’.
I get that, and understand one has to ‘talk one’s book’, but in this case delusional thinking will help no-one. What will be will be.
And just last week Cushman & Wakefield published their ‘Obsolescence equals Opportunity' report in which they stated just how much US office stock is no longer fit for purpose.
Only 15% of existing stock is ‘Top Class’, leaving 85% at different stages of the slope to obsolescence. 25% already is.
Which is a problem as ‘Top Class’ is what makes people WANT to go to an office. If the space is not ‘Top Class’ it’s likely there are better, cheaper, more convenient options.
So to be peddling the line that the podcasters were is not only delusional but missing out entirely on the plethora of new opportunities this changed market dynamic is opening up.
So much space needs to be repurposed, repositioned, demolished or otherwise transformed.
It is going to happen. You may as well start preparing.
Once you start seeing large investors giving back the keys to very large assets you know where this is going.
When you see traditional offices operating at 20-50% occupancy and even lower utilisation you know where this is going.
And when you see the strong demand for good to great assets, with good to great #SpaceasaService operators you know where this is going.
Sadly many real estate people, even those on the PropTech side, cannot or won’t see the writing on the wall.
And I, for one, know exactly where this is going!